Oil and Natural Gas Properties Acquisitions | OIL AND NATURAL GAS PROPERTIES ACQUISITIONS Acquisitions of proved oil and natural gas properties and working interests are considered business combinations and are recorded at their estimated fair value as of the acquisition date. Acquisitions of unproved oil and natural gas properties are considered asset acquisitions and are recorded at cost. 2018 Acquisitions During the nine months ended September 30, 2018 , the Partnership closed on multiple acquisitions of mineral and royalty interests for total consideration of $132.1 million . Acquisitions that included proved oil and natural gas properties were considered business combinations and were primarily located in the Permian Basin. The cash portion of the consideration paid for these acquisitions was funded with borrowings under the Partnership's Credit Facility and funds from operating activities. Acquisition related costs of $0.1 million were expensed and included in the General and administrative expense line item of the consolidated statement of operations for the nine months ended September 30, 2018 . The following table summarizes these acquisitions which were considered business combinations: Assets Acquired Consideration Paid Proved Unproved Net Working Capital Total Fair Value Cash Fair Value of Common Units Issued (in thousands) March $ 984 $ 21,452 $ 133 $ 22,569 $ 22,569 $ — June 883 13,688 8 14,579 14,579 — July 4,349 7,944 215 12,508 3,764 8,744 August 5,000 34,673 74 39,747 26,461 13,286 September 1,176 — — 1,176 1,176 — Total fair value $ 12,392 $ 77,757 $ 430 $ 90,579 $ 68,549 $ 22,030 In addition, during the nine months ended September 30, 2018 , the Partnership acquired mineral and royalty interests in unproved oil and natural gas properties from various sellers for an aggregate of $41.5 million . These acquisitions were considered asset acquisitions and were primarily located in East Texas and the Permian Basin. The cash portion of the consideration paid for these acquisitions of $41.0 million was funded with borrowings under the Partnership's Credit Facility and funds from operating activities, and $0.5 million was funded through the issuance of common units of the Partnership based on the fair values of the common units issued on the acquisition dates. Noble Acquisition On November 28, 2017 (the "Close Date"), BSMC closed on the acquisition of (i) certain mineral interests and other non-cost bearing royalty interests from Noble Energy Inc., Noble Energy Wyco, LLC, and Rosetta Resources Operating LP and (ii) one hundred percent (100%) of the issued and outstanding securities of Samedan Royalty, LLC ("Samedan") from Noble Energy US Holdings, LLC, collectively, the "Noble Acquisition." The mineral interests and other non-cost bearing royalty interests acquired in the Noble Acquisition, including interests owned by Samedan (the "Noble Assets") include approximately 1.1 million gross ( 140,000 net) mineral acres, 380,000 gross acres of non-participating royalty interests, and 600,000 gross acres of overriding royalty interests collectively spread over 20 states with significant concentrations in Texas, Oklahoma, and North Dakota. The Partnership funded the $335.0 million purchase price (before customary post-closing adjustments) using (i) approximately $300.0 million in proceeds from its issuance of 14,711,219 Series B cumulative convertible preferred units to Mineral Royalties One, L.L.C., an affiliate of The Carlyle Group (the "Purchaser"), in a private placement which also closed on November 28, 2017, and (ii) approximately $35.0 million from borrowings under its Credit Facility. See additional discussion of the Series B cumulative convertible preferred units in Note 10 – Preferred Units. The transaction was accounted for as a business combination using the acquisition method of accounting which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The final determination of fair value remains preliminary and will be completed after post-closing purchase price adjustments are finalized, but in no case later than one year from the acquisition date. Since December 31, 2017, the Partnership has recorded an adjustment to the purchase price to reduce the amount allocated to unproved properties by $3.2 million , which reduces the Acquisitions of oil and natural gas properties line item of the consolidated statement of cash flows for the nine months ended September 30, 2018 . The following table summarizes the adjusted allocation of the fair value of the assets acquired and the acquisition-related costs as of September 30, 2018 : Assets Acquired Cash Consideration Paid 1 Acquisition-Related Costs 2 Proved Unproved Net Working Capital Total Fair Value (in thousands) Noble Assets $ 68,877 $ 256,542 $ 5,917 $ 331,336 $ 331,336 $ 247 1 Represents cash consideration paid on the Close Date, as adjusted for the $3.2 million purchase price adjustment recorded during the nine months ended September 30, 2018 . 2 Acquisition-related costs were expensed and included in the General and administrative expense line item of the consolidated statement of operations for the year ended December 31, 2017. The fair value of the Noble Assets was measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of oil and natural gas properties include estimates of: (i) oil and natural gas reserves; (ii) future commodity prices; (iii) estimated future cash flows; and (iv) market-based weighted average cost of capital. These inputs require significant judgments and estimates by the Partnership's management at the time of the valuation and are the most sensitive and subject to change. Actual and Pro Forma Impact of Noble Acquisition (Unaudited) Revenue attributable to the Noble Acquisition included in the Partnership's consolidated statements of operations for the three and nine months ended September 30, 2018 was $15.7 million and $41.3 million , respectively. The following table presents unaudited pro forma information for the Partnership as if the Noble Acquisition occurred on January 1, 2017. Three Months Ended Nine Months Ended (in thousands, except per unit amounts) Revenue and other income $ 98,962 $ 363,051 Net income 27,449 154,175 Net income attributable to noncontrolling interests 20 27 Distributions on Series A redeemable preferred units (666 ) (2,452 ) Distributions on Series B cumulative convertible preferred units (5,250 ) (15,750 ) Net income attributable to the general partner and common and subordinated units $ 21,553 $ 136,000 Allocation of net income: General partner interest $ — $ — Common units 16,168 84,321 Subordinated units 5,385 51,679 $ 21,553 $ 136,000 Net income attributable to limited partners per common and subordinated unit: Per common unit (basic) $ 0.16 $ 0.86 Per subordinated unit (basic) $ 0.06 $ 0.54 Per common unit (diluted) $ 0.16 $ 0.86 Per subordinated unit (diluted) $ 0.06 $ 0.54 The historical financial information was adjusted to give effect to the pro forma events that were directly attributable to the Noble Acquisition and are factually supportable. The unaudited pro forma consolidated results are not necessarily indicative of what the Partnership's consolidated results of operations would have been had the acquisition been completed on January 1, 2017. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations for the combined company. The unaudited pro forma consolidated results reflect the following pro forma adjustments for the periods presented: • Adjustments to recognize incremental revenue, production costs and ad valorem taxes, and depreciation, depletion, and amortization expense attributable to the Noble Assets. • Adjustment to recognize additional interest expense associated with the incremental borrowings under the Partnership's Credit Facility. • Adjustment to recognize the quarterly distribution associated with the issuance of 14,711,219 Series B cumulative convertible preferred units. • The Series B cumulative convertible preferred units were not included in the calculation of pro forma diluted earnings per common unit for the three months ended September 30, 2017 as they were anti-dilutive under the if-converted method. • The Series B cumulative convertible preferred units were included in the calculation of pro forma diluted earnings per common unit for the nine months ended September 30, 2017 due to their dilutive effect under the if-converted method. • The Series B cumulative convertible preferred units do not have any impact to earnings per subordinated unit. 2017 Acquisitions In addition to the Noble Acquisition, the Partnership closed on multiple acquisitions of mineral and royalty interests during the year ended December 31, 2017 for total consideration of $ 163.0 million . Acquisitions that included proved oil and natural gas properties were considered business combinations and were primarily located in the Delaware Basin and East Texas. The cash portion of the consideration paid for these acquisitions was funded with borrowings under the Partnership's Credit Facility and funds from operating activities. The following table summarizes these acquisitions which were considered business combinations: Assets Acquired Consideration Paid Proved Unproved Net Working Capital Total Fair Value Cash Fair Value of Common Units Issued Acquisition-Related Costs 1 (in thousands) January $ 5,135 $ 34,008 $ 263 $ 39,406 $ 27,380 $ 12,026 $ 1,162 June 5,006 45,477 — 50,483 4,802 45,681 1,481 August 3,277 9,984 — 13,261 4,289 8,972 107 September 3,120 — — 3,120 3,120 — — Total fair value $ 16,538 $ 89,469 $ 263 $ 106,270 $ 39,591 $ 66,679 $ 2,750 1 Acquisition-related costs were expensed and included in the General and administrative expense line item of the consolidated statement of operations for the year ended December 31, 2017 . Additionally, during the year ended December 31, 2017 , the Partnership acquired mineral and royalty interests in unproved oil and natural gas properties from various sellers for $56.7 million . These acquisitions were considered asset acquisitions and were primarily located in East Texas. The cash portion of the consideration paid for these acquisitions of $51.7 million was funded with borrowings under the Partnership's Credit Facility and funds from operating activities, and $5.0 million was funded through the issuance of common units of the Partnership based on the fair values of the common units issued on the acquisition dates. Farmout Agreements Canaan Farmout On February 21, 2017, the Partnership announced that it had entered into a farmout agreement with Canaan Resource Partners ("Canaan") which covers certain Haynesville/Bossier acreage in San Augustine County, Texas operated by XTO Energy Inc. The Partnership has an approximate 50% working interest in the acreage and is the largest mineral owner. At its option, during the first three phases of the agreement, Canaan can commit on a phase-by-phase basis to fund a portion of the Partnership's drilling and completion costs to earn a percentage of the Partnership's working interest in wells drilled and completed during each phase. After the third phase, Canaan can earn a percentage of the Partnership's working interest in additional wells drilled in the area by committing on a well-by-well basis to fund a portion of the Partnership's costs for each well. The Partnership will receive an overriding royalty interest (“ORRI”) before payout and an increased ORRI after payout on all wells drilled under the agreement. Since the inception of the agreement, the Partnership has received $62.2 million from Canaan under the agreement. All amounts received are included in the Other long-term liabilities line item of the September 30, 2018 consolidated balance sheet, as no working interest had been assigned to Canaan as of that date. Subsequent to September 30, 2018 , the Partnership assigned to Canaan working interests in wells drilled and completed during the initial phase, reducing the Other long-term liabilities balance associated with the Canaan farmout agreement. Pivotal Farmout On November 21, 2017, the Partnership entered into a farmout agreement with a portfolio company of Tailwater Capital, LLC, Pivotal Petroleum Partners (“Pivotal”), that covers substantially all of the Partnership's remaining working interests under active development in the Shelby Trough area of East Texas targeting its Haynesville/Bossier acreage after giving effect to the Canaan Farmout (discussed above) over the next eight years. In wells operated by XTO Energy Inc. in San Augustine County, Texas, Pivotal will earn the Partnership's remaining working interest not covered by the Canaan Farmout, as well as the Partnership's working interests in wells operated by its other major operator in the area. After the funding of a designated group of wells by Pivotal and once Pivotal achieves a specified payout for such well group, the Partnership will obtain a majority of the original working interest in the designated group of wells. Since the inception of the agreement, the Partnership has received $35.5 million from Pivotal under the agreement. As of September 30, 2018 , the Partnership had assigned to Pivotal working interests in wells drilled and completed during the initial phase, and as such, only $27.5 million is included in the Other long-term liabilities line item of the consolidated balance sheet. As of December 31, 2017 , all amounts received from Canaan and Pivotal under the agreements were included in the Other long-term liabilities line item of the consolidated balance sheet, as no working interest had been assigned to Canaan or Pivotal as of that date. |