Reserve and Related Financial Data (SMOG) - Unaudited | Acquisitions and Divestitures In 2019, Brigham Minerals adopted ASU 2017-01, Clarifying the Definition of a Business, using a prospective approach. This guidance assists in determining whether a transaction should be accounted for as an acquisition of assets or as a business. This ASU provides a screen that when substantially all of the fair value of the gross assets acquired, or disposed of, are concentrated in a single identifiable asset, or a group of similar identifiable assets, the set will not be considered a business. If the screen is not met, a set must include an input and a substantive process that together significantly contribute to the ability to create an output to be considered a business. The adoption of the new standard did not have a material impact on the consolidated and combined financial statements. During the years ended December 31, 2020 and 2019, Brigham Minerals entered into a number of individually insignificant acquisitions of mineral and royalty interests from various sellers in Texas, Oklahoma, Colorado, New Mexico, and North Dakota, as reflected in the table below. The change in the oil and natural gas property balance is comprised of payments for acquisitions of minerals, land brokerage costs and capitalized general and administrative expenses that were funded with borrowings under its Owl Rock credit facility, our revolving credit facility and proceeds from the IPO. Assets Acquired Cash Consideration Paid (In thousands) Evaluated Unevaluated Year ended December 31, 2020 $ 30,856 $ 35,725 $ 66,581 Year ended December 31, 2019 $ 140,025 $ 78,093 $ 218,118 Oil and Natural Gas Reserves Proved reserves represent quantities of oil, natural gas and NGLs which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be recoverable in the future from known reservoirs under existing economic conditions, operating methods and government regulations. Proved developed reserves are proved reserves which can be expected to be recovered through existing wells with existing equipment, infrastructure and operating methods. Proved reserves were estimated in accordance with guidelines established by the SEC, which require that reserve estimates be prepared under existing economic and operating conditions based upon the 12-month unweighted average of the first-day-of-the-month prices. The reserves at December 31, 2020, 2019, and 2018 presented below were audited by CG&A. Estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development, price changes and other factors. The reserves are located in various fields in Texas, New Mexico, Oklahoma, Colorado, Wyoming, North Dakota, and Montana. All of the proved reserves are located in the continental United States. Crude Oil Natural Gas NGL Total Proved reserve quantities, December 31, 2017 8,724 38,401 3,980 19,104 Sales of minerals-in-place — — — — Extensions and discoveries 1,765 5,285 562 3,208 Acquisitions 3,669 13,862 1,374 7,354 Revisions of previous estimates (390) (3,245) (577) (1,508) Production (777) (2,507) (222) (1,417) Proved reserve quantities, December 31, 2018 12,991 51,796 5,117 26,741 Sales of minerals-in-place (182) (697) (110) (409) Extensions and discoveries 1,997 7,780 817 4,110 Acquisitions 4,256 13,053 1,218 7,651 Revisions of previous estimates (586) (5,495) (797) (2,299) Production (1,515) (4,707) (407) (2,706) Proved reserve quantities, December 31, 2019 16,961 61,730 5,838 33,088 Sales of minerals-in-place — (286) (1) (48) Extensions and discoveries 876 2,545 291 1,591 Acquisitions 1,235 3,652 331 2,174 Revisions of previous estimates (4,049) (18,188) (1,189) (8,271) Production (1,823) (5,809) (680) (3,471) Proved reserve quantities, December 31, 2020 13,200 43,644 4,590 25,063 Proved reserve quantities at December 31, 2020 attributable to temporary equity 3,064 10,131 1,065 5,818 Proved developed reserve quantities: December 31, 2018 6,067 21,735 1,898 11,588 December 31, 2019 9,924 33,232 2,494 17,957 December 31, 2020 9,403 31,873 3,426 18,141 Proved developed reserves at December 31, 2020 attributable to temporary equity 2,183 7,399 795 4,211 Proved undeveloped reserve quantities: December 31, 2018 6,924 30,061 3,219 15,153 December 31, 2019 7,037 28,498 3,344 15,131 December 31, 2020 3,797 11,771 1,164 6,922 Proved undeveloped reserves at December 31, 2020 attributable to temporary equity 881 2,732 270 1,607 Changes in proved reserves that occurred during 2020 were primarily due to: • the acquisition of additional mineral interests located in the Permian, Anadarko, DJ and Williston Basins in multiple transactions. The acquired proved reserves of 2,174 MBoe throughout the year were offset by the divestiture of 48 MBoe of proved reserves; • well additions, extensions and discoveries of approximately 1,591 MBoe, as approximately 342 gross horizontal well locations were converted from probable, possible and contingent resources to proved, due to continuous activity and delineation of additional zones on our mineral and royalty interests; • negative revisions of 2,645 MBoe attributable to reduction in SEC pricing; • as a result of decreased operator activity throughout 2020, a reclass of 7,036 MBoe to non-proved due to future locations falling outside the SEC five-year rule for PUDs; and • positive revision of 1,410 MBoe attributable to estimate ultimate recovery ("EUR") adjustments, refined gas and NGL processing assumptions, and unit configuration. Changes in proved reserves that occurred during 2019 were primarily due to: • the acquisition of additional mineral interests located in the Permian, Anadarko, DJ and Williston Basins in multiple transactions, which included 7,242 MBoe of additional proved reserves which is comprised of 7,651 MBoe of acquired proved reserves and divestiture of 409 MBoe of proved reserves within the year; • well additions extensions and discoveries of approximately 4,110 MBoe, as approximately 900 gross horizontal well locations were converted from probable, possible and contingent resources to proved, due to continuous activity and delineation of additional zones on our mineral and royalty interests; and • net volume revisions of approximately 2,299 MBoe. These revisions were comprised of 902 MBoe of negative revisions attributable to pricing as well as approximately 1,397 MBoe attributable to operator development timing, unit configuration and EUR adjustments to existing proved locations. Changes in proved reserves that occurred during 2018 were primarily due to: • the acquisition of additional mineral and royalty interests located in the Permian, DJ, Anadarko and Williston Basins in multiple transactions, which included 7,354 MBoe of additional proved reserves; • well additions, extensions and discoveries of approximately 3,208 MBoe, as 555 gross horizontal well locations were converted from probable, possible and contingent resources to proved, due to continuous activity and delineation of additional zones on our mineral and royalty interests; and • net negative volume revisions of approximately 1,508 MBoe. These revisions were comprised of 536 MBoe of positive revisions attributable to pricing and were offset by negative revisions of 1,100 MBoe attributable to operator development timing as well as 944 MBoe of revisions associated with unit configuration and EUR adjustments to existing proved locations. Standardized Measure of Discounted Future Net Cash Flows Guidelines prescribed in FASB’s Accounting Standards Codification (“ASC”) Topic 932 Extractive Industries—Oil and Gas, have been followed for computing a standardized measure of future net cash flows and changes therein relating to estimated proved reserves. Future cash inflows are determined by applying prices and costs, including transportation, quality, and basis differentials, to the year-end estimated quantities of oil, natural gas and NGLs to be produced in the future. The resulting future net cash flows are reduced to present value amounts by applying a ten percent annual discount factor. The assumptions used to compute the standardized measure are those prescribed by the FASB and the SEC. These assumptions do not necessarily reflect Brigham Resources’ expectations of actual revenues to be derived from those reserves, nor their present value. The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the standardized measure computations since these reserve quantity estimates are the basis for the valuation process. Reserve estimates are inherently imprecise and estimates of new discoveries and undeveloped locations are more imprecise than estimates of established proved producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available. The following summary sets forth the future net cash flows relating to proved oil and gas reserves based on the standardized measure prescribed in ASC Topic 932: For the Year Ended December 31, (In thousands) 2020 2019 2018 Future crude oil, natural gas, and NGL sales $ 562,545 $ 1,042,118 $ 1,049,141 Future severance tax and ad valorem taxes (39,318) (73,627) (70,248) Future income tax expense (46,908) (143,599) (144,421) Future net cash flows 476,319 824,892 834,472 10% annual discount (205,551) (359,258) (391,013) Standardized measure of discounted future net cash flows $ 270,768 $ 465,634 $ 443,459 Standardized measure of discounted future net cash flows attributable to temporary equity $ 62,853 $ 186,999 $ — The following prices were used in the determination of standardized measure: For the Year Ended December 31, 2020 2019 2018 Oil (per Bbl) $ 36.35 $ 51.01 $ 61.31 Natural gas (per Mcf) 1.03 1.51 2.51 NGLs (per Bbl) 8.19 14.39 23.98 These prices were based on the 12-month arithmetic average first-of-month West Texas Intermediate (“WTI”) price of oil and Henry Hub price of natural gas. The NGL pricing varied by basin at 10% to 25% of WTI. All prices have been adjusted for transportation, quality, basis differentials and post-production costs. The principal sources of change in the standardized measure of discounted future net cash flows are: For the Year Ended December 31, (In thousands) 2020 2019 2018 Standardized measure of discounted future net cash flows, beginning of the year $ 465,634 $ 443,459 $ 316,468 Changes in the year resulting from: Sales, less production costs (73,654) (86,492) (52,278) Revisions of previous quantity estimates (135,926) (41,539) (22,942) Extensions, discoveries, and other additions 21,011 69,057 71,668 Net change in prices and production costs (131,886) (99,660) 71,770 Accretion of discount 54,741 51,949 31,713 Purchase of reserves in place 27,241 137,819 148,580 Divestitures of reserves in place (250) (5,783) — Net change in taxes 53,786 (5,739) (75,369) Timing differences and other (9,929) 2,563 (46,151) Standardized measure of discounted future net cash flows, end of the year $ 270,768 $ 465,634 $ 443,459 Capitalized oil and natural gas costs The aggregate amounts of costs capitalized for oil and natural gas producing activities and related aggregate amounts of accumulated depletion follow: For the Year Ended December 31, (In thousands) 2020 2019 2018 Oil and gas properties, at cost, using full cost method of accounting: Not subject to depletion $ 325,091 $ 291,664 $ 228,151 Subject to depletion 488,301 449,061 289,851 Total oil and gas properties, at cost 813,392 740,725 518,002 Less accumulated depreciation, depletion, and amortization (189,546) (61,103) (27,628) Total oil and gas properties, net $ 623,846 $ 679,622 $ 490,374 Costs incurred in oil and natural gas activities The following costs were incurred in oil and natural gas producing activities: For the Year Ended December 31, (In thousands) 2020 2019 2018 Acquisition of oil and gas properties Unevaluated $ 35,725 $ 78,093 $ 59,460 Evaluated 30,856 140,025 137,496 Total $ 66,581 $ 218,118 $ 196,956 |