Noble Acquisition

On November 28, 2017, 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 million purchase price (before customary post-closing adjustments) using (i) approximately $300 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 million from borrowings under its Credit Facility. See additional discussion of the Series B cumulative convertible preferred units in Note 12 – 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.

The following table summarizes the preliminary estimate and allocation of the fair value of the assets acquired and the acquisition-related costs.



	Assets Acquired								Cash Consideration Paid		Acquisition-Related Costs¹
	Proved		Unproved		Net Working Capital		Total Fair Value		Cash Consideration Paid		Acquisition-Related Costs¹
	(in thousands)
Noble Assets	$	68,877	$	259,749	$	5,917	$	334,543	$	334,543	$	247


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.

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 statement of operations for the year ended December 31, 2017 was $2.8 million. The following table presents unaudited pro forma information for the Partnership as if the Noble Acquisition occurred on January 1, 2016.



	For the Year Ended December 31,
	2017			2016
	(in thousands, except per unit amounts)
Revenue and other income	$	468,103		$	288,772
Net income (loss)	$	178,970		$	33,264
Net income (loss) attributable to noncontrolling interests	34			12
Distributions on Series A redeemable preferred units	(3,117		)	(5,763		)
Distributions on Series B cumulative convertible preferred units	(21,000		)	(21,000		)
Net income (loss) attributable to the general partner and common and subordinated units	$	154,887		$	6,513
Allocation of net income (loss):
General partner interest	—			—
Common units	99,776			20,696
Subordinated units	55,111			(14,183		)
	$	154,887		$	6,513
Net income (loss) attributable to limited partners per common and subordinated unit:
Per common unit (basic)	$	1.02		$	0.22
Per subordinated unit (basic)	$	0.58		$	(0.15	)
Per common unit (diluted)	$	1.02		$	0.22
Per subordinated unit (diluted)	$	0.58		$	(0.15	)

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, 2016. 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:


•	Adjustments to recognize incremental revenue, production costs and ad valorem taxes, and DD&A 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 excluded from the calculation of pro forma diluted earnings per common unit for the periods presented above due to their antidilutive 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, which also included producing properties, during the year ended December 31, 2017, as reflected in the table below. These acquisitions were primarily focused in the Delaware Basin and East Texas. The cash portion of all acquisitions below was funded via borrowings under the Partnership's Credit Facility.



	Assets Acquired								Consideration Paid
	Proved		Unproved		Net Working Capital		Total Fair Value		Cash		Fair Value of Common Units Issued		Acquisition-Related Costs¹
	(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 2017 consolidated statement of operations.

In addition, the Partnership acquired mineral and royalty interests from various sellers in East Texas as reflected in the table below. The cash portion of all acquisitions below was funded via borrowings under the Partnership's Credit Facility.



	Assets Acquired		Consideration Paid
	Unproved		Cash		Fair Value of Common Units Issued
	(in thousands)
Q1 2017	$	21,189	$	21,017	$	172
Q2 2017	13,329		13,329		—
Q3 2017	19,946		15,205		4,741
Q4 2017	2,267		2,137		130
Total acquired	$	56,731	$	51,688	$	5,043

Farmout Agreements

On February 21, 2017, the Partnership announced that it had entered into a farmout agreement with Canaan Resource Partners ("Canaan") which covers certain Haynesville and Bossier shale 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. A total of 18 wells are anticipated to be drilled over an initial phase, beginning with wells spud after January 1, 2017. As of December 31, 2017, 10 wells had been drilled during the initial phase. At its option, Canaan may participate in two additional phases with each phase continuing for the lesser of 2 years or until 20 wells have been drilled. During the first three phases of the agreement, Canaan will commit on a phase-by-phase basis and fund 80% of the Partnership's drilling and completion costs and will be assigned 80% of the Partnership's working interests in such wells (40% working interest on an 8/8ths basis). After the third phase, Canaan can earn 40% of the Partnership’s working interest (20% working interest on an 8/8ths basis) in additional wells drilled in the area by continuing to fund 40% of the Partnership's costs for those wells on a well-by-well basis. The Partnership will receive an overriding royalty interest (“ORRI”) before payout and an increased ORRI after payout on all wells drilled under the agreement. For the year ended December 31, 2017, the Partnership received $13.6 million from Canaan under the agreement. All amounts received in 2017 are included in the Other long-term liabilities line of our December 31, 2017 consolidated balance sheet, as none of the drilled wells had been completed nor had any working interest been assigned to Canaan as of the balance sheet date.

On November 21, 2017, we 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 the Haynesville and Bossier shale 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 approximate 20% working interest (10% working interest on an 8/8th basis) not covered by the Canaan Farmout, as well as 100% of the Partnership's working interests (ranging from approximately 12.5% to 25% on an 8/8ths basis) in wells operated by its other major operator in the area. Initially, Pivotal will be obligated to fund the development of up to 80 wells across several development areas and then will have options to continue funding the Partnership's working interest across those areas for the duration of the eight year term. 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. For the year ended December 31, 2017, the Partnership received $5.6 million from Pivotal under the agreement. All amounts received in 2017 are included in the Other long-term liabilities line of our December 31, 2017 consolidated balance sheet, as none of the drilled wells had been completed nor had any working interest been assigned to Pivotal as of the balance sheet date.

2016 Acquisitions

During the year ended December 31, 2016, the Partnership acquired producing oil and natural gas properties and unproved acreage in a diverse oil and natural gas mineral asset package, and also completed an acquisition in June 2016 in the DJ Basin. The following table summarizes the fair value assigned to the properties acquired:



	Assets Acquired											Cash Consideration Paid
	Proved		Unproved		Net Working Capital		ARO			Total Fair Value		Cash Consideration Paid
	(in thousands)
June 2016	$	39,735	$	79,827	$	2,064	$	(50	)	$	121,576	$	121,576

The Partnership also acquired unproved mineral and royalty interests in the Permian Basin and Midland Basin for $10 million and $8.3 million in cash, respectively. Additionally, throughout 2016, the Partnership funded certain other oil and natural gas asset acquisitions for an aggregate amount of $1.2 million in cash. All 2016 acquisition transactions were funded via borrowings under the Partnership's Credit Facility.

2015 Acquisitions

During the year ended December 31, 2015, the Partnership acquired mineral and royalty interests in the Permian Basin for $51.7 million, mineral and royalty interests and non-operated working interests in the Eagle Ford Shale resource play for $9.7 million, and overriding royalty interests in the Utica Shale and Marcellus Shale resource plays for $1.8 million. All 2015 acquisition transactions were funded via borrowings under the Partnership's Credit Facility.