Brigham Minerals, Inc.
Annual Report 2020

Plain-text annual report

2020 Annual Report UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number: 001-38870 Brigham Minerals, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 5914 W. Courtyard Drive, Suite 200 Austin, Texas (Address of principal executive offices) 83-1106283 (I.R.S. Employer Identification No.) 78730 (Zip code) (512) 220-6350 (Registrant’s telephone number, including area code) Securities registered pursuant to section 12(b) of the Act: Title of each class Trading symbol(s) Name of each exchange on which registered Class A common stock, par value $0.01 MNRL New York Stock Exchange Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in RuleRR 405 of the Securities Act. Yes o No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer ff ☐ ☐ Accelerated filer ☒ Smaller reporting company ☐ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x As of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant was approximately $515.5 million, determined using the per share closing price on the New York Stock Exchange on that date of $12.35. Shares of common stock held by each director and executive officer (and their respective affiliates) and each person who owns 10% or more of the outstanding common stock or who is otherwise believed by the registrant to be in a control position have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The registrant had 43,558,494 shares of Class A common stock and 13,167,687 shares of Class B common stock outstanding as of February 19, 2021. Portions of the registrant’s definitive proxy statement for the 2021 Annual Meeting of Stockholders, to be filed no later than 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates, are incorporated by reference into Part III of this Annual Report on Form 10-K. BRIGHAM MINERALS, INC. FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020 TABLE OF CONTENTS Glossary of Oil and Natural Gas Terms Cautionary Statement Regarding Forward-Looking Statements Item 1. Business Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART I PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation PART III Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accountant Fees and Services Item 15. Exhibits, Financial Statement Schedules Item 16. Form 10-K Summary Signatures PART IV 4 6 8 31 57 57 57 57 58 59 62 85 86 86 86 87 88 88 88 88 88 89 90 91 3 GLOSSARY OF OIL AND NATURALRR GAS TERMS The folff lowing are abbreviations and definitions of certain terms used in this Annual Report on Form 10-K ("Annual Report"), which are commonly used in the oil and natural t gas industry: Term Basin Bbl Boe Boe/d British thermal unit or Btu Completion Development well Differential Drilled but Uncompleted Well (DUC) Definition A depression in the Earth's crust formed from plate tectonics providing accommodation space for the accumulation of sedimentary rocks and organic material. When subjected to the appropriate depth and duration of burial, hydrocarbon generation can occur creating oil and natural gas bearing strata. One stock tank barrel of 42 U.S. gallons liquid volume used herein in reference to crude oil, condensate or NGLs. One barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil. This is an energy content correlation and does not reflect a value or price relationship between the commodities. One Boe per day. The quantity of heat required to raise the temperature of a one-pound mass of water from 58.5 to 59.5 degrees Fahrenheit. The process of treating a drilled well followed by the installation of permanent equipment for the production of oil and natural gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency. A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive. An adjustment to the price of oil or natural gas from an established spot market price to reflect differences in the quality and/or location of oil or natural gas. A well that an operator has spud but has not yet begun hydraulic fracturing or completion operations. Gross acres or gross wells The total acres or wells, as the case may be, in which a mineral or royalty interest is owned. MBbl MBoe Mcf Mcf/d MMBtu MMcf One thousand barrels of crude oil, condensate or NGLs. One thousand Boe. One thousand cubic feet of natural gas. One Mcf per day. One million British thermal units. One million cubic feet of natural gas. Net royalty acre Mineral ownership standardized to a 12.5%, or 1/8th, royalty interest. Net well NGLs NYMEX Operator Possible reserves Probable reserves Prospect Proved developed reserves The percentage of net revenue interest an owner has out of a gross well. For example, an owner who has an 25% royalty interest in a single well owns 0.25 net wells. Natural gas liquids. Hydrocarbons found in natural gas that may be extracted as liquefied petroleum gas and natural gasoline. The New York Mercantile Exchange. The individual or company responsible for the development and/or production of an oil or natural gas well or lease. Reserves that are less certain to be recovered than probable reserves. Reserves that are less certain to be recovered than proved reserves but that, together with proved reserves, are as likely as not to be recovered. A specific geographic area that, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons. Proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well or through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well. 4 Term Proved reserves Proved undeveloped reserves or PUDs Realized price Reserves Reservoir Royalty Definition Those quantities of oil, natural gas and NGLs that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. For a complete definition of proved oil and natural gas reserves, refer to the SEC’s Regulation S- X, Rule 4-10(a)(22). Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. The following rules apply to PUDs: (i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances; (ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances justify a longer time; and (iii) Under no circumstances shall estimates for proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty. The cash market price less all applicable deductions adjustments. dd such as quality, transportation and demand Estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to market and all permits and financing required to implement the project. Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non- productive reservoir (i.e., absence of reservoir, structurally low reservoir or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations). kk A porous and permeable underground formation containing a natural accumulation of producible oil and/ or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs. t An interest in an oil and natural gas lease that gives the owner the right to receive a portion of the production from the leased acreage (or of the proceeds from the sale thereof), but does not require the owner to pay any portion of the production or development costs on the leased acreage. Royalties may be either landowner’s royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner. Spot market price The cash market price without reduction for expected quality, transportation and demand adjustments. Spud Commenced drilling operations on an identified location. Undeveloped acreage Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil, natural gas or NGLs regardless of whether such acreage contains proved reserves. 5 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS The information in this Annual Report includes “forward-looking statements.” All statements, other than statements of t, included in this Annual Report regarding our strategy, future operations, financial position, estimated revenues historical facff and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. In particular, our statements regarding the ongoing COVID-19 pandemic and its expected impact on our business, financial position, results of operations and cash flows are forward-looking statements. When used in this Annual Report, the words “may,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions and the negative of such words and similar expressions are intended to identify forward-looking statements, although not all forward-looki ng statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptim ons about future events and are based on currently available information as to the outcome and timing of future events. Such those projected. statements may be influenced by factors that could cause actual outcomes and results to differ materially fromff rs and other cautionary statements When considering forward-looking statements, you should keep in mind the risk facto described under the heading “Item 1A—Risk Factors” included in this Annual Report as well as the risk facto rs and other ff cautionary statements contained in our other filff ings with the United States Securities and Exchange Commission (the "SEC"). ff ff The following importa m nt factors, in addition to those discussed elsewhere in this Annual Report, could affect the future results of the energy industry in general, and our company in particular, and could cause actual results to differ materially fromff those expressed in such forward-looking statements: • • • • • • • • • • • • • • • • • • • • • • our ability to execute on our business objectives; the effecff t of changes in commodity prices; the level of production on our properties; risks associated with the drilling and operation of oil and natural t gas wells; the availabila ity or cost of rigs, equipment, raw materials, supplies, oilfield services, or personnel; legislative or regulatory actions pertaining to hydraulic fraff cturing, t including restrictions on the use of water; the availabila ity of pipeline capaa city and transportation facilities; the effecff t of existing and futuret laws and regulatory actions; the impact of derivative instruments; conditions in the capital markets and our ability to obtain capital on favorablea terms or at all; the overall supply and demand for oil, natural gas and NGLs, and regional supply and demand factors, storage availability, delays, or interruptions of production, including voluntary shut-ins; operator budget constraints and their abia lity to obtain capia tal on favff orable terms or at all; the actions of the Organization of Petroleum Exporting Countries ("OPEC") and other significant producers and governments and the ability of such producers to agree to and maintain oil price and production controls; competition from others in the energy industry; the impact of reduced drilling activity in our focus areas and uncertainty as to whether development projects will be pursued; global or national health events, including the ongoing outbreak and resulting economic effects of the COVID-19 pandemic; ff the effect (Creek) Nation reservation in Eastern Oklahoma and similar ruli s of current or futuret rr litigation, including the recent U.S. Supreme Court ruling involving the Muscogee ngs regarding reservations; uncertainty of estimates of oil and natural t gas reserves and production; the cost of developing the oil and natural gas underlying our properties; our ability to replace our oil, natural gas and NGL reserves; our ability to identify, complete and integrate acquisitions; title defects in the properties in which we invest; 6 • • the cost of inflation; technological advances; • weather conditions, natural disasters and other matters beyond our control; • • • general economic, business, political or industry conditions; and certain factors discussed elsewhere in this Annual Report. Should one or more of the risks or uncertainties described in this Annual Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially fromff those expressed in any forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not tors on our business or the extent to possible for our management to predict all risks, nor can we assess the impact of all facff which any factor, or combination of factors, may cause actual results to differ materially fromff those contained in any forward- looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Annual Report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptim ons made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly fromff the quantities of oil, t natural gas and NGLs that are ultimately recovered. t All forward-looking statements, expressed or implied, included in this Annual Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Annual Report. 7 Item 1. Business PART I requires, refee rences in this aii otherwiseii ,”yy CC “Company “Brigham LLC” referff e contextee Unless thett “we,” “our,” “us” or like terms referff “Brigham Minerals,ll ” thett Refee rences to thett i to Brigham as the sole managing member of, Brigham LLC. BCC which wholly oll wns Brigham Minerals, LLC and Rearden Minerals, LLC (collectively, tyy hett Brigham Resources’ sole material assets. o ) t” e to Brigham Minerals, Inc. and its stt ubsidiaries. righam Minerals owns an interest in, and actstt righam LLC wholly oll wns Brigham Resources, LLC (“Brigham Resources”), “Minerals Subsidiaries”), which are on Form 10-K (the “Annual Report” Minerals Holdings, LLC. BCC nnual report ed its i completm tt nitial public offo ering On April 17, 2019, the Company m par value $0.01 per share (the “Class A common stock”). Unless indicated otherwise or the contextee e references in this Aii operations (including reserves, production and acreage) oe of Brigham Resources Operating, LLC (“Brigham tt periods after completion of the IPO, rO efer to the assets and operations of Brigham Minerals and its stt Brigham LLC, BCC righam Resources and the Minerals Subsidiaries. (the “IPO”) of shares of io ts Class A common stock,kk requires, (i) for periods prior to completion of the IPO, rO efer to the assets and righam Resources, excee luding the historical results and operations he IPO, aO nd (ii) f i orff ubsidiaries, including Operating”), which was spun out in connection with t to the Company nnual Report otherwiseii f Bo m i ff Overview We formed our company in 2012 to acquire and actively manage a portfolio of mineral and royalty interests in the core of what we view as the most active, highly economic, liquids-rich resource plays across the continental United States. Our primary business objective is to maximize risk-adjusted total returnt ng growth in free cash floff w fromff the continued organic development of our existing horizontal well inventory of 721 gross drilled but uncompleted horizontal wells ("DUCs"), 755 gross permits and 13,496 gross undeveloped locations, all of which are unburdened by development al expenditures or lease operating expenses, as well as leveraging our highly experienced technical evaluation team to capita continue to execute upon our scalable business model of sourcing, methodically evaluating and integrating accretive minerals acquisitions in the core of top-tier, liquids-rich resource plays. to our shareholders by both capturi u a Our portfolio is comprised of mineral and royalty interests across six of the most highly economic, liquids-rich resource plays in the continental United States, including the Delaware and Midland Basins in the Permian Basin in West Texas and New Mexico, the SCOOP and STACK plays in the Anadarko Basin in Oklahoma, the Denver-Julesburg (“DJ”) Basin in Colorado and Wyoming and the Williston Basin in North Dakota. Our highly technical approa ch towards mineral acquisitions in the geologic core of top-tier resource plays has purposefully led to a concentrated portfolio covering 37 of the most highly active counties for horizontal drilling in the continental United States. a Since inception, we have executed on our technically driven, financially disciplined acquisition approach and have closed 1,632 transactions with third-party mineral and royalty interest owners as of December 31, 2020. We have increased our mineral and royalty interests from approximately 10,200 net royalty acres as of December 31, 2013, to approximately 86,285 net royalty acres as of December 31, 2020, which represents a 36% compound annual growth rate in our mineral and royalty interests over that period. See “—Overview—Our Mineral and Royalty Interests” forff a discussion of how we calculate net royalty acres. The following tablea summarizes certain information regarding our net royalty acreage acquisitions during each year of our operations. Net Royalty Acres (NRAs) Acquired Number of Acquisitions Average NRAs per Acquisition NRAs at Period End YoY% Change 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 500 9,700 17,300 7,200 9,800 9,400 14,900 13,400 4,085 15 33 313 31 380 46 152 47 121 81 153 61 201 74 216 62 81 50 86,285 1,632 53 500 10,200 27,500 34,700 44,500 53,900 68,800 82,200 86,285 86,285 — 1,940 % 170 % 26 % 28 % 21 % 28 % 19 % 5 % During 2020, our producing well count grew by 1,077 gross horizontal wells largely through acquisitions and the conversions of our DUC and permitted locations, representing an increase of 22% from December 31, 2019. In addition to this activity, 381 gross horizontal wells were spud on our mineral and royalty interests. This development has translated into production growth with our production volumes growing approximately 28% for the year ended December 31, 2020 as compared to the year ended December 31, 2019. Further, our production volumes are comprised of high-value liquids with 72% of our volumes for the year ended December 31, 2020 composed of crude oil and NGLs, which represents 88% of our mineral 8 and royalty revenues for the period. We expect to see near term organic conversion of our asset fromff 721 gross DUCs across our interests and 755 gross horizontal drilling permits as of December 31, 2020, all of which are unburdened by additional al expenditure outlays. Quarterly gross and net wells spud on our minerals have rebounded since the second quarter of capita to the dramatic curtailment in operator activity as a result of COVID-19 and 2020, which was the low point during the year dued the actions of OPEC, Russia, and other oil and gas producing countries ("OPEC+") during March 2020, both of which contributed to a dramatic decline in commodity prices during the first half of 2020. The chart below depicts historical gross and net wells spud on our acreage: Average Quarterly Wells Spud on Acreage Gross Spuds Net Spuds 400 350 300 250 200 150 100 50 0 24848 2302300 214 2099 18585 208 150 99 82822 2 1.75 1.5 1.25 1 0.75 5757 363636 7979 0.5 0.25 0 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Delaware DJ Basin Midland Williston SCOOP Other STACK Net Spuds In addition to existing near-term development through the drilling and completion of our DUCs and permits, we have a further 13,496 gross undeveloped locations providing us with substantial long-term organic drilling inventory on our acreage. Our Mineral and Royalty Interests Mineral interests are real-property interests that are typically perpetual and grant both ownership of the oil, natural gas and NGLs under a tract of land and the ability to lease development rights to a third party. When those rights are leased, usually for a three-year primary term, we typically receive an upfront cash payment, known as lease bonus, and we retain a mineral royalty, which entitles us to a percentage of production or revenue. In addition to mineral interests, which represented approximately 94% of our net royalty acres as of December 31, 2020, we also own other similar types of interests, including arrangement burdening nonparticipating royalty interests and overriding royalty interests (“ORRIs”). ORRIs are a contractual the working interest ownership of a lease and represent the right to receive a fixeff d percentage of production or revenue from production from a lease. ORRIs remain in effect until the associated lease expires and are therefore not perpetual in nature. Approximately 5% of our mineral position is within current units that include Federal acreage managed by the Bureau of Land Management. t t As a mineral and royalty interest owner, we incur the initial cost to acquire our interests, but thereafter do not incur any development capita al expenditures or lease operating expenses, which are entirely borne by the operator. Mineral and royalty owners only incur their proportionate share of severance and ad valorem taxes, as well as in some instances, gathering, a mineral and royalty interest transportation and marketing costs. As a result, operating margins and therefore free cash floff w forff owner are higher as a percentage of revenue than forff a traditional exploration and production operating company. As of December 31, 2020, our mineral and royalty interests consisted of approxi a mately 61,000 net mineral acres, which gas rights at a weighted average royalty of 17.7%. have been leased to operators to explore for and develop our oil and natural t 9 Typically, mineral owners standardize ownership to a 12.5% royalty, or 1/8th interest, which is referred to as a “net royalty acre.” Our net mineral acres standardized to a 1/8th interest equate to approximately 86,285 net royalty acres. Our net mineral acres standardized to a 100% royalty, or 8/8th basis, equate to approximately 10,790 “100% royalty acres.” Our approximately 86,285 net royalty acres are located within 1,691 drilling spacing units (“DSUs”), which are the areas designated in a spacing order or unit designation as a drilling unit and within which operators drill wellbores to develop our oil and natural gas rights. Our DSUs, in aggregate, consist of a total of approximately 1,682,335 gross acres, which we refer to as our “gross DSU acreage.” Within our gross DSU acreage, we expect to have an interest in wells currently producing or that will be drilled in the summarizes our mineral and royalty interest position and the conversion of our interests between net future. The following tablea mineral acres, net royalty acres and 100% royalty acres as of December 31, 2020. t Net Mineral Acres Weighted Average Royalty Net Royalty Acres(1) 100% Royalty Acres(2) Gross DSU Acres Implied Average Net Revenue Interest per Well(3) 61,000 17.7 % 86,285 10,790 1,682,335 0.6 % (1) Standardized to a 1/8th interest (i.e., 61,000 net mineral acres * 17.7% / 12.5%). (2) Standardized to a 100% interest (i.e., 86,285 net royalty acres * 12.5%). (3) Calculated as number of 100% royalty acres per gross DSU acre (i.e., 10,790 100% royalty acres /1,682,335 gross DSU acres). Our Properties Focus Areas Our mineral and royalty interests are primarily located in six resource plays, which we referff to as our focus areas. These include the Delaware and Midland Basins in the Permian Basin, the SCOOP and STACK plays in the Anadarko Basin, the DJ Basin and the Williston Basin. The following chart shows our overall exposure to each of our primary focus areas based on our net royalty acres in each focff us area as of December 31, 2020. Other 8% Williston 9% Delaware 33% DJ 18% (cid:27)(cid:25)(cid:15)(cid:21)(cid:27)(cid:24) (cid:49)(cid:53)(cid:36) Midland 6% STACK 13% SCOOP 13% In addition, the following tabla e summarizes certain information regarding our primary focus areas. Our average daily net production for the year ended December 31, 2020 was comprised 53% of oil production, 27% of natural 20% of NGL production. t gas production and 10 Acreage as of December 31, 2020 Resource Play/Basin Net Mineral Acres Weighted Average Royalty Net Royalty Acres(1) 100% Royalty Acres(2) Delaware Midland SCOOP STACK DJ Williston Other Total 18,375 4,175 7,750 7,625 12,325 6,175 4,575 61,000 19.3 % 15.6 % 18.4 % 17.6 % 16.1 % 16.1 % 18.1 % 17.7 % 28,330 5,220 11,400 10,725 15,890 7,950 6,770 3,540 650 1,430 1,340 1,990 990 850 Gross DSU Acres 345,770 123,815 208,455 179,960 174,535 503,455 146,345 86,285 10,790 1,682,335 Implied Average Net Revenue Interest per Well(3) Gross Horizontal Producing Well Count as of December 31, 2020(4) Average Daily Net Production for the year ended December 31, 2020(5) (Boe/d) Average Daily Net Production for the quarter ended December 31, 2020(5) (Boe/ d) 1.0 % 0.5 % 0.7 % 0.7 % 1.1 % 0.2 % 0.6 % 0.6 % 1,305 459 563 415 1,211 1,833 199 5,985 4,741 645 1,112 875 1,307 729 74 9,483 4,720 712 1,122 770 1,196 780 61 9,361 Note: Individual amounts may not add up to totals due to rounding. (1) Standardized to a 1/8th interest. (2) Standardized to a 100% interest. (3) Calculated as number of 100% royalty acres per gross DSU acre. (4) Represents number of horizontal producing wells across all DSUs in which we participate. (5) Represents actual production plus allocated accrued volumes attributable to the period presented. Permian Basin-Delaware and Midland Basins The Permian Basin ranges fromff West Texas into southeastern New Mexico and is currently the most active area forff horizontal drilling in the United States. The Permian Basin is furthe r subdivided into the Delaware Basin in the west and the ff Midland Basin in the east. Based on our geologic and engineering data as well as current delineation efforts by operators, we believe our mineral and royalty interests in the Delaware Basin are prospective for seven or more producing zones of economic horizontal development including the Wolfcamp A, B, C and XY; First, Second and Third Bone Spring; and the Avalon. Our Delaware Basin mineral and royalty interests are located in Reeves, Loving, Ward, Pecos, Culberson and Winkler Counties, Texas with our remaining interests located in Lea and Eddy Counties, New Mexico. Based on our geologic and engineering interpretations as well as current delineation efforts by operators, we believe our mineral and royalty interests in the Midland Basin are prospective for five or more producing zones of economic horizontal development including the Middle Spraberry; Lower Spraberry; and Wolfcamp A, B, C, and D / Cline. Our Midland Basin mineral and royalty interests are located in Martin, Midland, Upton, Howard, Glasscock and Reagan Counties, Texas. Anadarko Basin-SCOOP and STACK PCC laysa The SCOOP play (South Central Oklahoma Oil Province) is located in central Oklahoma in Grady, Garvin, Stephens and McClain Counties. Based on our geologic and engineering interpretations as well as current delineation efforts by operators, we believe our mineral and royalty interests in the SCOOP play are prospective for two or more producing zones of economic horizontal development including multiple Woodford benches and the Springer Shale. In addition, operators are also currently testing other forma red to as SCORE (Sycamore Caney Osage Resource Expansion). The STACK play (derived from Sooner Trend Anadarko Basin Canadian and Kingfisher Counties) is located in central Oklahoma in Kingfisher, Canadian, Caddo and Blaine Counties. Based on our geologic and engineering data as well as current delineation efforts by operators, we believe our mineral and royalty interests in the STACK play are prospective for two or more producing zones of economic horizontal development including multiple benches within both the Meramec and Woodford formations. tions in the area including the Sycamore, Caney and Osage, which is also referff ff DJ Basin The DJ Basin is located in Northeast Colorado and Southeast Wyoming, with the majora ity of operator horizontal drilling activity located in Weld and Broomfield Counties, Colorado, and Laramie County, Wyoming. Based on our geologic and engineering interpretations as well as current delineation efforts by operators, we believe our mineral and royalty interests in the DJ Basin are prospective for four or more producing zones of economic horizontal development including the Niobrara A, B and C and Codell formff ations. 11 ii Williston Basin The Williston Basin stretches fromff western North Dakota into eastern Montana with the majora ity of operator horizontal drilling activity located in Mountrail, Williams, and McKenzie Counties, North Dakota. Based on our geologic and engineering interpretations as well as current operator delineation efforts, we believe our mineral and royalty interests are prospective for two or more producing zones of economic horizontal development including the Bakken and multiple Three Forks benches. The majora ity of our interests are located in Mountrail, Williams and McKenzie Counties with additional interests owned in Divide, Burke, Dunn, Billings and Stark Counties, North Dakota and Richland County, Montana. Other Counties Our other interests are comprised of mineral and royalty interests owned in Carter and Love Counties, Oklahoma in what we refer to as the Extended Woodford play in the Marietta and Ardmore Basins. We also own acreage in the Merge trend in Oklahoma, centered in northern Grady County and southern Canadian Counties. Prospectivtt e UndeUU veloped HorizHH ontal Drillingll Locations As of December 31, 2020, we have identified 13,496 gross proved, probable and possible drilling locations across our gross DSU acreage as identified in our December 31, 2020 reserve report audited by Cawley, Gillespie & Associates, Inc. ("CG&A"), our independent petroleum engineering firm. Furthermore, we believe additional optionality is possible through the delineation of additional formations as well as incremental wells in existing formations. Approximately 51% of our total net horizontal undeveloped locations are located in the Delaware and Midland Basins, with another 19% located in the SCOOP and . STACK plays of the Anadarko Basin in Oklahoma, as shown in the following tablea Delaware Basin Midland Basin SCOOP STACK DJ Basin Williston Other Total Gross Horizontal Undeveloped Locations 5,201 1,666 1,055 1,491 1,584 1,591 908 Percentage of Total Portfolio 38 % 12 % 8 % 11 % 12 % 12 % 7 % Net Horizontal Undeveloped Locations Percentage of Total Portfolio 54.7 10.7 8.3 13.3 20.2 3.1 6 47 % 9 % 7 % 11 % 17 % 3 % 5 % 13,496 100 % 116.3 100 % Note: Individual amounts may not total due to rounding. Additionally, the following tablea provides a detailed summary of our inventory of horizontal drilling locations as of December 31, 2020. 12 Productive Horizons Delaware Basin Wolfcamp A Wolfcamp B 3rd BS/WC XY 2nd Bone Spring Avalon Other Total Midland Basin Wolfcamp A Wolfcamp B Lower Spraberry Other Total SCOOP Woodford Springer Total STACK Woodford Meramec Total DJ Basin Niobrara Codell Total Williston Basin Bakken Three Forks Total Other Grand Total Gross Horizontal Undeveloped Locations(1) Total Gross Horizontal Locations(2) DSUs(3)(4) Gross Horizontal Undeveloped Locations Per DSU(4) Total Gross Horizontal Locations Per DSU(4) Net Horizontal Undeveloped Locations(5) 2,085 1,155 710 602 153 496 5,201 477 421 522 246 1,666 758 297 1,055 777 714 1,491 1,185 399 1,584 725 866 1,591 908 13,496 2,842 1,378 1,054 675 188 556 6,693 684 663 701 295 2,343 1,276 404 1,680 901 1,008 1,909 2,192 712 2,904 1,838 1,710 3,548 1,125 20,202 454 408 330 216 67 195 457 141 141 141 93 142 187 100 187 171 189 189 190 149 191 360 360 363 162 1,691 4.6 2.8 2.2 2.8 2.3 2.5 11.4 3.4 3 3.7 2.6 11.7 4.1 3 5.6 4.5 3.8 7.9 6.2 2.7 8.3 2 2.4 4.4 5.6 8 6.3 3.4 3.2 3.1 2.8 2.9 14.6 4.9 4.7 5 3.2 16.5 6.8 4 9 5.3 5.3 10.1 11.5 4.8 15.2 5.1 4.8 9.8 6.9 11.9 23.2 13 6.8 4.8 0.8 6.1 54.7 3 2.7 3.2 1.8 10.7 6.1 2.2 8.3 6.9 6.4 13.3 15.1 5.1 20.2 1.4 1.8 3.1 6 116.3 (1) Represents gross undeveloped horizontal drilling locations across our gross DSU acreage (2) Includes all wells in each horizon, including PDP, DUC, permitted and unpermitted locations. (3) Represents the aggregate number of DSUs covering any of the applicable productive horizons as identified in the reserve report. (4) The number of DSUs in each horizon and locations per DSU in each horizon do not total due to differing prospectivity of each horizon across each DSU (i.e., not all horizons are booked in all DSUs). (5) A net well represents 100% net revenue interest in a single gross well. Third-Pii artyPP Operatorsrr Beyond our technical analysis to identify core, highly economic geologic areas, an additional critical aspect of our evaluation process is to acquire mineral and royalty interests that will be drilled and completed by operators we believe will outperform their peers through the application of the latest drilling and completion technologies in each of our focus areas. The following chart summarizes our exposure to these operators based on the percentage of our net interests in the wells to be drilled by each operator. Net interests per gross location are normalized to 7,500 ft. laterals. 13 OXY 13% Other Private 14% Other Public 6% CVX 8% OVV 5% PXD 5% CLR 5% RDS 4% BATL 2% Camino 2% XOG 2% PDCE 2% WLL 3% EOG 3% CPE 3% PRI 3% XEC 4% COP 3% FANG 3% DVN 4% MRO 4% XOM 4% In addition, the following tablea shows our exposure to each of these operators broken down by our primary focus areas based on the percentage of our net interests in the wells to be drilled by each operator as of December 31, 2020. Operator Occidental Petroleum Chevron Corp. Ovintiv, Inc. Pioneer Natural Resources Continental Resources Royal Dutch Shell Devon Energy Marathon Exxon Mobil Corp. Cimarex Diamondback Energy ConocoPhillips PRI Operating Callon Petroleum EOG Resources Whiting Petroleum PDC Energy Extraction Oil and Gas Battalion Oil Camino Subtotal Other Operators Total Total Portfolio 13 % 8 % 5 % 5 % 5 % 4 % 4 % 4 % 4 % 4 % 3 % 3 % 3 % 3 % 3 % 3 % 2 % 2 % 2 % 2 % 80 % 20 % 100 % Percentage as of December 31, 2020 Delaware Midland SCOOP STACK DJ Basin Williston Other 22 % 10 % — % 1 % — % 10 % 3 % 1 % 6 % 6 % 6 % 4 % 6 % 6 % 1 % — % 1 % — % 4 % 1 % 87 % 13 % 1 % 4 % 3 % 47 % — % — % — % — % 4 % — % 5 % 8 % — % — % — % — % — % — % — % — % 72 % 28 % — % — % 26 % — % 37 % — % — % 20 % — % — % — % — % — % — % — % — % — % — % — % 2 % 85 % 15 % — % — % 21 % — % 3 % — % 26 % 17 % — % 9 % — % — % — % — % — % — % — % — % — % — % 75 % 25 % 17 % 15 % — % — % — % — % — % — % — % — % — % — % — % — % 11 % 13 % 10 % 12 % — % — % 78 % 22 % — % — % 5 % — % 21 % — % — % 1 % 5 % — % — % 12 % — % — % 3 % 3 % — % — % — % — % 50 % 50 % — % — % 12 % — % 22 % — % 2 % 4 % 14 % 3 % — % — % — % — % — % — % — % — % — % 21 % 77 % 23 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Note: Individual amounts may not add up to totals due to rounding. Business Objectives Our primary business objective is to deliver an attractive risk-adjusted total returt n t o our shareholders through (i) the organic growth of our free cash floff w generated from our existing portfolio of approximately 86,285 net royalty acres, and r 14 (ii) the continued sourcing and execution of accretive mineral acquisitions in the core of highly economic, liquids-rich resource plays. Our Corporate Structure Brigham Minerals, Inc. was incorporated as a Delaware corporation in June 2018 for the purpose of completing the IPO and related transactions. On April 23, 2019, in connection with the IPO, Brigham Minerals became a holding company whose sole material asset consists of units in Brigham LLC (the “Brigham LLC Units”). Brigham LLC wholly owns Brigham Resources, which wholly owns the Minerals Subsidiaries, which own all of our operating assets. The remainder of the Brigham LLC Units are held by affiliates of Yorktown Partners LLC (“Yorktown”) and Pine Brook Road Advisors, LP (“Pine Brook”) and certain of our management members and other prior investors (together with Yorktown and Pine Brook, the “Original Owners”). As the sole managing member of Brigham LLC, Brigham Minerals operates and controls all of the business and affairs of Brigham LLC, and through Brigham LLC and its subsidiaries, conducts its business. As a result, we consolidate the financial results of Brigham LLC and its subsidiaries and report temporary equity related to the portion of Brigham LLC Units not owned by us, which will reduce net income (loss) attributablea to the holders of our Class A common stock. As of February 19, 2021, Brigham Minerals owned 76.8% of Brigham LLC. Each of the Original Owners holds one share of our Class B common stock, par value $0.01 per share (the "Class B common stock"), for each Brigham LLC Unit such person holds. Each share of Class B common stock has no economic rights but entitles its holder to one vote on all matters to be voted on by shareholders generally. Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to our shareholders for their vote or approval, icable law or by our amended and restated certificate of incorporation. We do not intend to except as otherwise required by appl list our Class B common stock on any exchange. a ff Under the First Amended and Restated Limited Liability Company Agreement of Brigham LLC (the “Brigham LLC Agreement”), each holder of a Brigham LLC Unit (a “Brigham Unit Holder”) has, subject to certain limitations, the right (the “Redemption Right”) to cause Brigham LLC to acquire all or a portion of its Brigham LLC Units for, at Brigham LLC’s election, (i) shares of our Class A common stock at a redemption ratio of one share of Class A common stock for each Brigham LLC Unit redeemed, subjeu ct to conversion rate adjustments for stock splits, stock dividends and reclassification and other similar transactions or (ii) an equivalent amount of cash. Our decision to make a cash payment upon a Brigham Unit Holder’s redemption election must be made by our independent directors (within the meaning of the New York Stock Exchange and Section 10A-3 of the Securities Act) who do not own Brigham LLC units that are subject to such redemption. We will determine whether to issue shares of Class A common stock or cash based on facts in existence at the time of the decision, which we expect would include the relative value of the Class A common stock (including trading prices for the Class A ity of other sources of liquidity (such as an issuance of common stock at the time), the cash purchase price, the availabila preferred stock) to acquire the Brigham LLC Units and alternative uses for such cash. Alternatively, upon the exercise of the Redemption Right, Brigham Minerals (instead of Brigham LLC) will have the right (the “Call Right”) to, for administrative convenience, acquire each tendered Brigham LLC Unit directly frff om the redeeming Brigham Unit Holder for, at its election, (x) one share of Class A common stock or (y) an equivalent amount of cash. In connection with any redemption of Brigham LLC Units pursuant to the Redempm tion Right or acquisition pursuant to our Call Right, the corresponding number of shares of Class B common stock will be cancelled. Under the Registration Rights Agreement we entered into with certain of the Original Owners in connection with the IPO, such Original Owners have the right, under certain circumstances, to cause us to register the offer and resale of their shares of Class A common stock. The following diagram indicates our simplified ownership structuret illustrative purposes only and does not represent all legal entities affiliated with us. as of February 19, 2021. This chart is provided forff 15 (1) (2) Public stockholders include shares of Class A common stock sold to the public, issued pursuant to awards granted under our 2019 Long Term Incentive Plan ("LTIP") or issued to Brigham Unit Holders in connection with their exercise of the Redemption Right. Legacy Brigham Unit Holders include members of our management team and investors in our Company prior to our IPO (other than our Sponsors) who continue to hold Brigham LLC Units. Certain of the interests of our management in Brigham LLC are held indirectly through Brigham Equity Holdings, LLC. Brigham Equity Holdings, LLC directly owns 141,820 Brigham LLC Units, representing an approximate 0.3% interest in Brigham LLC. Total voting power does not include any shares of Class A common stock held by such legacy Brigham Unit Holders. Our Principal Stockholders We have valuable relationships with Yorktown and Pine Brook, private investment firms focff used on investments in the energy sector. As of February 19, 2021, affiliates of Yorktown and Pine Brook (collectively, our “Sponsors”) own no shares of Class A common stock and 9,603,597 shares of Class B common stock representing approximately 16.9% of the voting power of Brigham Minerals and 9,603,597 Brigham LLC Units. rr 16 Principal Executive Offices Our principal executive offices are located at 5914 W. Courtyard Drive, Suite 200, Austin, Texas 78730, and our telephone number at that address is (512) 220-6350. Our website address is www.brighamminerals.com. We make our periodic reports and other information filed with or furnished to the SEC available free of charge through our website as soon as reasonably practicablea after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into, and does not constitute a part of, this Annual Report. Proved, Probable and Possible Reserves Oil, Natural Gas and NGLs Data Evaluation and Audit of Po roved, Probable and Possible Reserves. Our proved, probable and possible reserve estimates as of December 31, 2020, 2019 and 2018 were audited by CG&A, our independent petroleum engineers. Within CG&A, the th in the reserve reports incorporated herein is technical person primarily responsible for preparing the reserve estimates set forff Todd Brooker. Prior to joining CG&A, Mr. Brooker worked in Gulf of Mexico drilling and production engineering at Chevron USA. Mr. Brooker has been an employee of CG&A since 1992. His responsibilities include reserve and economic evaluations, fair market valuations, field studies, pipeline resource studies and acquisition/divestituret analysis. His reserve reports are routinely used for public company SEC disclosures. His experience includes significant projects in both conventional and unconventional resources in every majora U.S. producing basin and abroad, including oil and gas shale plays, coalbed methane fields, waterfloods and complex, faulted structures. Mr. Brooker graduated with honors from the University of Texas at Austin in 1989 with a Bachelor of Science degree in Petroleum Engineering and is a registered Professional Engineer in the State of Texas. He is also a member of the Society of Petroleum Engineers and the Society of Petroleum Evaluation Engineers (SPEE). t Mr. Brooker meets or exceeds the requirements with regard to qualifications, independence, objectivity and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers. CG&A does not own an interest in any of our properties, nor is it employed by us on a contingent basis. A summary of CG&A’s report with respect to our proved, probable and possible reserve estimates as of December 31, 2020 is included as an exhibit to this Annual Report. We maintain an internal staff of petroleum engineers and geoscience professionals who worked closely with our independent reserve engineers to ensure the integrity, accuracy and timeliness of the data used to calculate our proved, probable and possible reserves relating to our properties. Our internal technical team members meet with our independent reserve engineers periodically during the period covered by the proved, probable and possible reserve report to discuss the assumptim ons and methods used in the proved, probable and possible reserve estimation process. We provide historical information to CG&A gas production, well test data, commodity prices and our estimates for our properties, such as ownership interest, oil and natural of our operators’ operating and development costs. Hamilton Hogsett is primarily responsible for overseeing the preparation of our reserve estimates. Mr. Hogsett has substant ial reservoir and operations experience having worked as a petroleum engineer since 2009 and is supported by our engineering and geoscience staff. Prior to joining our Company in 2017, Mr. Hogsett worked at Apache Corporation and Antero Resources Corporation. u t The preparation of our proved, probable and possible reserve estimates was completed in accordance with our internal control procedures. These procedures, which are intended to ensure reliability of reserve estimations, include the following: • • • • • review and verification of historical production data, which data is based on actual production as reported by our operators; review by Mr. Hogsett, our Vice President of Reservoir Engineering, of all of our reported proved, probable and possible reserves, including the review of all significant reserve changes and all PUD additions or reductions; ff verificatio n of property ownership by our land department; review of reserve estimates by Mr. Hogsett or under his direct supervision; and direct reporting responsibilities by Mr. Hogsett to our Chief Executive Officer. Estimation of Proved Reserves. In accordance with ruler to companies involved in oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. The gas producing activities, proved reserves are those quantities of oil and natural s and regulations of the SEC applicablea t t 17 t t oil and natural term “reasonable certainty” means deterministically, the quantities of oil and/or natural gas are much more likely to be achieved than not, and probabilistically, there should be at least a 90% probability of recovering volumes equal to or exceeding the estimate. All of our proved reserves as of December 31, 2020, 2019 and 2018 were estimated using a deterministic method. The estimation of reserves involves two distinct determinations. The first determination results in the estimation of the quantities of recoverablea gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance with the definitions established under SEC rules. The process of estimating the quantities of recoverablea reserves relies on the use of certain generally accepted analytical procedures. These analytical procedures fall into four broad categories or methods: (i) production performance-based methods; (ii) material balance-based methods; (iii) volumetric-based methods; and (iv) analogy. These methods may be used singularly or in combination by the reserve evaluator in the process of estimating the quantities of reserves. Reserves forff proved developed producing wells were estimated using production performance methods for the vast majority of properties. Certain new producing properties with very little production history were forecast using a combination of production performance and analogy to similar production, both of which are considered to provide a reasonably high degree of accuracy. Non-producing reserve estimates, for developed and undeveloped properties, were forecast using analogy methods. This method provides a reasonably high degree of accuracy for predicting proved developed non-producing and PUDs for our properties, due to the abundance of analog data. To estimate economically recoverablea tors and assumptim ons, including the use of reservoir parameters derived from geological and engineering data that cannot be measured directly, economic criteria based on current costs and the SEC pricing requirements and forecasts of futuret proved reserves and related future net cash flows, we considered many facff production rates. Under SEC rules, reasonable certainty can be established using techniques that have been proven effective by actual technology that production from projects in the same reservoir or an analogous reservoir or by other evidence using reliablea shes reasonable certainty. Reliable technology is a grouping of one or more technologies (including computational establia tested and have been demonstrated to provide reasonably certain results with consistency and methods) that have been fieldff sh reasonable certainty with respect to repeatability in the formation being evaluated or in an analogous formation. To establia our estimated proved reserves, the technologies and economic data used in the estimation of our proved reserves have been demonstrated to yield results with consistency and repeatability, and include production and well test data, downhole completion information, geologic data, electrical logs, radioactivity logs, core data, and historical well cost and operating expense data. Estimation of Probable Reserves. Estimates of probable reserves are inherently imprecise. When producing an estimate of the amount of oil, natural from a particular reservoir, an estimated quantity of probable reserves is an estimate of those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered. Estimates of probable reserves are also continually subject to revisions based on production history, results of additional exploration and development, price changes and other factors. gas and NGLs that is recoverablea t t t oil and natural oil and natural When deterministic methods are used, it is as likely as not that actuat l remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates. All of our probable reserves as of December 31, 2020, 2019 and 2018 were estimated using a deterministic method, which involves two distinct determinations: an estimation of the quantities of recoverablea gas and an estimation of the uncertainty associated with those estimated quantities in accordance with the definitions established under SEC rules. The process of estimating the quantities of recoverablea gas reserves uses the same generally accepted analytical procedures as are used in estimating proved reserves, namely production performance-based methods, material balance-based methods, volumetric-based methods and analogy. In the case of probable reserves, the recoverabla e reserves cannot be said to have a “high degree of confidence that the quantities will be recovered” but are “as likely as not to be recovered.” The lower degree of certainty can come frff om several factors including: (1) direct offset production that does not meet an economic threshold, despite localized averages that do meet that threshold, (2) an increased distance from offset production to the probable location of over one mile but under three miles, (3) a perceived risk of communication or depletion from nearby producers, (4) a perceived risk of attempting new drilling or completion technologies that have not been used in direct offset production or (5) an uncertainty nced above, the lower regarding geologic positioning that could affect recoverable reserves. When considering the factors refereff degree of certainty of our probable reserves came from a combination of these factors depending upon the applicablea basin. Many of the probable locations assigned in our reserve reports had few uncertainties and resemble proved undeveloped locations except for their distance from commercial production. Other probable locations had uncertainties related to not only distance from commercial production, but also related to well spacing and development timing. In general, we did not book probable locations if there was geologic uncertainty or if there was not commercial producd tion to support such locations. Estimation of Possible Reserves. Estimates of possible reserves are also inherently imprecise. When producing an estimate from a particular reservoir, an estimated quantity of possible of the amount of oil, natural gas and NGLs that is recoverablea 18 reserves is an estimate that might be achieved, but only under more favorable circumstances than are likely. Estimates of possible reserves are also continually subject to revisions based on production history, results of additional exploration and development, price changes and other facff tors. t t oil and natural When deterministic methods are used, the total quantities ultimately recovered fromff a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates. All of our possible reserves as of December 31, 2020, 2019 and 2018 were estimated using a deterministic method, which involves two distinct determinations: an estimation of the quantities of recoverablea gas and an estimation of the uncertainty associated with those estimated quantities in accordance with the definitions established under SEC rules. The process of estimating the quantities of recoverablea gas reserves uses the same generally accepted analytical oil and natural procedures as are used in estimating proved reserves, namely production performance-based methods, material balance-based methods, volumetric-based methods and analogy. In the case of possible reserves, the recoverablea reserves cannot be said to be “as likely as not to be recovered”, but “might be achieved, but only under more favorable circumstances than are likely.” The lower degree of certainty can come fromff tors including: (1) direct offset production that does not meet an economic threshold, despite localized averages that do meet that threshold, (2) an increased distance from offset production to the possible location of over one mile but under five miles, (3) a perceived risk of communication or depletion from nearby producers, (4) a perceived risk of attempting new drilling or completion technologies that have not been used in direct offset production or (5) reserves. When considering the factors referff enced an uncertainty regarding geologic positioning that could affect recoverablea above, the lower degree of certainty of our possible reserves came fromff a combination of these factors depending upon the applicable basin. Many of the possible locations assigned in our reserve reports had few uncertainties and resemble proved undeveloped locations except for their distance from commercial production. Other possible locations had uncertainties related to not only distance from commercial production, but also related to well spacing and development timing. In general, we did not book possible locations if there was geologic uncertainty or if there was not commercial production to support such location. several facff Summary of Reserves. The following table presents our estimated net proved, probable and possible reserves as of December 31, 2020, 2019 and 2018, based on our proved, probable and possible reserve estimates as of such dates, which have , by CG&A, our independent petroleum engineering firm, in accordance with the rules been prepared or audited, as applicablea and regulations of the SEC. All of our proved, probable and possible reserves are located in the United States. 19 Estimated proved developed reserves: Oil (MBbls) Natural gas (MMcf) NGLs (MBbls) Total (MBoe) Estimated proved undeveloped reserves: Oil (MBbls) Natural gas (MMcf) NGLs (MBbls) Total (MBoe) Estimated total proved reserves: Oil (MBbls) Natural gas (MMcf) NGLs (MBbls) Total (MBoe) Estimated probable reserves: Oil (MBbls) (4) Natural gas (MMcf) (4) NGLs (MBbls) (4) Total (MBoe) (4) Estimated possible reserves: Oil (MBbls) (4) Natural gas (MMcf) (4) NGLs (MBbls) (4) Total (MBoe) (4) Oil and Natural Gas Prices: Oil- WTI posted price per Bbl Natural gas - Henry Hub spot price per MMbtu Years Ended December 31, 2020 (1) 2019 (2) 2018 (3) 9,403 31,873 3,426 18,141 3,797 11,771 1,164 6,922 13,200 43,644 4,590 25,063 20,096 85,477 9,417 43,759 12,356 32,638 4,475 22,271 9,924 33,232 2,494 17,957 7,037 28,498 3,344 15,131 16,961 61,730 5,838 33,088 16,948 70,627 8,274 36,993 11,986 33,063 5,024 22,521 $ $ 39.57 2.00 $ $ 55.65 2.60 $ $ 6,067 21,735 1,898 11,588 6,924 30,061 3,219 15,153 12,991 51,796 5,117 26,741 14,854 66,682 7,560 33,528 10,302 29,775 3,545 18,810 65.66 3.12 (1) Our estimated net proved, probable and possible reserves were determined using average first-day-of-the month prices for the prior 12 months in accordance with SEC guidance. For oil and NGL volumes, the average West Texas Intermediate ("WTI") posted price of $39.57 per barrel as of December 31, 2020 was adjusted for quality, transportation fees and a regional price differential. NGL prices varied by basin from 10% to 25% of the WTI posted price. For gas volumes, the average Henry Hub spot price of $2.00 per MMBtu as of December 31, 2020 was adjusted for energy content, transportation fees and a regional price differential. These prices do not give effect to derivative transactions and are held constant throughout the lives of the properties. The average adjusted product prices weighted by production over the remaining lives of the properties are $36.35 per barrel of oil, $8.19 per barrel of NGL and $1.03 per Mcf of gas as of December 31, 2020. (2) Our estimated net proved, probable and possible reserves were determined using average first-day-of-the month prices for the prior 12 months in accordance with SEC guidance. For oil and NGL volumes, the average WTI posted price of $55.65 per barrel as of December 31, 2019 was adjusted for quality, transportation fees and a regional price differential. NGL prices varied by basin from 13% to 30% of the WTI posted price. For gas volumes, the average Henry Hub spot price of $2.60 per MMBtu as of December 31, 2019 was adjusted for energy content, transportation fees and a regional price differential. All prices do not give effect to derivative transactions and are held constant throughout the lives of the properties. The average adjusted product prices weighted by production over the remaining lives of the properties are $51.01 per barrel of oil, $14.39 per barrel of NGL and $1.51 per Mcf of gas as of December 31, 2019. (3) Our estimated net proved, probable and possible reserves were determined using average first-day-of-the-month prices for the prior 12 months in accordance with SEC guidance. For oil and NGL volumes, the average WTI posted price of $65.66 per barrel as of December 31, 2018 was adjusted for quality, transportation fees and a regional price differential. NGL prices varied by basin from 22% to 41% of the WTI posted price. For gas volumes, the average Henry Hub spot price of $3.12 per MMBtu as of December 31, 2018 was adjusted for energy content, transportation fees and a regional price differential. All prices do not give effect to derivative transactions and are held constant throughout the lives of the properties. The average adjusted product prices weighted by production over the remaining lives of the properties are $61.31 per barrel of oil, $23.98 per barrel of NGL and $2.51 per Mcf of gas as of December 31, 2018. Reserve engineering is a subjective process of estimating volumes of economically recoverablea gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation. As a result, the estimates of different engineers often vary. In addition, the results the of drilling, testing and production may justify revisions of such estimates. Accordingly, reserve estimates often differ fromff gas and of quantities of oil and natural gas that are ultimately recovered. Estimates of economically recoverablea oil and natural oil and natural t t t 20 future net revenues are based on a number of variables and assumptions, all of which may vary from actual results, including geologic interpretation, prices and futuret production rates and costs. Please read “Item 1A—Risk Factors.” Additional information regarding our proved, probable and possible reserves can be foun d in the notes to our consolidated financial statements included elsewhere in this Annual Report and the proved, probable and possible reserve reports as of December 31, 2020 and December 31, 2019 and 2018, which are included as exhibits to this Annual Report. ff PUDs As of December 31, 2020, we estimated our PUD reserves to be 3,797 MBbls of oil, 11,771 MMcf of natural gas and 1,164 MBbls of NGLs, for a total of 6,922 MBoe. PUDs will be converted from undeveloped to developed as the applicable wells begin production. t The following tablea s summarize our changes in PUDs during the year ended December 31, 2020 (in MBoe): Balance, Dec 31, 2019 Acquisition of reserves Extensions and discoveries Revisions of previous estimates SEC pricing reduction Development timing and 5-year rule Transfer to estimated proved developed Balance, Dec 31, 2020 Proved Undeveloped Reserves 15,131 389 374 882 (1,118) (7,036) (1,700) 6,922 Changes in PUDs that occurred during 2020 were primarily dued to: • the acquisition of additional mineral and royalty interests located in the Permian, Anadarko, Williston and DJ Basins in multiple transactions, which included 389 MBoe of additional PUD reserves; • well additions, extensions and discoveries of approximately 374 MBoe, as 94 horizontal well locations were converted from probable, possible and contingent resource to PUDs due to continuous activity and delineation of additional zones on our mineral and royalty interests, offset by • • • • negative revisions of 1,118 MBoe attributable to a reductd ion in SEC pricing; positive revision of 882 MBoe attributablea processing assumptim ons, and unit configuration; and to estimate ultimate recovery ("EUR") adjustments, refined gas and NGL 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 5-year ruler for PUDs; and the conversion of approximately 1,700 MBoe in PUD reserves into proved developed reserves as 184 horizontal locations were drilled and/or completed. As a mineral and royalty interests owner, we do not incur any capita connection with the development of our PUDs, which costs are borne entirely by the operator. As a result, during ended December 31, 2020, we did not have any expenditures to convert PUDs to proved developed reserves. d t al expenditures or lease operating expenses in the year We identify drilling locations based on our assessment of current geologic, engineering and land data. This includes DSU formation and current well spacing information derived from state agencies and the operations of the exploration and production companies drilling our mineral and royalty interests. We generally do not have evidence of approval of our operators’ development plans, however, we use a deterministic approach to define and allocate locations to proved reserves. While many of our locations qualify as geologic PUDs, we limit our PUDs to the quantities of oil and gas that are reasonably certain to be recovered in the next five years. As of December 31, 2020 and 2019, approximately 28% and 46%, respectively, of our total proved reserves were classified as PUDs. Oil, Natural Gas and NGL Production Prices and Costs 21 Production and Price History The following tabla e sets forth ff information regarding net production of oil, natural gas and NGLs, and certain price and cost information for each of the periods indicated: Production Data: Oil (MBbls) Natural gas (MMcf) NGLs (MBbls) Total (MBoe)(1)(2) Average realized prices(3): Oil ($/Bbl) Natural gas ($/Mcf) NGLs ($/Bbl) Total ($/Boe)(2) Average costs (per Boe); Gathering, transportation and marketing Severance and ad valorem taxes Depreciation, depletion, and amortization General and administrative(4) Interest expense, net Loss (gain) on derivative instruments, net Total Years Ended December 31, 2020 2019 2018 1,823 5,809 680 3,471 1,515 4,707 407 2,706 37.26 $ 54.16 $ $ $ 1.80 11.61 24.85 2.01 1.62 13.90 4.06 0.26 — $ $ 2.07 15.03 36.17 1.84 2.37 11.43 4.40 2.07 0.21 21.85 $ 22.32 $ 777 2,507 222 1,417 60.56 2.80 25.72 42.19 2.78 2.50 9.82 4.69 5.26 (0.30) 24.75 $ $ $ $ (1) May not sum or recalculate due to rounding. (2) “Btu-equivalent” production volumes are presented on an oil-equivalent basis using a conversion factor of six Mcf of natural gas per barrel of “oil equivalent,” which is based on approximate energy equivalency and does not reflect the price or value relationship between oil and natural gas. (3) Excludes the effect of commodity derivative instruments. (4) General and administrative expenses exclude share-based compensation expenses. Productive Wells Productive wells consist of producing horizontal wells, wells capabl e of production and exploratory, development or extension wells that are not dry wells. As of December 31, 2020, we owned mineral and royalty interests in 5,985 gross productive horizontal wells, which consisted of 5,398 oil wells and 587 natural gas wells. a t We do not own any working interests in any wells. Accordingly, we do not own any net wells as such term is defined by Item 1208(c)(2) of Regulation S-K. Acreage The following tablea sets forth information relating to our acreage for our mineral and royalty interests as of December 31, 2020: 22 Basin Delaware Midland SCOOP STACK DJ Williston Other Total Gross DSU Acreage Net Royalty Acreage 100% Royalty Acreage 345,770 123,815 208,455 179,960 174,535 503,455 146,345 1,682,335 28,330 5,220 11,400 10,725 15,890 7,950 6,770 86,285 3,540 650 1,430 1,340 1,990 990 850 10,790 The vast majority of our mineral and royalty interests are leased to our operators with greater than 90% of our approximately 80,195 leased net royalty acres being held by production as of December 31, 2020. In addition, we had approximately 6,090 net royalty acres that were not leased as of December 31, 2020. Drilling Results ff sets forth The following tablea information with respect to the number of wells turned to production on our properties during the periods indicated. The information should not be considered indicative of future perforff mance, nor should it be assumed that there is necessarily any correlation among the number of productive wells drilled, the quantities of reserves found and the economic value. Productive wells are those that produce commercial quantities of hydrocarbons, whether or not they produce a reasonable rate of return. As a mineral and royalty interest owner, we generally are not provided information as to whether any wells drilled on the properties underlying our acreage are classified as exploratory. ff t Development wells: Productive Dry(1) Total Years Ended December 31, 2020 2019 2018 719 — 719 906 — 906 1,036 — 1,036 (1) We are not aware of any dry holes drilled on the acreage underlying our mineral and royalty interests during the relevant periods. Regulation of Environmental and Occupational Safety and Health Matters t Oil, natural gas and NGL exploration, development and production operations are subject laws and regulations governing the discharge of materials into the environment or otherwise relating to protection of the environment or occupational health and safety.t These laws and regulations have the potential to impact production on our properties, including requirements to: to stringent • • • • • • obtain permits to conduct regulated activities; limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas; restrict the types, quantities and concentration of materials that can be released into the environment in the performance of drilling and production activities; initiate investigatory and remedial measures to mitigate pollution from former or current operations, such as restoration of drilling pits and plugging of abandoned wells; a apply specific health and safety ct riteria addressing worker protection; and impose substantial liabila ities forff pollution resulting from operations. Failure to comply with environmental laws and regulations may result in the assessment of administrative, civil and criminal sanctions, including monetary penalties, the imposition of strict, joint and several liabia lity, investigatory and remedial 23 obligations and the issuance of injunctions limiting or prohibiting some or all of the operations on our properties. Moreover, gas and NGL production below the rate that would these laws, rulrr es and regulations may restrict the rate of oil, natural otherwise be possible. The regulatory burden on the oil and natural gas industry increases the cost of doing business in the industry and consequently affects profitability. The trend in environmental regulation has been to place more restrictions and limitations on activities that may affect the environment, and thus, any changes in environmental laws and regulations or re- interpretation of enforcement policies that result in more stringent and costly construction, drilling, water management, completion, emission or discharge limits or waste handling, disposal or remediation obligations could increase the cost to our operators of developing our properties. Moreover, accidental releases or spills may occur in the course of operations on our properties, causing our operators to incur significant costs and liabilities as a result of such releases or spills, including any third-party claims forff damage to property, natural resources or persons. t t Increased costs or operating restrictions on our properties as a result of compliance with environmental laws could result in reduced exploratory and production activities on our properties and, as a result, our revenues and results of operations. The following is a summary of certain existing environmental, health and safety l aws and regulations, each as amended from time to time, to which operations on our properties are subject. t Hazardous Substances and Waste Handling The Comprehensive Environmental Response, Compensation and Liability Act, or “CERCLA,” also known as the Superfund law, and comparablea state laws impose liability without regard to fault or the legality of the original conduct on certain classes of persons who are considered to be responsible for the release of a “hazardous substance” into the environment. Under CERCLA, these “responsible persons” may include the owner or operator of the site where the release occurred, and entities that transport, dispose of or arrange for the transport or disposal of hazardous substances released at the site. These responsible persons may be subject to joint and several strict liabia lity for the costs of cleaning up the hazardous substances that resources and for the costs of certain health studies. CERCLA have been released into the environment, forff also authorizes the U.S. Environmental Protection Agency ("EPA") and, in some instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. It is not uncommon for neighboring landowners and other third-parties to filff e claims forff personal injury and property damage allegedly caused by the hazardous substances released into the environment. damages to natural t The Resource Conservation and Recovery Act (“RCRA”)RR state laws control the management and disposal of hazardous and non-hazardous waste. These laws and regulations govern the generation, storage, treatment, transfer and disposal of wastes generated. Drilling fluids, produced waters and most of the other wastes associated with the exploration, gas and NGLs, if properly handled, are currently exempt from regulation as development and production of oil, natural hazardous waste under RCRA and, instead, are regulated under RCRA’s less stringent non-hazardous waste provisions, state laws or other fede ral laws. However, it is possible that certain oil, natural gas and NGL drilling and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. Any such change could result in an increase in the costs to manage and dispose of wastes, which could increase the costs of our operators’ operations. and comparablea ff t t Certain of our properties have been used for oil and natural gas exploration and production for many years. Although the operators may have utilized operating and disposal practices that were standard in the industry at the time, petroleum hydrocarbons and wastes may have been disposed of or released on or under our properties, or on or under other offsite locations where these petroleum hydrocarbons and wastes have been taken for recycling or disposal. Our properties and the petroleum hydrocarbons and wastes disposed or released thereon may be subject to CERCLA, RCRA aRR nd analogous state laws. Under such laws, the owner or operator could be required to remove or remediate previously disposed wastes, to clean upu contaminated property and to perform remedial operations such as restoration of pits and plugging of abandoned wells to prevent futuret contamination or to pay some or all of the costs of any such action. Water Discharges and NORM The Federal Water Pollution Control Act, also known as the “Clean Water Act,” and analogous state laws imposm e restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil, into fede ral and state waters. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. The scope of federal jurisdictional reach over waters of the United States (“WOTUS”) has been subject to substantial revision in recent years. In January 2020, the EPA and the U.S. Army Corps of Engineers (the “Corps”) replaced a prior 2015 rule with the narrower Navigablea Waters Protection Rule; challenges are pending against these rulemakings, and the Biden Administration may propose a diffeff rent interpretation of WOTUS. Therefore, the scope of jurisdiction under the Clean Water Act is uncertain at this time, and any increase in scope could result in increased our operators. In addition, federal and state regulatory certain activities forff costs or delays with respect to obtaining permits forff non-compliance with discharge permits or other agencies can impose administrative, civil and criminal penalties forff ff 24 requirements of the Clean Water Act and analogous state laws and regulations. Spill prevention, control and countermeasure plan requirements imposed under the Clean Water Act require appropriate containment berms and similar structures to help or leak. In addition, the Clean prevent the contamination of navigable waters in the event of a hydrocarbon tank spill, rupture discharges of storm water Water Act and analogous state laws require individual permits or coverage under general permits forff ilities. The Oil Pollution Act of 1990, as amended, or “OPA,” amends the Clean Water Act and runoff from certain types of facff establia resource damages liability for unauthorized discharges of oil into waters of the United States. OPA requires owners or operators of certain onshore facilities to prepare Facility Response Plans for responding to a worst case discharge of oil into waters of the United States. shes strict liabia lity and natural r t t In addition, natural ly occurring radioactive material (“NORM”) is brought to the surface in connection with oil and gas production. Concerns have arisen over traditional NORM disposal practices (including discharge through publicly owned treatment works into surface waters), which may increase the costs associated with management of NORM. t Air Emissions a The Clean Air Act of 1963 (“CAA”) and comparablea for the construction or modification of certain projects or facff state laws restrict the emission of air pollutants from many sources through air emissions permitting programs and also impose various monitoring and reporting requirements. These laws and regulations may require our operators to obtain pre-approval ilities expected to produce or significantly increase air emissions, obtain and strictly comply with stringent air permit requirements or incur development expenses to install and utilize specific equipment or technologies to control emissions. For example, in December 2019, the EPA reclassified Colorado’s ozone nonattainment areas under the National Ambient Air Quality Standards from moderate to serious nonattainment; also, the Colorado Air Quality Control Commission has approved new rules to reduce emissions from oil and gas operations in the state, including requirements forff more extensive emissions monitoring and reporting. These revisions could increase the costs of development and production on our properties, potentially impairing the gas economic development of our properties. Obtaining permits has the potential to delay the development of oil and natural projects. Federal and state regulatory agencies may impose administrative, civil and criminal penalties forff non-compliance with air permits or other requirements of the CAA and associated state laws and regulations. t Climate Change The threat of climate change continues to attract considerablea attention in the United States and in foreign countries, numerous proposals have been made and could continue to be made at the international, national, regional, and state levels of government to monitor and limit existing emissions of greenhouse gasses (“GHGs”) as well as to restrict or eliminate such future emissions. In the United States, no comprehensive climate change legislation has been implemented at the federa l level. However, President Biden has highlighted addressing climate change as a priority of his administration and has issued several executive orders addressing climate change. Moreover, following the U.S. Supreme Court finding that GHG emissions constitute a pollutant under the CAA, the EPA has adopted regulations that, among other things, establia sh construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG gas system sources in the United States, and together with the U.S. Department of emissions from certain petroleum and natural Transportation (the “DOT”), implementing GHG emissions limits on vehicles manufactured for operation in the United States. t The regulation of methane from oil and gas facilities has been subject to uncertainty in recent years. For more information, see our regulatory disclosure titled “Hydraulic Fracturing Activities.” ff t t Additionally, various states and groups of states have adopted or are considering adopting legislation, regulation or other regulatory initiatives that are focused on such areas GHG cap a nd trade programs, carbon taxes, reporting and tracking a programs, and restriction of emissions. At the international level, the United Nations sponsored “Paris Agreement” requires member states to submit non-binding, individually-determined reduction goals known as Nationally Determined Contributions (“NDCs”) every five years after 2020. Although the United States had withdrawn from the Paris Agreement, President Biden has signed executive orders recommitting the United States to the agreement and calling on the federal government to develop the United States’ NDC. However, the impacts of these executive orders and the terms of any legislation or regulation to implm ement the United States’ commitment remain unclear at this time. k Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in increasing political risks in the United States, including action taken by President Biden with respect to his climate change related pledges. On January 27, 2021, President Biden issued an executive order that calls for substantial action on climate change, including, among other things, the increased use of zero-emission vehicles by the federal government, the elimination of subsidies provided to the fossil fuel industry, and increased emphasis on climate-related risks across government agencies 25 and economic sectors. The Biden Administration has also issued orders temporarily suspending the issuance of authorizations, and suspending the issuance of new leases pending a study, for oil and gas development on federal lands. Substantially all of our mineral interests are located on private lands, but we cannot predict the full impact of these developments or whether the Biden Administration may pursue further restrictions. Other actions that could be pursued by the Biden Administration may include the imposition of more restrictive requirements for the establia or the permitting of liquified natural gas (“LNG”) export facilities, as well as more restrictive GHG emissions limitations for oil and gas facilities. Litigation risks are also increasing as a number of cities and other local governments have sought to bring suit against the gas companies in state or federal court, alleging among other things, that such companies created public largest oil and natural nuisances by producing fuels that contributed to climate change or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors or customers by failing to adequately disclose those impacts. shment of pipeline infrastructuret t t There are also increasing financial risks forff fossil fuel producers as shareholders currently invested in fossil-fuel energy companies concerned about the potential effects of climate change may elect in the future to shift some or all of their investments into non-energy related sectors. Instituti onal lenders who provide financing to fossil-fuel energy companies also have become more attentive to sustainable lending practices and some of them may elect not to provide funding for fossil fuel ff of energy companies. There is also a risk that financial institutions will be required to adopt policies that have the effect reducing the funding provided to the fossil fuel sector. Recently, President Biden signed an executive order calling for the development of a “climate finff ance plan” and, separately, the Federal Reserve joined the Network for Greening the Financial System, a consortium of financial regulators focused on addressing climate-related risks in the financial sector. Limitation of energy companies could result in the restriction, delay or cancellation of drilling investments in and financing for fossil fuel programs or development or production activities. ff ff ff t The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other gas sector or otherwise regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas or generate the GHG emissions could result in increased restrict the areas in which this sector may produce oil and natural gas, which could reduce the costs of compliance or costs of consuming, and thereby reduce demand for oil and natural gas operators profitability of our interests. Additionally, political, litigation and financial risks may result in our oil and natural restricting or cancelling production activities, incurring liability for infrastructuret damages as a result of climatic changes, or impairing their ability to continue to operate in an economic manner, which also could reduce the profitability of our interests. One or more of these developments could have a material adverse effect on our business, financial condition and results of operation. t t t t Hydraulic Fracturing Activities A substantial portion of the production on our properties involved the use of hydraulic fracturing techniques. Hydraulic fracturing is an important and common practice that is used to stimulate production of oil, natural dense subsurface rock formations. The hydraulic fracturing process involves the injection of water, sand and chemical additives under pressure into the formation to fracturet the surrounding rock and stimulate production. gas and NGLs fromff t ff Hydraulic fracff turing typically is regulated by state oil and natural t ral regulatory authority pursuant to the U.S. Safe Drinking Water Act (“SDWA”) over certain hydraulic fracff gas commissions or similar agencies, but the EPA has asserted fede turing activities involving the use of diesel fuel in fracturing fluids and issued permitting guidance that applies to such activities. Additionally, the EPA issued finaff l CAA regulations in 2012 and in June 2016 governing performance standards, including standards for the captur e of emissions of methane and volatile organic compounds released during hydraulic fracturing. In September 2020, the Trump Administration revised these regulations to remove the transmission and storage segments from the nd rescind the methane-specific requirements applicable to sources in the production and oil and natural gas source category arr processing segments. However, President Biden has signed an executive order calling for the suspension, revision, or rescission of the September 2020 rule, and the reinstatement or issuance of methane emissions standards for new, modified, and existing oil and gas facilities. a Also, in December 2016, the EPA released its finff al report on the potential impacts of hydraulic fracturing on drinking turing may impact water resources. The final report concluded that “water cycle” activities associated with hydraulic fracff drinking water resources “under some circumstances,” noting that the following hydraulic fracff turing water cycle activities and local- or regional-scale factors are more likely than others to result in more frequent or more severe impacts: water withdrawals for fracturing in times or areas of low water availabila ity; surface spills during the management of fracturing fluids, chemicals or produced water; injection of fracturing fluids into wells with inadequate mechanical integrity; injection of fracturing fluids directly into groundwater resources; discharge of inadequately treated fracturing wastewater to surface waters; and disposal or storage of fracturing wastewater in unlined pits. t 26 In addition, various state and local governments have implemented, or are considering, increased regulatory oversight of hydraulic fracturing through additional permit requirements, operational restrictions, disclosure requirements, well construction and temporary or permanent bans on hydraulic fracturing in certain areas. For example, Texas, Colorado and North Dakota, impose new or more stringent permitting, disclosure, disposal and well among others, have adopted regulations that construction requirements on hydraulic fracturing operations. States could also elect to prohibit high volume hydraulic fracturing altogether. Separately, in Texas, there has been increased pressure on the Railroad Commission (“RRC”) to impose more stringent limitations on the flaring of gas from oil wells to prevent waste and because of increased concerns related to the ring. The RRC continues to approve flaring permits, but at least one lawsuit has been filff ed by a environmental effects of flaff pipeline operator challenging the RRC’s flar l practices. Additionally, the RRC has approved a new flaring request form, which may result in reducing approvals for flaring. Any future requirements limiting flaring could adversely affect exploration and production activities on our properties and result in increased costs to connect wells to pipelines. In addition to state laws, local land use restrictions, such as city ordinances, may restrict drilling in general and/or hydraulic fracturing in particular. For more information on such restrictions in Colorado, see “Item 1A—Risk Factors—Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in our operators incurring increased costs, additional operating restrictions or delays and fewer potential drilling locations.” If new federal, state or local laws or regulations that significantly restrict hydraulic fracturing are adopted, such legal requirements could result in delays, eliminate certain drilling and injection activities and make it more difficult or costly to perform hydraulic fracturing. Any such regulations limiting or prohibiting hydraulic fracturing could result in decreased oil, natural gas and NGL exploration and production activities and, therefore, adversely affecff t the development of our properties. ing approva a ff t Endangered Species Act The Endangered Species Act (the “ESA”) restricts activities that may affect endangered and threatened species or their habitats. The designation of previously unidentified endangered or threatened species could cause our operators to incur additional costs or become subject to operating delays, restrictions or bans in the affected areas. Recently, there have been renewed calls to review protections currently in place for the Dunes Sagebrusrr h Lizard, whose habitat includes the Permian Basin; Lesser Prairie Chicken, which can be found in portions of the Central and Southern Great Plains; and Greater Sage Grouse, which can be found across a large swath of the northwestern United States in oil and gas producing states, and to reconsider listing the species under the ESA. In July 2020, the US Fish and Wildlife Service determined that sufficient information had been presented to warrant a 12-month review for listing of the Dunes Sagebrusrr h Lizard, which review is ongoing; the agency is also reviewing a candidate conservation agreement with assurances forff the species. To the extent species are listed under the ESA or similar state laws, or previously unprotected species are designated as threatened or endangered in areas where our properties are located, operations on those properties could incur increased costs arising from species protection measures and facff e delays or limitations with respect to production activities thereon. ff ff Employee Health and Safety ral and state laws and regulations, including the federal Operations on our properties are subject to a number of fede ional Safety and Health Act, or “OSHA,” and comparablea state statutes, whose purpose is to protect the health and Occupatu f workers. In addition, the OSHA hazard communication standard, the EPA community right-to-know regulations under safety ot Title III of the federal Superfund state statutes require that information be maintained concerning hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and citizens. Amendment and Reauthorization Act and comparablea u ff Judicial and Legislative Matters Muscogee (Creek) Nation Reservationtt On July 9, 2020, the U.S. Supreme Court ruled that the Muscogee (Creek) Nation reservation in Eastern Oklahoma has not been disestablished. Prior to the Court’s ruling, the prevailing view was that the Muscogee (Creek) Nation, Chickasaw Nation, Cherokee Nation, Choctaw Nation and Seminole Nation reservations within Oklahoma had been disestablished prior to statehood in 1907. Although the Court’s ruling indicates that it is limited to criminal law as applied within the Muscogee (Creek) Nation reservation, the ruling has significant potential implications for civil law within the Muscogee (Creek) Nation reservation, as well as other reservations in Oklahoma that may similarly be found to not have been disestablia shed. While we cannot predict the full extent to which civil jurisdiction may be affected, the ruling could adversely affect title to our mineral interests, to the extent they are found to be located within reservation areas, and significantly impact laws and regulations to which we and our operators and interests are subject in Oklahoma, such as taxation, environmental regulation, and the permitting and siting of energy assets. 27 a State district courts in Oklahoma, appl ying the analysis in U.S. Supreme Court’s ruling regarding the Muscogee (Creek) Nation, have ruled that the Cherokee, Chickasaw, Seminole and Choctaw reservations likewise have not been disestablished. On October 1, 2020, the EPA granted approval to the State of Oklahoma under Section 10211(a) of the Safe,ff Accountablea , Flexible, Efficient Transportation Equity Act of 2005 (the “SAFETE Act”) to administer all of the State’s existing EPA- approved regulatory programs to Indian County within Oklahoma except: Indian allotment to which Indian titles have not been extinguished; lands that are held in trust by the United States on behalf of any Indian or Tribe; and lands that are owned in fee by any Tribe where title was acquired through a treaty with the United States to which a Tribe is a party and that have never existing EPA-approved been allotted to any citizen or member of such Tribe. The approval extends Oklahoma’s authority forff regulatory programs to lands within Oklahoma previously under the jurisdiction of the State before the U.S. Supreme Court’s ruling regarding the Muscogee (Creek) Nation reservation. However, several Tribes have expressed dissatisfaction with the consultation process performed in relation to this approva l, and it is possible that the EPA’s approval under the SAFETE Act could be challenged. Additionally, the SAFETE Act provides that any Tribe in Oklahoma may seek “Treatment as a State” by the EPA. At this time, the EPA, and it is possible that one or more of the Tribes in Oklahoma may seek such an approval fromff we cannot predict how these jurisdictional issues may ultimately be resolved. We will continue to monitor developments concerning these matters. a a Dakota Access Pipeii lineii (“DAPL”) On July 6, 2020, the U.S. District Court for the District of Columbia ordered vacaturt of DAPL’s easement from the “Corps” and further ordered the shutdown of the pipeline by August 5, 2020 while the Corps completes a full environmental of impact statement for the project. On January 26, 2021, the Court of Appeals forff the easement, but declined to require the pipeline to shut down while an Environmental Impact Statement is prepared. However, the Court of Appeals stated that the Corps may require the pipeline to shutdown pending the required environmental review, and the District Court is currently considering whether to enjoin the operation of the pipeline due to the lack of an easement. If the legal challenges to DAPL are successful, transportation costs for The District Court has not yet ruled on this matter. crude oil will likely increase in the Williston Basin, and the operators of our properties in the Williston Basin may choose to shut in wells if they are unable to connect those wells to other pipelines or obtain sufficient capac ity on other pipelines at an effect ive cost, both of which may adversely impact our revenues and future production from our properties in the Williston ff Basin. the District of Columbia affirmed the vacaturt a ff Implementation of Colorado SB 19-181 (“SB 181”) the In November 2020, the Colorado Oil and Gas Conservation Committee ("COGCC"), as part of SB 181’s mandate forff COGCC to prioritize public health and environmental concerns in its decisions, adopted revisions to several regulations to increase protections for public health, safety,t welfare, wildlife, and environmental resources. Most significantly, these revisions ks (2,000 feet, instead of the prior 500-foot) on new oil and gas development and eliminate establia sh more stringent setbac ct to only limited exceptions. Some gas at new or existing wells across the state, each subjeu t routine flaring and venting of natural local communities have adopted, or are considering adopting, further restrictions for oil and gas activities, such as requiring greater setbacks. The Colorado Department of Public Health and the Environment also recently finff alized ruler s related to the control of emissions from certain pre-production activities. These and other developments related to the implementation of SB 181 could adversely impact our revenues and futuret production from our properties. t Title to Properties Prior to completing an acquisition of mineral and royalty interests, we performff a title review on each tract to be acquired. of mineral and royalty interest owned by a prospective seller, the property’s and royalty amount as well as encumbrances or other related burdens. For our Texas properties, we obtain a limited As a result, title examinations have been obtained on a significant Our title review is meant to confirm the quantumt lease statust title memorandum rendered by an oil and gas law firm. portion of our properties. ff In addition to our initial title work, operators often will conduct a thorough title examination prior to leasing and/or drilling a well. Should an operator’s title work uncover any further title defects, either we or the operator will perforff m curative work with respect to such defects. An operator generally will not commence drilling operations on a property until any material title defects on such property have been cured. We believe that the title to our assets is satisfactory in all material respects. Although title to these properties is in some cases subject to encumbrances, such as customary interests generally retained in connection with the acquisition of oil and gas interests, non-participating royalty interests and other burdens, easements, restrictions or minor encumbrances customary in the oil and natural gas industry, we believe that none of these encumbrances t will materially detract fromff the value of these properties or from our interest in these properties. Competition 28 t gas leases and personnel required to findff gas business is highly competitive in the exploration for and acquisition of reserves, the acquisition of The oil and natural and produce reserves. Many of our competitors not only minerals and oil and natural t own and acquire mineral and royalty interests but also explore for and produce oil and natural gas and, in some cases, carry on midstream and refining operations and market petroleum and other products on a regional, national or worldwide basis. By engaging in such other activities, our competitors may be abla e to develop or obtain information that is superior to the information that is availablea to us. In addition, certain of our competitors may possess financial or other resources substantially larger than we possess. Our ability to acquire additional minerals and properties and to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. t In addition, oil and natural t price. These alternate forms natural ff t convert to alternate fueff gas or other forms ff gas products compete with other forms of energy include electricity, coal, and fuel of energy available to customers, primarily based on ity or price of oil and oils. Changes in the availabila of energy, as well as business conditions, conservation, legislation, regulations, and the ability to ff ff ls and other forms of energy may affect the demand for oil and natural gas. Seasonality of Business t gas produced fromff the wells on our properties during Weather conditions affect the demand for, and prices of, natural gas and can also delay drilling activities, disrupting our overall business plans. Additionally, some of the areas in which our properties are located are adversely affected by seasonal weather conditions, primarily in the winter and spring. During periods of heavy snow, ice or rain, our operators may be unable to move their equipment between locations, thereby reducing their ability to operate our wells, reducing the amount of oil and natural ry t 2021 adversely affected operator activity and production volumes in the southern United States, including in the Permian Basin. Additionally, extended drought conditions in the areas in which our properties are located could impact our operators’ ability to the source sufficient water or increase the cost for such water. Furthermore, demand for natural gas production during our first and fourth quarters. Certain natural winter, resulting in higher natural gas prices for our natural gas users utilize natut ral gas storage facilities and purchase some of their anticipated winter requirements during the summer, which can lessen seasonal demand fluctuations. Seasonal weather conditions can limit drilling and producing activities and other oil and natural gas operations in a portion of our operating areas. Due to these seasonal fluctuations, our results of operations for individual quarterly periods may not be indicative of the results that we may realize on an annual basis. gas is typically higher during t such times. For example, the recent winter storms in Februarr d d d t t t t Culture Human Capital Resources ive working environment and shared sense of purpose that differenti Our employees are one of our most valuable assets. Our small size and organizational structuret promote a highly collaborat ates us from our competitors. In addition, we rely a on the strength of our technical expertise, particularly those individuals engaged in our engineering and geology departments, to inform our investment decisions and portfolio construction and management. Given our team’s understanding of oil and gas operations, we are able to better assess risk inherent in the mineral and royalty assets we acquire. ff Headcount and Demographics As of December 31, 2020, we had 43 full-time employees and 9 temporary employees. All of our employees are located in our Austin, Texas office. In addition to our two founders, we have approximately 12 full -time employees in our engineering and geology departments, seven full-time employees dedicated to our ground game acquisition and business development departments, nine full-time employees in our land department, and 13 full-time employees in our finance, accounting, information technology and legal departments. The vast majori ty of our temporary employees are part-time employees that assist the ground game acquisition and business development departments. Approximately 44 % of our employees are female and approximately 33% of our employees identify as minorities. We have no collective bargaining agreements with our employees. We believe that our employee relationships are satisfactory. We hire independent contractors on an as needed basis. a ff Competitive Compensation and Benefits Our compensation programs are designed to align the compensation of our employees with our performance and to provide the proper incentives to attract, retain and motivate our employees to achieve top-quality results. Specifically: • We engage a nationally recognized outside compensation and benefits consulting firm to provide benchmarking against our peers within the industry forff executive compensation. 29 • Our executive compensation program is designed to attract, motivate and retain high-quality leadership and incentivize our executive officers to achieve performance goals over the short- and long-term, which also aligns the interests of our executive officers with those of our stockholders. As such, our compensation program for our executive officers is heavily weighted toward equity-based compensation and does not include an annual cash bonus. Equity-based compensation generally includes both restricted stock units subject to time-based vesting and restricted stock units subject to performance-based vesting. • All full-time employees are eligible for health insurance paid forff 100% by us, paid and unpaid leaves, including parental leave, a retirement plan and disabila ity/accident coverage. • We have a corporate philanthropy program that provides matching gifts by us forff both monetary gifts by employees and time volunteered by employees during their personal time, along with group opportunities for employees to volunteer together once a quarter during company time. d • We have an education reimbursement program to assist our employees in developing knowledge, skills and job effectiveness through higher education. Training and Development In light of our small size and collaborat l ive working environment, we currently do not have a need to implement a forma in-house training and development program. Instead, we emphasize on-the-job training, informal mentoring and encourage our employees to participate in external training and development courses, programs and professional organizations. Our employees are encouraged to take responsibility forff their development, and we are committed to ensuring that they have the resources they need to succeed. a ff Retention and Tenure The combination of our culture, competitive compensation, career growth and development opportunities foster employee tenure and reduce voluntary turnover rates. The average tenure of our employees is approxim a ff ately four years. Workplace Safety We care about the safety of our colleagues and all visitors to our workplace. During 2020, our focus on workplace safetyt enablea d us to preserve business continuity during the COVID-19 pandemic, reopen our offices in a safe manner in May 2020 and remain open. Prior to our reopening, our building management enhanced the HVAC filtration system throughout the -time employees into individual building. We provided additional enhancements to our office space, including moving all full offices to increase physical distancing and installing a plasma air system, hand sanitizing stations and safety s ignage. Further, we implemented a variety of office protocols for our employees to follow when in our office space. These include, but are not limited to, daily self-monitoring for COVID-19 symptoms, written affirmations that employees are symptom free prior to coming to the office and masking requirements. ff t 30 Item 1A. Risk Factors Summary of Risk Factors An investment in our shares of Class A common stock involves a significant degree of risk. Below is a summary of certain risk factors that you should consider in evaluating us and our Class A common stock. However, this list is not exhaustive. Before you invest in our Class A common stock, you should carefully consider the risk facto rs discussed or referenced below and under Item 1A. “Risk Factors” in this Annual Report on Form 10-K. If any of the risks discussed below and under Item 1A. “Risk Factors” were actually to occur, our business, financial condition, results of operations and cash flows could be adversely affected and our results could differ materially fromff expected and historical results, and of which may also adversely affect the holders of our Class A common stock. ff Risks Related to Our Business • The widespread outbreak of an illness, pandemic (like COVID-19) or any other public health crisis may have material adverse effecff ts on our business, financial position, results of operations and/or cash flows. • Substantially all of our revenues are derived from royalty payments that are based on the price at which oil, natural t gas and NGLs produced from the acreage underlying our interests is sold. • We depend on various unaffiliated operators for all of the exploration, development and production on the properties underlying our mineral and royalty interests. • Our failure to successfully identify, complete and integrate acquisitions could adversely affect our growth and results of operations. • Any acquisitions of additional mineral and royalty interests that we complete will be subject to substantial risks. • Our operators’ identified potential drilling locations are susceptible to uncertainties that could materially alter the occurrence or timing of their drilling. • We may experience delays in the payment of royalties and be unable to replace operators that do not make required lting lessees if any of the operators on royalty payments, and we may not be able to terminate our leases with defauff those leases declare bankruptcy. We may also experience improper deductions in the payment of royalties. • Acquisitions and our operators’ development activities of our leases will require substantial capital, and we and our to obtain needed capia tal or finff ancing on satisfactory terms or at all. operators may be unablea • Our future success depends on replacing reserves through acquisitions and the exploration and development activities of the operators of our properties. • We have little to no control over the timing of futuret drilling with respect to our mineral and royalty interests. • Project areas on our properties, which are in various stages of development, may not yield oil, natural t gas or NGLs in commercially viable quantities. • The unavailability, high cost or shortages of rigs, equipment, raw materials, suppli in increased costs for operators related to developing and operating our properties. u es or personnel may restrict or result • The marketability of oil, natural t gas and NGL production is dependent upon transportation, pipelines and refining facilities, which neither we nor many of our operators’ control. • Our estimated reserves are based on many assumptim ons that may turnt out to be inaccurate. • t If oil, natural prices in 2020, we could be required to record additional impairments of our proved oil, natural properties that would constitute a charge to earnings and reduce our shareholders’ equity. gas and NGL prices decline significantly, such as in the case of the significant decline in commodity gas and NGL t Risks Related to Environmental and Regulatory Matters • Conservation measures, technological advances, general concern about the environmental impact of the production and use of fossil fuels and increasing attention to environmental, social and governance (“ESG”) matters could materially 31 reduce demand for oil, natural the trading market forff t shares of our Class A common stock. gas and NGLs and adversely affect our results of operations, availability of capita al and • Oil, natural t gas and NGL operations are subject to various governmental laws and regulations. Compliance with these laws and regulations can be burdensome and expensive for our operators, and failure to comply could result in our operators incurring significant liabilities, either of which may impact our operators’ willingness to develop our interests. • Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in our operators incurring increased costs, additional operating restrictions or delays and fewer potential drilling locations. Risks Related to Our Financial and Debt Arrangements • Our derivative activities could result in financial losses and reduce earnings. • Our revolving credit facff ility has substantial restrictions and finaff ncial covenants that may restrict our business and financing activities and our ability to declare dividends. Risks Related to Our Class A Common Stock • Brigham Minerals is a holding company. Brigham Minerals’ sole material asset is its equity interest in Brigham LLC and it is accordingly dependent upon distributions from Brigham LLC to pay taxes, cover its corporate and other overhead expenses and pay any dividends on our Class A common stock. • The requirements of being a public company, including compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. • • Certain of our directors have significant duties with, and spend significant time serving, entities that may compete with us in seeking acquisitions and business opportunities and, accordingly, may have conflicts of interest in allocating time or pursuing business opportunit ies. t • Our Sponsors and their affiliates are not limited in their ability to compete with us, and the corporate opportunity our Sponsors to benefit from provisions in our amended and restated certificate of incorporation could enablea corporate opportunities that might otherwise be availablea to us. Risk Factors The following are certain risk factors that affecff i t on with r These risk fact Many of these risks are beyond our control. own investigati tt risk factors in addition to the other informr ation included in this Aii Statement Regarding financial condition, results of operations and cash flows could bll from expex Forward-Looking Statements.”tt cted and histori e ii cal results, any of which may also adversely affecff ors are not exhaustive and investors arr t our business, financial condition, results of operations and cash flows. ir ff following y cll including matters addressed under “Cautionary ccur, our business, ted, and our results could diffeff r materially If any of the events described below were to actually oll re encouraged to perform t nnual Report, onsider thett hett e rr ff espect to our business, financial condition and prospects.tt You should carefull e adversely affecff ll holders t thett of our Class A common stock.kk Risks Related to Our Business The widespread outbreak of an illness, pandemic (like COVID-19) or any other public health crisis may have material adverse effects on our business, financial position, results of operations and/or cash flows. We face risks related to the outbreak of illnesses, pandemics and other public health crises that are outside of our control, and could significantly disrupt our operations and adversely affect our financial condition. For example, the continuing global spread of a novel strain of coronavirus (SARS-Cov-2), which causes COVID-19, has caused a disrupti on to the oil and natural gas industry and to our business. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, reduced global demand for oil and gas, and created significant volatility and disruption of financial and commodity markets. Furthermore, the COVID-19 pandemic has affected our operations by (i) rendering our personnel unable to an extended period of time, (ii) contributing to a steep decline in commodities prices in 2020, access company facilities forff r t 32 al markets on terms favorablea which has reduced activity by our operators and the amounts of royalty payments we receive, (iii) causing some of the Company’s operators to shut in and curtail production from wells on the Company’s properties forff a period of time, (iv) limiting our access to the capita al resources and (v) reducing to identify, limiting our ability to execute on our growth the level of potential acquisition opportunities we have been ablea strategy of acquiring additional mineral and royalty interests. Additionally, the steps taken by national, state and local governments to curb the spread of the COVID-19 pandemic, including stay-at-home orders, quarantines, travel restrictions and business shutdowns, and the implications on our operators’ workforce of a COVID-19 infection, have limited our operators’ ability to maintain production from our properties. Such orders and the other impacts of the COVID-19 pandemic may have limited the ability of our operators to access our properties and maintain their existing production and development activities, and any similar or more restrictive measures taken in the futuret to us and adversely affected our capita could have similar effecff ts. t While our business and operations have experienced certain effects of the COVID-19 pandemic as described above, the full extent of the impact of the COVID-19 pandemic on our operational and financial perforff mance, including our ability to execute our business strategies and initiatives in the expected time framff e, is uncertain and depends on various factors, including gas (including the impact that reductions in travel, manufacturing and consumer product demand the demand forff oil and natural have had and will have on the demand forff ity of personnel, equipment and services critical to operating production activities by our operators and the impact of potential governmental restrictions on travel, transportation and operations. The degree to which the COVID-19 pandemic or any other public health crisis adversely impacts our operations, financial results and dividend policy will also depend on future developments, which are highly uncertain and cannot be predicted. These developments include, but are not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, its impact on the economy and market conditions, and how quickly and to what extent normal economic and operating conditions can resume. For example, there has been a recent significant increase in cases of COVID-19 in the U.S. that could lead to re-implementation of certain governmental restrictions. Therefore, while we expect this matter will continue to disrupt our operations in some way, the degree of the adverse financial impact cannot be reasonably estimated at this time. commodities), the availabila Substantially all of our revenues are derived from royalty payments that are based on the price at which oil, natural gas and NGLs produced from the acreage underlying our interests are sold. Prices of oil, natural gas and NGLs are volatile due to factors beyond our control. The significant drop in the price of oil in 2020 has adversely affected, and any further decline in commodity prices in the future may adversely affect our business, financial condition or results of operations. u Our revenues, operating results, free cash floff w and the carrying value of our mineral and royalty interests depend significantly upon our properties and the prevailing prices at which gas and NGL prices have been volatile and are subject to fluctuations in such production is sold. Historically, oil, natural response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond our control, including: the quantities of oil, natural t gas and NGLs produced fromff t • the domestic and foreign supply of and demand for oil, natural t gas and NGLs; • market expectations about future prices of oil, natural t gas and NGLs; • • • • • • • • • the level of global oil, natural t gas and NGL exploration and production; the cost of exploring for, developing, producing and delivering oil, natural gas and NGLs; the price and quantity of foreign imports and U.S. exports of oil, natural t gas and NGLs; the level of U.S. domestic production; the availabila ity of storage for hydrocarbons; political and economic conditions in the U.S. and other oil producing regions, including the Middle East, Africff America and Russia; a, South the ability of members of OPEC and other countries that produce oil, naturat oil price and production controls; l gas, and NGLs to agree to and maintain trading in oil, natural gas and NGL derivative contracts; the level of consumer product demand; 33 • weather conditions and natural t disasters; • • • • • • • technological advances affecting energy consumption, energy storage and energy supply; domestic and foreign governmental regulations and taxes; the continued threat of terrorism and the impact of military and other action, including U.S. military operations in the Middle East and economic sanctions such as those imposed by the U.S. on oil and gas exports fromff Iran; global or national health concerns, including health epidemics such as the ongoing COVID-19 pandemic; the proximity, cost, availabila ity and capaa city of oil, natural gas and NGL pipelines and other transportation facilities; the price and availabila ity of alternative fuels; and overall domestic and global economic conditions. These factors and the volatility of the energy markets make it extremely difficult to predict future oil, natural gas and NGL price movements with any certainty. For example, during the past fivff e years, the posted price forff WTI light sweet crude oil has ranged from a historic, record low price of negative ($36.98) per barrel in April 2020 to a high of $77.41 per barrel in June 2018. The Henry Hrr gas has ranged from a low of $1.33 per MMBtu in September 2020 to a high of $6.24 per MMBtu in January 2018. Certain actions by OPEC+ in the first half of 2020, combined with the impact of the continued outbreak of the COVID-19 pandemic and a shortage in available storage for hydrocarbons in the U.S., contributed to the historic low price forff oil in April 2020. While the prices for oil have begun to stabilize and also increase, such prices have historically remained volatile, which has adversely affected the prices at which production from our properties is sold as well as the production activities of operators on our properties and may continue to do so in the future. This, in turn, has and will materially affecff t the amount of royalty payments that we receive from such operators. ub spot market price forff t natural Any further decline in the price of oil, natural t gas and NGLs or a prolonged period of low commodity prices will also materially adversely affecff t our business, financial condition, results of operations and free cash flow. t gas and NGLs produced fromff In addition, the quantities of oil, natural our properties has a significant impact on our operating results and financial condition. Lower oil, natural gas and NGLs that can be produced economically by our operators, which may reduce our operators’ willingness to develop and/or to the decrease in prices for oil in 2020, many operators on our continue to produce our properties. For example, partially dued properties have substantially reduced their development activities in 2021 and have announced similarly reduced capita al expenditures for 2021 and beyond. Additionally, lower commodity prices resulted in some of the Company's operators temporarily shutting in or curtailing production from wells on its properties during the second quarter of 2020. gas and NGL prices may reduce the amount of oil, natural t t t The deterioration in commodity prices, decrease in production levels, or further reduction in operator production activities may result in our having to make substantial downward adjustments to our estimated proved, probable or possible reserves. For example, we reclassified some of our PUD volumes to probable and possible reserves due to decreased rig activity by our December 31, 2019 to December 31, 2020. If this operators, resulting in a reduction of 7,036 MBoe to PUD reserves fromff cost method of accounting occurs or if production estimates change or exploration or development results deteriorate, the full principles may require us to write down, as a non-cash charge to earnings, the carrying value of our oil and natural gas properties. In addition, the borrowing base under our revolving credit facility is determined based on our estimated proved reserves, and any negative revisions to our estimated proved reserves would in turn reduce our borrowing base, reducing the amount availablea to fund our operations through borrowings under our revolving credit facility. ff t We depend on various unaffiliated operators forff all of the exploration, development and production on the properties underlying our mineral and royalty interests. Substantially all of our revenue is derived from royalty payments made by these operators. A reduction in the expected number of wells to be drilled on our acreage by these operators or the failure of our operators to adequately and efficiently develop and operate our acreage could have an adverse effect on our results of operations. In particular, partly in response to the significaff oil in 2020, many of our operators substantially reduced their development activities in 2020 and have announced similarly reduced capital expenditures for 2021 and beyond. The number of new wells drilled in many of our focus areas has decreased, and such slower development pace may continue in the future. nt decrease in prices forff Our assets consist of mineral and royalty interests. Because we depend on third-party operators for all of the exploration, development and production on our properties, we have little to no control over the operations related to our properties. For the ately 64% of our royalty revenues year ended December 31, 2020, we received revenues from over 160 operators with approxim a 34 coming fromff the top ten operators on our properties, four of which each accounted for more than 10% of such royalty revenues. The failure of our operators to adequately or efficiently perform operations or an operator’s failure to act in ways that are in our best interests could reduce production and revenues. Furthermore, in response to the significant decrease in prices for oil in 2020, many of our operators substantially reduced their development activities in 2020 and have announced substantial reductions in their estimated capital expenditures, rig count and completion crews for 2021 and beyond. Additionally, certain investors have requested operators adopt initiatives to returnt al available capita to our operators for investment in exploration, development and production activities. Our operators may furthe r reduce capital devoted to exploration, development and production on our properties in the future, which could negatively impact expenditures revenues we receive. The number of new wells drilled in many of our focus areas has decreased, and such slower development pace may continue in the future, especially as a consequence of the reductions in operators’ capita al expenditures. Moreover, over the last year, many of our operators have announced that they plan to drill fewer wells per section than previously anticipated, due in part to greater well-interference between parent and child wells than previously anticipated and an increased focus on overall capita al efficiency in a low commodity price environment. al to investors, which could also reduce the capita ff ff t If production on our mineral and royalty interests decreases due to decreased development activities, as a result of the low commodity price environment, limited availability of development capita al, production-related difficulties or otherwise, our our results of operations may be adversely affected. For example, the amount of royalty payments we have received fromff operators has decreased due to the lower prices at which our operators are able to sell production from our properties and reduced production activities by our operators. Further, depressed commodity prices caused some of our operators to voluntarily shut in and curtail production from wells on our properties earlier in 2020. Although most of these have come back online, an additional or extended period of depressed commodity prices may cause additional operators to take similar action or even to plug and abandon marginal wells that otherwise may have been allowed to continue to produce for a longer period under more favorable pricing conditions, both of which would decrease the amount of royalty payments we receive from our operators. Our operators are often not obligated to undertake any development activities other than those required to maintain obligation, any development and production activities will t their leases on our acreage. In the absence of a specific contractual be subject to their reasonable discretion (subject to certain implied obligations to develop imposed by the laws of some states). Our operators could determine to drill and complete fewer wells on our acreage than is currently expected. The success and timing of drilling and development activities on our properties, and whether the operators elect to drill any additional wells on our acreage, depends on a number of factors that are largely outside of our control, including: • • • • • • • • • • • the capia tal costs required forff drilling activities by our operators, which could be significantly more than anticipated; the ability of our operators to access capia tal; prevailing commodity prices; the operators' expected returnt areas; on investment in wells drilled on our acreage as comparem d to opportunit t ies in other the availabila personnel; ity of suitablea drilling equipment, production and transportation infrastructuret and qualified operating the availabila ity of storage for hydrocarbons; the operators’ expertise, operating efficff iency and finaff ncial resources; a approval of other participants in drilling wells; the selection of technology; the selection of counterparties for the marketing and sale of production; and the rate of production of the reserves. The operators may elect not to undertake development activities, or may undertake these activities in an unanticipated fashion, which may result in significant fluctuations in our results of operations and free cash floff w. Sustained reductions in production by the operators on our properties may also adversely affect our results of operations and free cash floff w. Additionally, if an operator were to experience financial difficulty, the operator might not be able to pay its royalty payments or continue its operations, which could have a material adverse impact on our cash flows. 35 lure to successfulff Our faiff operations. ly identify, complete and integrate acquisitions could adversely affect our growth and results of We depend partly on acquisitions to grow our reserves, production and free cash flow. Our decision to acquire a property will depend in part on the evaluation of data obtained fromff production reports and engineering studies, geophysical and geological analyses and seismic data, and other information, the results of which are often inconclusive and subject to various interpretations. The successful acquisition of properties requires an assessment of several facff tors, including: • • • • • recoverablea reserves; ff future t oil, natural gas and NGL prices and their appl a icable differe ff ntials; development plans; the operating costs our operators would incur to develop and operate the properties; and potential environmental and other liabia lities that operators of the properties may incur. The accuracy of these assessments is inherently uncertain and we may not be able to identify attractive acquisition a review of the subject properties that we believe to be of our interests. Our review will not reveal all existing or potential iliar with the properties to assess fully their deficiencies and lities. Even if we do identify attractive acquisition opportunities, we may not be able to complete the acquisition or do so opportunities. In connection with these assessments, we performff generally consistent with industry practices, given the naturet problems nor will it permit us to become sufficiently famff capabi a on commercially acceptable terms. There is intense competition for acquisition opportunities in our industry. Competition for acquisitions may increase the cost of, or cause us to refrain from, completing acquisitions. Additionally, acquisition opportunities vary over time. For example, in connection with the COVID-19 pandemic and resulting market and commodity price challenges, we saw reduced levels of potential acquisition opportunities, which constrained our ability to complete acquisitions. Our ability to complete acquisitions is dependent upon, among other things, our ability to obtain debt and equity financing. In addition, these acquisitions may be in geographic regions in which we do not currently hold properties, which could subject us to additional and unfamiliar legal and regulatory requirements. Further, the success of any completed acquisition will depend on our ability to integrate effectively the acquired assets into our existing operations. The process of integrating acquired assets may involve unforeseen difficulties and may require a disproportionate amount of our managerial and financial resources. No assurance can be given that we will be able to identify suitablea acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptablea terms or successfully acquire identified targets. Our failure to achieve consolidation savings, to integrate the acquired businesses and assets into our existing operations successfully or to minimize ties could have a material adverse effect on our financial condition, results of operations and any unforeseen operational difficul free cash flow. The inability to effectively manage the integration of acquisitions could reduce our focus on subsequent acquisitions and current operations, which, in turn, could negatively impact our growth, results of operations and free cash flow. ff Any acquisitions of additional mineral and royalty interests that we complete will be subject to substantial risks. Even if we do make acquisitions that we believe will increase our cash generated fromff operations, any acquisition involves potential risks, including, among other things: • • • • the validity of our assumptim ons about estimated proved, probable and possible reserves, futuret revenues, capita the operating expenses and costs our operators would incur to develop the minerals; production, prices, al expenditures, t a decrease in our liquidity by using a significant portion of our cash generated fromff to finance acquisitions; operations or borrowing capac a ity a significant increase in our interest expense or financial leverage if we incur debt to finance acquisitions; the assumption of unknown liabila receive is inadequate; ities, losses or costs forff which we are not indemnified or forff which any indemnity we • mistaken assumptions about the overall cost of equity or debt; • our ability to obtain satisfacff tory title to the assets we acquire; 36 • • an inabila ity to hire, train or retain qualified personnel to manage and operate our growing business and assets; and the occurrence of other significant changes, such as impairment of oil and natural intangible assets, asset devaluation or restructuring charges. t t gas properties, goodwill or other Our operators’ identified potential drilling locations are susceptible to uncertainties that could materially alter the occurrence or timing of their drilling. t gas and NGL prices, costs, drilling results and the availabila ity of capital, construction of and limitations on access to infrastructure, The ability of our operators to drill and develop identified potential drilling locations depends on a number of inclement weather, uncertainties, including the availabila regulatory changes and approvals, oil, natural ity of water. Further, our operators’ identified potential drilling locations are in various stages of evaluation, ranging from locations that are ready to drill to locations that will require substantial additional interpretation. The use of technologies and the study of producing fields gas or NGLs will be in the same area will not enablea present or, if present, whether oil, natural . Even if t sufficient amounts of oil or natural gas exist, our operators may damage the potentially productive hydrocarbon-bearing formation or experience mechanical difficulties while drilling or completing the well, possibly resulting in a reduction in production from the well or abandonment of the well. If our operators drill additional wells that they identify as dry holes in current and future drilling locations, their drilling success rate may decline and materially harm their business as well as ours. gas or NGLs will be present in sufficient quantities to be economically viablea our operators to know conclusively prior to drilling whether oil, natural ff t t t We cannot assure you that the analogies our operators draw from available data fromff a the wells on our acreage, more fully explored locations or producing fields will be appl icable to their drilling locations. Further, initial production rates reported by our or other operators in the areas in which our reserves are located may not be indicative of future or long-term production rates. Additionally, actual production from wells may be less than expected. For example, a number of operators have recently announced that newer wells drilled close in proximity to already producing wells have produced less oil and gas than forecast. Because of these uncertainties, we do not know if the potential drilling locations our operators have identified will ever be these or any other potential drilling locations. drilled or if our operators will be abla e to produce oil, natural gas or NGLs fromff As such, the actual drilling activities of our operators may materially differff from those presently identified, which could adversely affecff t our business, results of operation and free cash flow. Finally, the potential drilling locations we have identified are based on the geologic and other data available to us and our conclusions about the potential drilling interpretation of such data. As a result, our operators may have reached different locations on our properties, and our operators control the ultimate decision as to where and when a well is drilled. ff We may experience delays in the payment of royalties and be unable to replace operators that do not make required royalty payments, and we may not be able to terminate our leases with defaultin g lessees if any of the operators on those leases declare bankruptcy. We may also experience improper deductions in the payment of royalties. ff A faiff lure on the part of the operators to make royalty payments gives us the right to terminate the lease, repossess the property and enforce payment obligations under the lease. If we repossessed any of our properties, we would seek a replacement operator. However, we might not be able to findff a replacement operator and, if we did, we might not be able to enter into a new lease on favorablea terms within a reasonable period of time. In addition, the outgoing operator could be subject to a proceeding under Title 11 of the United States Code (the “Bankruptcy Code”), in which case our right to enforce or terminate the lease forff any defaults, including non-payment, may be substantially delayed or otherwise impaired. For example, certain of our operators have recently commenced bankruptcy proceedings under the Bankruptcy Code and their future operations and ability to make royalty payments to us may be adversely affected by such proceedings. In general, in a proceeding under the Bankruptcy Code, the bankrupt operator would have a substantial period of time to decide whether to ultimately reject or assume the lease, which could prevent the execution of a new lease or the assignment of the existing lease to another operator. In the event that the operator rejected the lease, our ability to collect amounts owed would be substantially delayed, and our ultimate recovery may be only a fracff tion of the amount owed or nothing. In addition, if we are able to enter into a new lease with a new operator, the replacement operator may not achieve the same levels of production or sell oil or natural gas at the same price as the operator it replaced. Additionally, in the current low commodity price environment, some t operators have attempted to make improper deductions by netting negative gas price realizations against positive oil royalties and other operators may attempt to do so in the future. We have taken action and will continue to take action to protect our rights; however, we cannot predict whether we will ultimately be successful. Acquisitions and our operators’ development activities of our leases will require substantial capital, and we and our operators may be unable to obtain needed capital or financing on satisfactory terms or at all. 37 t The oil and natural t gas industry is capita in connection with the acquisition of mineral and royalty interests. To date, we have financed capita al intensive. We make and expect to continue to make substantial capital al expenditures al contributions, cash generated by operations, proceeds from our IPO and from the December expenditures primarily with funding from capita 2019 Offering and borrowings under our debt arrangements. In the future, we may need capital in excess of the amounts we retain in our business or borrow under our revolving credit facility. The level of borrowing base available under our revolving credit facility is largely based on our estimated proved reserves and our lenders' price decks and will be reduced to the extent commodity prices decrease or remain depressed. Accordingly, our ability to access capita al under our revolving credit facility has been adversely affected by the significant decrease in commodity prices in 2020. Furthermore, we cannot assure you that we will be able to access other external capital on terms favorable to us or at all. For example, given the recent significant decline in prices for oil and the broader economic al markets on terms favorable to us may be adversely impacted. Additionally, turmoil, our ability to secure financing in the capita ons and institutional al markets could be adversely affected if financial instituti our ability to secure financing or access the capita energy companies in connection with the adoption of sustainable lending lenders elect not to provide funding for fossil fuel ff initiatives or are required to adopt policies that have the effect sector. If we of reducing the funding available to the fossil fuel are unable to fund al requirements, we may be unable to complete acquisitions, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our results of operation and free cash flow. our capita ff ff ff t Most of our operators are also dependent on the availabila ity of external debt and equity financing sources to maintain their terms or at all, then we expect the drilling programs. If those financing sources are not available to the operators on favorablea development of our properties to be adversely affected. If the development of our properties is adversely affected, then revenues from our mineral and royalty interests may decline. Our future success depends on replacing reserves through acquisitions and the exploration and development activities of the operators of our properties. Unless we replace the oil, natural gas and NGLs produced from our properties, our results of operations and financial position could be adversely affected. Producing oil and natural gas wells are characterized by declining production rates that vary depending upon reservoir t tors. Our future oil, natural gas and NGL reserves and our operators’ production thereof and our characteristics and other facff free cash floff w are highly dependent on the successful development and exploitation of our current reserves and our ability to successfully acquire additional reserves that are economically recoverablea . Moreover, the production decline rates of our properties may be significantly higher than currently estimated if the wells on our properties do not produce as expected. We acquire or develop additional reserves to replace the currr ent and future production of our may also not be able to find, acquisitions, we have little to no control over the exploration and properties at economically acceptablea development of our properties. If we are not able to replace or grow our oil, natural gas and NGL reserves, our business, financial condition and results of operations would be adversely affecff terms. Aside fromff ted. ff t We have little to no control over the timing of future drilling with respect to our mineral and royalty interests. As of December 31, 2020, only 18,141 MBoe of our total estimated reserves were proved developed reserves. The remaining 6,922 MBoe, 43,759 MBoe and 22,271 MBoe of our total estimated reserves as of December 31, 2020 were PUDs, probable undeveloped reserves and possible undeveloped reserves, respectively, and may not ultimately be developed or produced by the operators of our properties. Recovery of undeveloped reserves requires significant capita al expenditures and successful drilling operations, and the decision to pursue development of an undeveloped drilling location will be made by the operator and not by us. We generally do not have access to the estimated costs of development of these reserves or the scheduled development plans of our operators. The reserve data included in the reserve report audited by CG&A assumes that our operators must incur substantial capital expenditures to develop the reserves. We cannot be certain that the estimated costs of the development of these reserves are accurate, that development will occur as scheduled d or that the results of the development will be as estimated. Delays in the development of our reserves, increases in costs to drill and develop our reserves or decreases in commodity prices will reduce the future net revenues of our estimated undeveloped reserves and may result in some projects becoming uneconomical. For example, we reclassifiedff some of our PUD volumes to probable and possible to decreased rig activity by our operators, resulting in a reduction of 7,036 MBoe to PUD reserves fromff reserves dued December 31, 2019 to December 31, 2020. us to reclassify certain of our proved undeveloped reserves as unproved reserves. In addition, delays in the development of reserves could force ff Project areas on our properties, which are in various stages of development, may not yield oil, natural gas or NGLs in commercially viable quantities. 38 Project areas on our properties are in various stages of development, ranging from project areas with current drilling or production activity to project areas that have limited drilling or production history. If the wells in the process of being completed do not produce sufficient revenues or if dry holes are drilled, our financial condition, results of operations and free cash flow may be adversely affecff ted. The unavailability, high cost or shortages of rigs, equipment, raw materials, supplies or personnel may restrict or result in increased costs for operators related to developing and operating our properties. t The oil and natural gas industry is cyclical, which can result in shortages of drilling rigs, equipment, raw materials (particularly water and sand and other proppants), supplies and personnel. When shortages occur, the costs and delivery times of rigs, equipment and supplies increase and demand for, and wage rates of, qualified drilling rig crews also rise with increases in demand. We cannot predict whether these conditions will exist in the future and, if so, what their timing and duration will be. In accordance with customary industry practice, our operators rely on independent third-party service providers to provide many of the services and equipment necessary to drill new wells. If our operators are unable to secure a sufficient number of drilling rigs at reasonable costs, our financial condition and results of operations could suffer. Shortages of drilling rigs, equipment, raw materials, supplies, personnel, trucking services, tubulars, hydraulic fracturing and completion services and production equipment could delay or restrict our operators’ exploration and development operations, which in turn could have a material adverse effecff t on our financial condition, results of operations and freeff cash flow. The marketability of oil, natural gas and NGL production is dependent upon transportation, pipelines and refining facilities, which neither we nor many of our operators' control. Any limitation in the availability of those facilities could interfere with our or our operators’ ability to market our or our operators’ production and could harm our business. a ity, proximity and capac The marketability of our or our operators’ production depends in part on the availabila ity of pipelines, tanker trucks and other transportation methods, and processing and refining facilities owned by third parties. The amount of oil that can be produced and sold is subject to curtailment in certain circumstances, such as pipeline interruptiu ons due to scheduled and unscheduled maintenance, excessive pressure, physical damage or lack of available capacity on these systems, tanker truck availability and extreme weather conditions. Also, production from our wells may be insufficient to support the construction of pipeline facilities, and the shipment of our or our operators’ oil, natural gas and NGLs on third-party pipelines may be curtailed or delayed if it does not meet the quality specifications of the pipeline owners. The curtailments arising from these and similar circumstances may last fromff days to several months. In many cases, we or our operators are provided only with limited, if any, notice as to when these circumstances will arise and their duration. Any significant curtailment in gathering system or transportation, processing or refining-facility capac ity could reduce our or our operators’ ability to market the production from our properties and have a material adverse effect on our financial condition, results of operations and free cash flow. Our or our operators’ access to transportation options and the prices we or our operators receive can also be affect ed by federal and state regulation-including regulation of oil, natural gas and NGL production, transportation and pipeline safety-t t as well by general economic conditions and changes in supply and demand. In addition, the third parties on whom we or our ral, state, tribal and local laws that could adversely affect operators rely forff the cost, manner or feaff transportation services are subject to complex fede sibility of conducting our business. a fewff a ff ff t Our estimated reserves are based on many assumptions that may turn out to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of our reserves. t t Oil, natural gas and NGL reserve engineering is not an exact science and requires subjective estimates of underground accumulations of oil, natural gas and NGLs and assumptim ons concerning future oil, natural gas and NGL prices, production levels, ultimate recoveries and operating and development costs. As a result, estimated quantities of proved, probable and possible reserves, projections of future production rates and the timing of development expenditures may be incorrect. Our estimates of proved, probable and possible reserves and related valuations as of December 31, 2020, 2019 and 2018 were audited by CG&A. CG&A conducted a detailed review of all of our properties forff the period covered by its reserve report using information provided by us. Over time, we may make material changes to reserve estimates taking into account the results of actual drilling, testing and production. For example, due to the deterioration in commodity prices and operator activity in 2020 as a result of the COVID-19 pandemic and other facff tors, the commodity price assumptim ons used to calculate our reserves estimates declined, which in turn lowered our proved reserve estimates. A substantial portion of our reserve estimates are made without the benefit of a lengthy production history, which are less reliable than estimates based on a lengthy production history. Any significant variance fromff s could greatly affect our estimates of reserves and future cash generated from operations. Numerous changes over time to the assumptim ons on which our reserve estimates are based, as described above, often result in the actual quantities of oil, natural gas and NGLs that are ultimately recovered being different t from our reserve estimates. these assumptim ons to actual figure ff 39 Furthermore, the present value of future net cash flows from our proved reserves is not necessarily the same as the current market value of our estimated reserves. In accordance with ruler s established by the SEC and the Financial Accounting Standards Board, we base the estimated discounted future net cash flows from our proved reserves on the trailing twelve-month each average oil and gas index prices, calculated as the unweighted arithmetic average for the first-day-of-the-month price forff month, and costs in effect on the date of the estimate, holding the prices and costs constant throughout the life of the properties. Actual future r materially from those used in the present value estimate, and future net present value ff estimates using then current prices and costs may be significantly less than the current estimate. In addition, the 10% discount factor we use when calculating discounted future net cash flows may not be the most appropriate discount factor based on interest rates in effecff time to time and risks associated with us or the oil and natural gas industry in general. prices and costs may diffeff t fromff r ff SEC rules could limit our ability to book additional proved undeveloped reserves in the future. SEC rules require that, subject to limited exceptions, proved undeveloped reserves may only be booked if they relate to wells scheduled to be drilled within fiveff years after the date of booking. This requirement has limited and may continue to limit our ability to book additional proved undeveloped reserves as the operators of our properties pursue their drilling programs. Moreover, we may be required to write down our proved undeveloped reserves if those wells are not drilled within the required e. Furthermore, we typically do not have access to the drilling schedules of our operators and make our five-year timeframff determinations about their estimated drilling schedules from any development provisions in the relevant lease agreement and the historical drilling activity, rig locations, production data and permit trends, as well as investor presentations and other public statements of our operators. Although we believe that our approach in making such determinations is conservative, the accuracy of any such determination is inherently uncertain and subject to a number of assumptim ons and factors outside of our control, including but not limited to those described under “We depend on various unaffiliated operators for all of the exploration, development and production on the properties underlying our mineral and royalty interests. Substantially all of our revenue is derived from royalty payments made by these operators. A reduction in the expected number of wells to be drilled on our acreage by these operators or the failure of our operators to adequately and efficiently develop and operate our acreage could have an adverse effect on our results of operations. In particular, partly in response to the significant decrease in prices for oil in 2020, many of our operators substantially reduced their development activities in 2020 and have announced similarly reduced capita 2021 and beyond. The number of new wells drilled in many of our focus areas has decreased, and such slower development pace may continue in the future.” Any significant variance between our estimates and the actual drilling schedules of our operators may require us to write down our proved undeveloped reserves. For example, we reclassified some of our PUD volumes to probable and possible reserves due to decreased rig activity by our operators, resulting in a reduction of 7,036 MBoe to PUD reserves from December 31, 2019 to December 31, 2020. al expenditures forff nt decline in commodity prices If oil, natural gas and NGL prices decline significaff in 2020, we could be required to record additional impairments of our proved oil, natural gas and NGL properties that would constitute a charge to earnings and reduce our shareholders’ equity. ntly, such as in the case of the significaff t ff gas and NGL properties forff Accounting rules require that we review the carrying value of our oil, natural possible impairment at the end of each quarter. Based on specific market factors and circumstances at the time of prospective tors, we impairment reviews, and the continuing evaluation of development activities, production data, economics and other facff may be required to write down the carrying value of our properties. The net capita gas and alized costs of our proved oil, natural cost ceiling limitation forff which the costs are not allowed to exceed their related estimated NGL properties are subject to a full alized costs of evaluated properties, net of accumulated depreciation, future net revenues discounted at 10%. To the extent capita depletion, amortization and impairment, exceed estimated discounted future net revenues of our proved oil, natural gas and alized costs are charged to expense. Impairments would occur if we were to experience sufficient NGL reserves, the excess capita net revenues. The risk that we downward adjustments to our estimated proved reserves or the present value of estimated future will be required to recognize impairments of our oil, natural gas and NGL properties increases during periods of low commodity prices, such as those experienced in 2020. For example, we recorded a $79.6 million impairment of our oil and gas properties, net, forff the year ended December 31, 2020. Please see “Note 3—Oil and Gas Properties” to the consolidated and ncial statements of Brigham Minerals included elsewhere in this Annual Report. An impairment recognized in combined finaff one period may not be reversed in a subsequent period even if higher oil, natural gas and NGL prices increase the cost center ceiling applicable to the subsequent period. If we incur impairment charges in the future, our results of operations for the periods in which such charges are taken may be materially and adversely affecff ted. ff t t t t The results of exploratory drilling in shale plays will be subject to risks associated with drilling and completion techniques and drilling results may not meet our expectations for reserves or production. Our operators use the latest drilling and completion techniques in their operations, and these techniques come with inherent risks. When drilling horizontal wells, operators risk not landing the well bore in the desired drilling zone and straying casing from the desired drilling zone. When drilling horizontally through a forma tion, operators risk being unable to runr ff 40 tools and other equipment consistently through the horizontal through the entire length of the well bore and being unable to runrr well bore. Risks that our operators face while completing wells include being unable to fracff ture stimulate the planned number of stages, to run tools the entire length of the well bore during completion operations and to clean out the well bore after completion of the final fraff cture stimulation stage. In addition, to the extent our operators engage in horizontal drilling, those activities may adversely affect their abia lity to successfully drill in identified vertical drilling locations. Furthermore, certain of the new techniques that our operators may adopt, such as infill drilling and multi-well pad drilling, may cause irregularities or interruptions in production due to, in the case of infill drilling, offset wells being shut in and, in the case of multi-well pad drilling, the time required to drill and complete multiple wells before these wells begin producing. The results of drilling in new or emerging formations are more uncertain initially than drilling results in areas that are more developed and have a longer history of establia shed production. Newer or emerging formations and areas often have limited or no production history and consequently our operators will be less able to predict futff uret drilling results in these areas. Ultimately, the success of these drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles are establia shed over a sufficiently long time period. If our operators’ drilling results are weaker than anticipated or they are unable to execute their drilling program on our properties, our operating and financial results in these areas may be lower than we anticipate. Further, as a result of any of these developments we could incur material write- gas properties and the value of our undeveloped acreage could decline, and our results of t downs of our oil and natural operations and free cash flow could be adversely affecff ted. Acreage must be drilled before lease expiration, generally within three to five years, in order to hold the acreage by production. Our operators’ failure to drill sufficient wells to hold acreage may result in the deferral of prospective drilling opportunities. In addition, our ORRIs may be lost if the underlying acreage is not drilled before the expiration of the applicable lease or if the lease otherwise terminates. t Leases on oil and natural years, after which they expire unless, prior to expiration, production is established within the spacing units covering the undeveloped acres. In addition, even if production or drilling is established during such primary term, if production or drilling ceases on the leased property, the lease typically terminates, subject to certain exceptions. gas properties typically have a term of three to fiveff Any reduction in our operators’ drilling programs, either through a reduction in capita al expenditures or the unavailability of drilling rigs, could result in the expiration of existing leases. If the lease governing any of our mineral interests expires or terminates, all mineral rights revert back to us and we will have to seek new lessees to explore and develop such mineral interests. If the lease underlying any of our ORRIs expires or terminates, our ORRIs that are derived from such lease will also terminate. Any such expirations or terminations of our leases or our ORRIs could materially and adversely affect the growth of our financial condition, results of operations and free cash flow. Drilling for and producing oil, natural gas and NGLs are high-risk activities with many uncertainties that may materially adversely affect our business, finff ancial condition and results of operations. The drilling activities of the operators of our properties will be subjeu ct to many risks. For example, we will not be able to assure our shareholders that wells drilled by the operators of our properties will be productive. Drilling for oil, natural gas and NGLs often involves unprofitable efforts, not only from dry wells but also from wells that are productive but do not produce sufficient oil, natural gas or NGLs to returnt a profit at then realized prices after deducting drilling, operating and other costs. The seismic data and other technologies used do not provide conclusive knowledge prior to drilling a well that oil, natural gas or NGL is present or that it can be produced economically. The costs of exploration, exploitation and development activities are subject to numerous uncertainties beyond our control and increases in those costs can adversely affect the economics of a project. Further, our operators’ drilling and producing operations may be curtailed, delayed, canceled or otherwise negatively impacted as a result of other facff tors, including: t • • • • • • unusual or unexpected geological formations; loss of drilling fluid circulation; title problems; ff facility or equipment malfunctions; unexpected operational events; shortages or delivery delays of equipment and services; 41 • • compliance with environmental and other governmental requirements; and adverse weather conditions, including the recent winter storms in February 2021 that adversely affected operator activity and production volumes in the southern United States, including in the Permian Basin. t Any of these risks can cause substant ial losses, including personal injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution, environmental contamination or loss of wells and other regulatory penalties. In the event that planned operations, including the drilling of development wells, are delayed or cancelled, or existing a wells or development wells have lower than anticipated production due to one or more of the factors above or for any other ted. reason, our financial condition, results of operations and free cash flow may be materially adversely affecff u Operating hazards and uninsured risks may result in substantial losses to us or our operators, and any losses could adversely affect our results of operations and free cash flow. t t gas and NGLs, including the risk of fireff gas, NGLs and formation water, pipe or pipeline failures, abnormally pressured forma The operations of our operators will be subject to all of the hazards and operating risks associated with drilling for and , explosions, blowouts, surface cratering, uncontrollable flows production of oil, natural and ff of oil, natural gas leaks and ruptures or discharges of toxic gases. In addition, their environmental hazards such as oil and NGL spills, natural operations will be subjeu ct to risks associated with hydraulic fracturing, including any mishandling, surface spillage or potential underground migration of fracturing fluids, including chemical additives. The occurrence of any of these events could result in resources substantial losses to our operators due to injury or loss of life, severe damage to or destruction of property, natural and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigations and penalties, suspension of operations and repairs required to resume operations. ff tions, casing collapses a t t Competition in the oil and natural gas industry is intense, which may adversely affect our and our operators’ ability to succeed. t The oil and natural gas industry is intensely competitive, and the operators of our properties compete with other companies that may have greater resources. Many of these companies explore for and produce oil, natural gas and NGLs, carry on midstream and refining operations, and market petroleum and other products on a regional, national or worldwide basis. In addition, these companies may have a greater abia lity to continue exploration activities during gas and NGL market prices. Our operators’ larger competitors may be abla e to absorb the burden of present and future federal, state, local and other laws and regulations more easily than our operators can, which would adversely affect our operators’ competitive position. Our operators may have fewer finff ancial and human resources than many companies in our operators’ industry and may be at a disadvantage in bidding for exploratory prospects and producing oil and natural gas properties. Furthermore, the oil and gas industry has experienced recent consolidation amongst some operators, which has resulted in certain instances of combined companies with larger resources. Such combined companies may compete against our operators or, in the case of consolidation amongst our operators, may choose to focus their operations on areas outside of our properties. In addition, we face competition in identifying and acquiring additional properties and reserves. See “Our failure to successfully identify, complete and integrate acquisitions could adversely affect our growth and results of operations.” periods of low oil, natural d a t t Title to the properties in which we have an interest may be impaired by title defects. We are not required to, and under certain circumstances we may elect not to, incur the expense of retaining lawyers to examine the title to our royalty and mineral interests. In such cases, we would rely upon the judgment of oil and gas lease brokers or landmen who perform the fieldwork in examining records in the appropriate governmental office before acquiring a specific royalty or mineral interest. The existence of a material title deficiency can render an interest worthless and can materially adversely affect our results of operations, financial condition and freeff cash floff w. No assurance can be given that we will not suffer a monetary loss from title defects or title failure. Additionally, undeveloped acreage has a greater risk of title defects than developed acreage. If there are any title defects in properties in which we hold an interest, we may suffer a financial loss. u We rely on a fewff key individuals whose absence or loss could adversely affect our business. Many key responsibilities within our business have been assigned to a small number of individuals. We rely on our gas industry, relationships within the industry and experience in identifying, founders for their knowledge of the oil and natural evaluating and completing acquisitions. The loss of their services could adversely affect our business. In particular, the loss of the services of one or more members of our executive team could disrupt our business. Further, we do not maintain “key person” life insurance policies on any of our executive team or other key personnel. As a result, we are not insured against any losses resulting from the death of these key individuals. t 42 Loss of our or our operators’ information and computer systems, including as a result of cyber attacks, could materially and adversely affect our business. t l forff ity to automatically process commercial We and our operators rely on electronic systems and networks to control and manage our respective businesses. If any of any reason, including as a result of a cyber attack, or create erroneous information in such programs or systems were to faiff possible consequences could be significant, including loss of our or our operators’ hardware or software network infrastructure, communication links and inabila transaction or engage in similar automated or computerized business activities. Although we have multiple layers of security to mitigate risks of cyber attacks, cyber attacks on business have escalated in recent years. Moreover, our operators are becoming increasingly dependent on digital technologies to conduct certain exploration, development, production and processing activities, including interpreting seismic data, managing drilling rigs, production activities and gathering systems, conducting reservoir modeling and estimating reserves. The U.S. government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats. If our operators become the target of cyber attacks of information security breaches, their business operations may be substantially disrupted, which could have an adverse effect on our results of operations. In addition, our efforts to monitor, mitigate and manage these evolving risks may result in increased capita al and operating costs, but there can be no assurance that such efforts will be sufficient to prevent attacks or breaches from occurring. ff A terrorist attack or armed conflict could harm our business. Terrorist activities, anti-terrorist efforts and other armed conflicts involving the United States or other countries may adversely affect the United States and global economies and could prevent us from meeting our financial and other obligations. If any of these events occur, the resulting political instabila oil, gas and NGLs, potentially putting downward pressure on demand for our operators’ services and causing a reduction in natural t integral our revenues. Oil, natural insurance to our operators is destroyed or damaged, they may experience a significant disruption in their operations. Costs forff and other security may increase as a result of these threats, and some insurance coverage may become more difficul t to obtain, if availablea es could be direct targets of terrorist attacks, and, if infrastructuret ity and societal disruption could reduce overall demand forff gas and NGL related faciliti at all. ff ff t A deterioration in general economic, business, political or industry conditions, such as those beginning in the firff st quarter of 2020, has materially adversely affected, and any further deterioration would materially adversely affect our results of operations, financial condition and free cash flow. Recently, concerns over global economic conditions, energy costs, geopolitical issues, the impacts of the COVID-19 ity and cost of credit and slow economic growth in the United States have contributed to pandemic, inflation, the availabila significantly reduced economic activity and diminished expectations for the global economy. Additionally, recent acts of protest and civil unrest have caused economic and political disruption in the United States. Meanwhile, continued hostilities in the Middle East and the occurrence or threat of terrorist attacks in the United States or other countries could adversely affect the economies of the United States and other countries. Concerns about global economic growth have had a significant adverse impact on global finaff ncial markets and commodity prices. An oversupply of crude oil in 2020 has led to a severe decline in worldwide oil prices. If the economic climate in the United States or abroad continues to deteriorate, worldwide demand for petroleum products could furthe gas and NGLs from our properties are sold, affect the ability of our operators to continue operations and ultimately materially adversely impact our results of operations, financial condition and free cash flow. r diminish, which could impact the price at which oil, natural ff t Risks Related to Environmental and Regulatory Matters Conservation measures, technological advances and increasing attention to environmental, social and governance (“ESG”) matters could materially reduce demand for oil, natural gas and NGLs, availability of capital and adversely affect our results of operations and the trading market for shares of our Class A common stock. Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil, natural t and NGLs, technological advances in fuel economy and energy-generation devices could reduce demand for oil, natural NGLs. The impact of the changing demand for oil, natural effect on our business, financial condition, results of operations and free cash flow. gas gas and gas and NGL services and products may have a material adverse t t It is also possible that the concerns about the production and use of fossil fuels will reduce the number of investors willing to own shares of our Class A common stock, adversely affecting the market price of our Class A common stock. For example, certain segments of the investor community have developed negative sentiment towards investing in our industry. Recent equity in the sector versus other industry sectors have led to lower oil and gas representation in certain key equity market t returns indices. In addition, some investors, including investment advisors and certain sovereign wealth, pension funds, university 43 ff endowments and family foundat ions, have stated policies to disinvest in the oil and gas sector based on their social and environmental considerations. Furthermore, organizations that provide information to investors on corporate governance and related matters have developed ratings processes forff evaluating companies on their approach to ESG matters. Such ratings are ESG ratings may lead to increased used by some investors to inform their investment and voting decisions, and unfavorablea negative investor sentiment toward us. Certain other stakeholders have also pressured commercial and investment banks to stop financing oil and gas and related infrastructuret projects. Such developments, including environmental activism and initiatives aimed at limiting climate change and reducing air pollution, could result in downward pressure on the stock prices of oil and gas companim es, including ours and also adversely affect our availability of capia tal. Oil, natural gas and NGL operations are subject to various governmental laws and regulations. Compliance with these laws and regulations can be burdensome and expensive for our operators, and failure to comply could result in our operators incurring significant liabilities, either of which may impact our operators’ willingness to develop our interests. gas and NGLs. In addition, the production, handling, storage and transportation of oil, natural Our operators’ operations on the properties in which we hold interests are subject to various federal, state and local governmental regulations that may change from time to time in response to economic and political conditions. Matters subject to regulation include drilling operations, production and distribution activities, discharges or releases of pollutants or wastes, ilities, the spacing of wells, unitization and plugging and abandonment of wells, maintenance and decommissioning of other facff pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on ity to conserve supplies of production by restricting the rate of flow of oil and natural oil, natural gas and NGLs, as well t gas and NGL wastes, by-products thereof and other substances and as the remediation, emission and disposal of oil, natural gas and NGL operations are subject to regulation under federal, state materials produced or used in connection with oil, natural and local laws and regulations primarily relating to protection of worker health and safety,t resources and the environment. Failure to comply with these laws and regulations may result in the assessment of sanctions on our operators, additional pollution controls and including administrative, civil or criminal penalties, permit revocations, requirements forff injunctions limiting or prohibiting some or all of our operators’ operations on our properties. Moreover, these laws and regulations have generally imposed increasingly strict requirements related to water use and disposal, air pollution control and waste management. gas wells below actual production capac t t natural t t a t Laws and regulations governing exploration and production may also affect production levels. Our operators must comply with federal and state laws and regulations governing conservation matters, including, but not limited to: • • • • • provisions related to the unitization or pooling of the oil and natural t gas properties; the establishment of maximum rates of production from wells; the spacing of wells; the plugging and abaa ndonment of wells; and the removal of related production equipment. Additionally, federal and state regulatory authorities may expand or alter appl a compliance with which may require increased capita transporters may attempt to pass on such costs to our operators, which in turn could affecff al costs for third-party oil, natural icable pipeline-safety laws and regulations, gas and NGL transporters. These ity on our properties. t profitabila t Our operators must also comply with laws and regulations prohibiting fraud and market manipulations in energy markets. f those To the extent the operators of our properties are shippers on interstate pipelines, they must comply with the tariffs off pipelines and with federal policies related to the use of interstate capac ity. a t Our operators may be required to make significant expenditures to comply with the laws and regulations described above and may be subject to potential fines and penalties if they are found to have violated these laws and regulations. We believe the trend of more expansive and stricter environmental legislation and regulations will continue. For example, following the election of President Biden and a Democratic majoa rity in both houses of Congress, it is possible that our operators may be subjeu estrictions, particularly with regards to hydraulic fracturing, permitting and GHG emissions. Please read “Item 1—Business—Regulation of Environmental and Occupational Safety and Health Matters” for a description of the laws and regulations that affect our operators and that may affect us. These and other potential regulations could increase the operating costs of our operators and delay production and may ultimately impact our operators’ ability and willingness to develop our properties. ct to greater environmental, health and safety r t 44 Federal and state legislative and regulatory initiatives relating to hydraulic frac incurring increased costs, additional operating restrictions or delays and fewer potential drilling locations. turing could result in our operators ff Our operators engage in hydraulic fracturing, which is a common practice that is used to stimulate production of hydrocarbons from tight formations, including shales. The process involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. Currently, hydraulic fracturing is generally exempt from regulation under the SDWA Underground Injection Control program and is typically regulated by state oil and gas commissions or similar agencies. ff However, several fede ral agencies have asserted regulatory authority over certain aspects of the process. For example, in June 2016, the EPA published an effluent limit guideline final rulerr onshore unconventional oil and gas extraction facilities to publicly owned wastewater treatment plants. Also, from time to time, legislation has been introduced, but not enacted, in Congress to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the hydraulic fracturing process. This or other fede ral legislation related to hydraulic fracturing may be considered again in the future, though we cannot predict the extent of any such legislation at this time. prohibiting the discharge of wastewater fromff ff Moreover, some states and local governments have adopted, and other governmental entities are considering adopting, regulations that could impose more stringent permitting, disclosure and well-construction requirements on hydraulic fracturing operations, including states in which our properties are located. For example, Texas, Colorado and North Dakota, among others, have adopted regulations that impose new or more stringent permitting, disclosure, disposal and well construction requirements on hydraulic fracturing operations. In April 2019, Colorado adopted Senate Bill 19-181, which makes sweeping changes in Colorado oil and gas law, including among other matters, requiring the COGCC to prioritize public health and environmental concerns in its decisions, instructing the COGCC to adopt rules to minimize emissions of methane and other air contaminants, and delegating considerable new authority to local governments to regulate surface impacts. In keeping with SB 19-181, the COGCC in November 2020 adopted revisions to several regulations to increase protections for public health, safety,t welfare, cks (2,000 feet, instead wildlife, and environmental resources. Most significantly, these revisions establia of the prior 500-foot) on new oil and gas development and eliminate routine flaring and venting of natural gas at new or existing wells across the state, each subjeu ct to only limited exceptions. Some local communities have adopted, or are considering adopting, further restrictions for oil and gas activities, such as requiring greater setbacks. States could also elect to prohibit high volume hydraulic fracturing altogether. In addition to state laws, local land use restrictions, such as city ordinances, may restrict drilling in general and/or hydraulic fracturing in particular. sh more stringent setbat t Separately, several state and federal agencies have examined a possible connection between hydraulic fracturing related activities, particularly the underground injection of wastewater into disposal wells, and the increased occurrence of seismic activity, and regulatory agencies at all levels are continuing to study the possible linkage between oil and gas activity and induced seismicity. The United States Geological Survey has identified eight states, including Oklahoma and Texas, with areas of increased rates of induced seismicity that could be attributed to fluff id injen ction or oil and gas extraction. In addition, a number of lawsuits have been filff ed, most recently in Oklahoma, alleging that disposal well operations have caused damage to neighboring properties or otherwise violated state and fede ral rules regulating waste disposal. In response to these concerns, regulators in some states are seeking to impose additional requirements, including requirements in the permitting of produced water disposal wells or otherwise to assess the relationship between seismicity and the use of such wells. In some instances, regulators may also order that disposal wells be shut in. ff Increased regulation and attention given to the hydraulic fracturing process, including the disposal of produced water gas turing techniques in areas where we own mineral and royalty interests. our operators in the our ff The adoption of any federal, state or local laws or the implm ementation of regulations could potentially cause a decrease in our operators’ completion of new oil and natural gas wells to our interests, which could have a material adverse gathered from drilling and production activities, could lead to greater opposition to, and litigation concerning, oil, natural and NGL production activities using hydraulic fracff Additional legislation or regulation could also lead to operational delays or increased operating costs forff production of oil, natural gas and NGLs, including from the development of shale plays, or could make it more difficult forff operators to perform hydraulic fract t uring. t regarding hydraulic fract uring on our properties and an associated decrease in the production attributablea on our business, financial condition and results of operations. ff effect ff t Restrictions on the ability of our operators to obtain water may have an adverse effect on our financial condition, results of operations and free cash flow. Water is an essential component of deep shale oil, naturt al gas and NGL production during both the drilling and hydraulic fracturing processes. Over the past several years, parts of the country, and in particular the western United States, have experienced extreme drought conditions. As a result of this severe drought, some local water districts have begun restricting the 45 use of water subject to their jurisdiction for hydraulic fracturing to protect local water supply. Such conditions may be exacerbated by climate change. If our operators are unable to obtain water to use in their operations from local sources, or if our operators are unable to effectively utilize flowback water, they may be unable to economically drill forff or produce oil, natural our properties, which could have an adverse effect on our financial condition, results of operations and free gas and NGLs fromff cash flow. u A series of risks arising out of the threat of climate change could result in increased operating costs, limit the areas in which oil and natural gas production may occur, and reduce demand for the oil, natural gas and NGLs that our operators produce. The threat of climate change continues to attract considerable attention in the United States and in foreign countries. As a gas exploration and production customers are subject to a s and result, our operations as well as the operations of our oil and natural series of regulatory, political, litigation, and financial risks associated with the production and processing of fossil fuel emission of GHGs. ff t In the United States, no comprehensive climate change legislation has been implemented at the federal level. However, President Biden has highlighted addressing climate change as a priority of his administration and has issued several executive orders addressing climate change. Moreover, following the U.S. Supreme Court finding that GHG emissions constitute a pollutant under the CAA, the EPA has adopted regulations that, among other things, establia sh construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG gas system sources in the United States, and together with the DOT, emissions from certain petroleum and natural implementing GHG emissions limits on vehicles manufactured forff operation in the United States. The regulation of methane from oil and gas facilities has been subject to uncertainty in recent years. In September 2020, the Trump Administration revised prior regulations to rescind certain methane standards and remove the transmission and storage segments fromff the source category for certain regulations. However, President Biden has signed an executive order calling for the suspension, revision, or rescission of the September 2020 rule, and the reinstatement or issuance of methane emissions standards for new, modified, and existing oil and gas facilities. t Separately, various states and groups of states have adopted or are considering adopting legislation, regulation or other regulatory initiatives that are focused on such areas as GHG cap a nd trade programs, carbon taxes, reporting and tracking a programs, and restriction of emissions. At the international level, the United Nations-sponsored "Paris Agreement" requires member states to submit non-binding, individually-determined reduction goals known as Nationally Determined Contributions (“NDCs”) every five years after 2020. Although the United States had withdrawn from the Paris agreement, President Biden has signed executive orders recommitting the United States to the agreement and calling on the federal government to develop the United States’ NDC. However, the impacts of these executive orders and the terms of any legislation or regulation to implement the United States’ commitment remain unclear at this time. k ff Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in increasing political risks in the United States, including action taken by President Biden with respect to his climate change related pledges. On January 27, 2021, President Biden issued an executive order that calls for substantial action on climate change, including, among other things, the increased use of zero-emission vehicles by the federal government, the elimination industry, and increased emphasis on climate-related risks across government agencies of subsidies provided to the fossil fuel and economic sectors. The Biden Administration has also issued orders temporarily suspending the issuance of authorizations, and suspending the issuance of new leases pending a study, for oil and gas development on federal lands. Substantially all of our mineral interests are located on private lands, but we cannot predict the full impact of these developments or whether the Biden Administration may pursue further restrictions. Other actions that could be pursued by the Biden Administration may include the imposition of more restrictive requirements for the establishment of pipeline infrastructuret or the permitting of LNG export facilities, as well as more restrictive GHG emission limitations for oil and gas facilities. Litigation risks are also increasing as a number of cities and other local governments have sought to bring suit against the largest oil and natural gas companies in state or federal court, alleging among other things, that such companies created public nuisances by producing fuels that contributed to climate change or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors or customers by failing to adequately disclose those impacts. t ff There are also increasing financial risks forff fossil fuel producers as shareholders currently invested in fossil-fuel energy to shift some or all of their investments into non-fossil fuel related sectors. Institutional companies may elect in the future lenders who provide financing to fossil fuel energy companies also have become more attentive to sustainable lending practices ff and some of them may elect not to provide funding for fossil fuel energy companies. There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector. Recently, President Biden signed an executive order calling for the development of a “climate finance plan” and, separately, the Federal Reserve announced that is has joined the Network forff Greening the Financial System, a consortium of financial 46 regulators focused on addressing climate-related risks in the financial sector. Limitation of investments in and financing for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities. ff The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other gas sector or otherwise regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas or generate the GHG emissions could result in increased restrict the areas in which this sector may produce oil and natural gas, which could reduce the costs of compliance or costs of consuming, and thereby reduce demand for oil and natural gas operators profitability of our interests. Additionally, political, litigation and financial risks may result in our oil and natural restricting or cancelling production activities, incurring liability for infrastructuret damages as a result of climatic changes, or impairing their ability to continue to operate in an economic manner, which also could reduce the profitability of our interests. One or more of these developments could have a material adverse effect on our business, financial condition and results of operation. t t t t Potential future legislation may generally affect the taxation of natural gas and oil exploration and development companies such as our operators, and may adversely affect our operators’ operations on the properties in which we hold interests, which, in turn, could adversely affect our results of operation and free cash flow. In past years, federal legislation has been proposed that would, if enacted into law, make significant changes to tax laws, including to certain key U.S. federal income tax provisions currently available to natural gas and oil exploration and development companies such as our operators. For example, President Joe Biden has set forth several tax proposals that would, if enacted into law, make significant changes to U.S. tax laws. Such proposals include, but are not limited to, (i) an increase in s. Congress could the U.S. income tax rate applicablea consider some or all of these proposals in connection with tax reform to be undertaken by the Biden administration. It is unclear whether these or similar changes will be enacted and, if enacted, how soon any such changes could take effect. The passage of any legislation as a result of these proposals and other similar changes in U.S. federal income tax laws could adversely affect our operators’ operations on the properties in which we hold interests, which, in turn, could adversely affect our results of operation and freeff to corporations and (ii) the elimination of tax subsidies forff cash flow. fossil fuel ff t Additional restrictions on drilling activities intended to protect certain species of wildlife may adversely affect our operators’ ability to conduct drilling activities. In the United States, the ESA restricts activities that may affect endangered or threatened species or their habitats. Similar ird Treaty Act (the “MBTA”). To the extent species that are protections are offered to migratory birds under the Migratory Brr listed under the ESA or similar state laws, or are protected under the MBTA, live in the areas where our operators operate, our operators’ abilities to conduct or expand operations could be limited, or our operators could be forced to incur material additional costs. Moreover, our operators’ drilling activities may be delayed, restricted or precluded in protected habitat areas or during certain seasons, such as breeding and nesting seasons. In addition, as a result of one or more settlements approved by the U.S. Fish & Wildlife Service (the “FWS”), the agency was required to make a determination on the listing of numerous other species as endangered or threatened under the ESA by the end of the FWS’ 2017 fiscal year. The FWS did not make that deadline; however, review is reportedly ongoing. The designation of previously unidentified endangered or threatened species-such as the dunes sagebrusrr h lizard, lesser prairie chicken or greater sage grouse-could cause our operators’ operations to become subject to operating restrictions or bans, and limit future habitat ff areas that they believe are necessary for the survival of threatened or endangered species. Such a designation could materially restrict use of or access to federal, state and private lands. development activity in affected areas. The FWS and similar state agencies may designate critical or suitablea Risks Related to Our Financial and Debt Arrangements Our derivative activities could result in financial losses and reduce earnings. From time to time in the past we have used, and in the future we may use, derivative instruments for a portion of our future oil, natural gas and NGL production, including fixed price swaps, collars and basis swaps, to mitigate the risk and resulting impact of commodity price volatility. However, these hedging activities may not be as effective as we intend in reducing the volatility of our cash flows and, if entered into, are subject to the risks that the terms of the derivative instruments will be impem rfect, a counterparty may not perform its obligations under a derivative contract, there may be a change in the expected differential between the underlying commodity price in the derivative instrument and the actual price received, our hedging policies and procedures may not be properly followed and the steps we take to monitor our derivative financial nts may not detect and prevent violations of our risk management policies and procedures, particularly if deception or r instrume ff 47 other intentional misconduct is involved. Further, we may be limited in receiving the full benefit of increases in oil, natural gas and NGL prices as a result of these hedging transactions. The occurrence of any of these risks could prevent us from realizing the benefit of a derivative contract. Further, our hedging activities are not likely to mitigate the entire exposure of our gas or oil derivative contracts in place as of December 31, 2020 operations to commodity price volatility. We had no natural and 2019. For the years ended December 31, 2019 and 2018, we recorded a loss on commodity derivative instruments, net of $0.6 million and a gain of $0.4 million, respectively. To the extent we do not hedge against commodity price volatility, or our hedges are not effective, our results of operations and financial position may be diminished. t t Our revolving credit facility has substantial restrictions and financial covenants that may restrict our business and financing activities and our ability to declare dividends. The operating and financial restrictions and covenants in our revolving credit facility restrict, and any future financing al needs, engage, expand or pursue our business agreements likely will restrict, our ability to finance future operations or capita activities or pay dividends. Our revolving credit facility restricts, and any future financing agreements likely will restrict, our ability to, among other things: • • • • incur indebtedness; issue certain equity securities, including preferred equity securities; incur certain liens or permit them to exist; engage in certain fundam ff ental changes, including mergers or consolidations; • make certain investments, loans, advances, guarantees and acquisitions; • • • sell or transfer assets; enter into sale and leaseback transactions; pay dividends to or redeem or repurchase shares fromff our shareholders; • make certain payments of junior indebtedness; • • • enter into transactions with our affilff iates; enter into certain restrictive agreements; and enter into swap agreements and hedging arrangements. ed by the levels of freeff Our revolving credit facility restricts our ability to pay dividends to our shareholders or to repurchase shares of our Class A common stock. We also are required under our revolving credit facility to comply with, as of the most recently completed fiscal quarter, (i) a ratio of total net funded debt to consolidated EBITDA not to exceed 4.00 to 1.00, and (ii) a current ratio of not less than 1.00 to 1.00. Our ability to comply with these restrictions and covenants in the future is uncertain and will be cash floff w and events or circumstances beyond our control, such as a downturn in our business or affect ff gas and NGL prices. If we violate any of the restrictions, covenants, ratios or the economy in general or reduced oil, natural tests in our revolving credit facility, a significant portion of our indebtedness may become immediately due and payablea , our ability to pay dividends to our shareholders will be inhibited and our lenders’ commitment to make further loans to us may terminate. We might not have, or be abla e to obtain, sufficient funds to make these accelerated payments. In addition, our obligations under our revolving credit facility are secured by substantially all of our assets, and if we are unable to repay our indebtedness under our revolving credit facff ility, the lenders can seek to foreclose on our assets. t The borrowings under our revolving credit facility expose us to interest rate risk. We are exposed to interest rate risk associated with borrowings under the our revolving credit facility. Our revolving credit facility bears interest at a rate per annum equal to, at our option, the adjusted base rate or the adjusted London Inter-Bank Offered Rate ("LIBOR") rate plus an applicable margin. The applicablea margin is based on utilization of our revolving credit facility and ranges fromff (a) in the case of adjusted base rate loans, 0.750% to 1.750% and (b) in the case of adjusted LIBOR rate loans, 1.750% to 2.750%. LIBOR tends to fluctuate based on multiple facts, including general short-term interest rates, rates set by the U.S. Federal Reserve and other central banks, the supply of and demand for credit in the London interbank 48 market and general economic conditions. If interest rates increase, so will our interest costs, which may have a material adverse effect on our business, financial conditions and results of operations. On July 27, 2017, the U.K. Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, is considering replacing U.S. dollar LIBOR with a newly created index. It is not shment of alternative reference rates in the United possible to predict the effect of these changes, other reforms or the establia States or elsewhere. Our debt levels may limit our flexibility to obtain additional financing and pursue other business opportunities. Our existing and futuret indebtedness could have important consequences to us, including: • • • • our ability to obtain additional finff ancing, if necessary, for working capita purposes may be impaired, or such finff ancing may not be availablea on terms acceptablea t to us; al, capital expenditures, acquisitions or other covenants in our existing and futuret our flexibility in planning for and reacting to changes in our business, including possible acquisition opportunit t credit and debt arrangements will require us to meet financial tests that may affecff ies; t our access to the capita al markets may be limited; our borrowing costs may increase; • we will need a substantial portion of our free cash flow to make principal and interest payments on our indebtedness, reducing the funds dividends to our shareholders; and ff that would otherwise be available forff operations, future business opportunities and payment of • our debt level will make us more vulnerable than our competitors with less debt to competitive pressures or a downturnt in our business or the economy generally. Our ability to service our indebtedness will depend upon, among other things, our future financial and operating performance, which will be affect tors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, al d to take actions such as reducing or delaying business activities, acquisitions, investments and/or capita ff we will be force expenditures, selling assets, restructuring or refinancing our indebtedness, or seeking additional equity capital or bankruptcy t protection. We may not be able to effecff ed by prevailing economic conditions and financial, business, regulatory and other facff t any of these remedies on satisfactory terms or at all. ff Risks Related to Our Class A Common Stock Brigham Minerals is a holding company. Brigham Minerals’ sole material asset is its equity interest in Brigham LLC and it is accordingly dependent upon distributions from Brigham LLC to pay taxes, cover its corporate and other overhead expenses and pay any dividends on our Class A common stock. t Brigham Minerals is a holding company and has no material assets other than its equity interest in Brigham LLC. Please Brigham Minerals has no independent means of generating see “Item 1—Business—Overview—Our Corporate Structure.” revenue. To the extent Brigham LLC has availaba le cash, Brigham LLC is required to make (i) generally pro rata distributions to all its unitholders, including to Brigham Minerals, in an amount generally intended to allow such holders to satisfy their respective income tax liabilities with respect to their allocable share of the income of Brigham LLC, based on certain l tax assumptim ons and conventions, provided that the distribution will be sufficien liabilities and (ii) non pro rata payments to Brigham Minerals in an amount sufficient to cover its corporate and other overhead expenses. In addition, as the sole managing member of Brigham LLC, we will cause Brigham LLC to make pro rata distributions to all of its unitholders, including to Brigham Minerals, in an amount sufficient to allow us to fund dividends to our stockholders in accordance with our dividend policy, to the extent our board of directors declares such dividends. Therefore, although we have paid dividends to our stockholders in the past and expect to pay dividends on our Class A common stock in amounts determined from time to time by our board of directors in the future, our ability to do so may be limited to the extent Brigham LLC and its subsidiaries are limited in their ability to make these and other distributions to us, including due to and Brigham LLC or its subsidiaries are the restrictions under our revolving credit facility. To the extent that we need funds t to allow Brigham Minerals to satisfy its actuat ff ff 49 restricted from making such distributions under applicable law or regulation or under the terms of their financing arrangements, or are otherwise unable to provide such funds, it could materially adversely affect our liquidity and finaff ncial condition. The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner. As a public company, we need to comply with new laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act, related regulations of the SEC and the requirements of the New York Stock Exchange (the "NYSE"), with which we were not required to comply as a private company. Complying with these requirements occupies a significant amount of time of our board of directors and management and significantly increases our costs and expenses. We are required to, among other things, institute a more comprehensive compliance function, comply with rules promulgated by the sh new internal policies, NYSE; prepare and distribute periodic public reports in compliance with federal securities laws; establia such as those relating to insider trading, and involve and retain to a greater degree outside counsel and accountants in the above activities. Furthermore, while we generally must comply with Section 404 of the Sarbanes Oxley Act for our fiscal year ending December 31, 2020, we are not required to have our independent registered public accounting firm attest to the effectiveness of our internal controls until our first annual report subsequent to our ceasing to be an “emerging growth company” within the meaning of Section 2(a)(19) of the Securities Act. Accordingly, we may not be required to have our independent registered public accounting firm attest to the effectiveness of our internal controls until as late as our annual report for the fiscal year ending December 31, 2024. Once it is required to do so, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed, operated or reviewed. Compliance with these requirements may strain our resources, increase our costs and distract management, and we may be unablea to comply with these requirements in a timely or cost-effective manner. In addition, being a public company subject to these rules and regulations makes it more diffiff cult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more diffiff cult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. If one or more material weaknesses emerge related to financial reporting, or if we otherwise fail to establish and maintain effective internal control over financial reporting, our ability to accurately report our financial results could be adversely affected. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our Class A common stock. ff ff rr orff us to provide reliabla e financ Effective internal controls are necessary f ial reports, prevent fraud and operate successfully as a public company. If we cannot provide reliabla e financ ial reports or prevent fraud, our reputation and operating results would be harmed. We cannot be certain that our efforts to develop and maintain our internal controls will be successful, that we will be able to maintain adequate controls over our financial processes and reporting in the future, that we will be able to comply with our obligations under Section 404 of the Sarbanes-Oxley Act, or that we will not identify material weaknesses related to our financial reporting. For example, in connection with the preparation and review of our unaudited consolidated financial statements forff the nine months ended September 30, 2018, our management identified certain material weaknesses which have since been remediated. If one or more material weaknesses emerge related to financial reporting in the future, or if we otherwise sh and maintain effective internal control over financial reporting, our operating results and ability to meet our fail to establia reporting obligations may be adversely affected and we may be subject to adverse regulatory consequences. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effeff ct on the trading price of our Class A common stock. See "Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internal Controls and Procedures.” Our Sponsors have the ability to direct the voting of a substantial portion of the voting power of our common stock, and their interests may conflict with those of our other stockholders. Holders of shares of our Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by appl icable law or our certificate of incorporation. As of December 31, 2020, our Sponsors beneficially own, on a combined basis, none of our outstanding shares of Class A common stock and approximately 72.9% of our shares of Class B common stock, representing 16.9% of our combined economic interest and voting power. As a result, this concentration of ownership allows our Sponsors to have a 50 significant influence over matters requiring stockholder approva l, may deter hostile takeovers and may make it less likely that other holders of our Class A common stock will be able to affect the way we are managed or the direction of our business. The interests of our Sponsors with respect to matters potentially or actually involving or affecting us, such as future acquisitions, financings and other corporate opportunities and attempts to acquire us, may conflict with the interests of our other stockholders. a Furthermore, we are party to a stockholders’ agreement with our Sponsors. The stockholders’ agreement provides each of our Sponsors with the right to designate a certain number of nominees to our board of directors, subject to certain ownership requirements in our common stock. Our Sponsors’ concentration of stock ownership may also adversely affect the trading price of our Class A common stock to the extent investors perceive a disadvantage in owning stock of a company with significant stockholders. Furthermore, while we believe that our Sponsor’s ownership interests in us provide them with an economic incentive to assist us to be successful, our Sponsors are not subject to any obligation to maintain their ownership interest in us. Our Sponsors may elect at any time thereafter to sell all or a substantial portion of or otherwise reduce their ownership interest in us, such as in the case of certain sales of our stock by our Sponsors in 2020. Such actions could adversely affect our ability to successfully implement our business strategies, which could adversely affect our business, financial condition and results of operations. Certain of our directors have significant duties with, and spend significant time serving, entities that may compete with us in seeking acquisitions and business opportunities and, accordingly, may have conflicts of interest in allocating time or pursuing business opportunities. t t Certain of our directors, who are responsible for managing the direction of our operations and acquisition activities, hold positions of responsibility with other entities (including Yorktown- and Pine Brook-affiliated entities) that are in the business of identifying and acquiring oil and natural gas properties. For example, one of our directors (Mr. Keenan) is a Managing Member of Yorktown and one of our directors (Mr. Stoneburner) is a Managing Director of Pine Brook, both of which are in the business of investing in oil and natural gas companies with independent management teams that also seek to acquire oil and gas properties. In addition, Mr. Brigham, our executive chairman, is involved with certain other entities involved in the natural t including Brigham Exploration Company, Atlas Permian Water, Atlas Permian Sand, Brigham oil and gas industry, Development and Anthem Ventures. s that are in conflict with the duties they owe to us. These directors may become aware of business opportunities that may be appropriate for presentation to us as well as to the other entities with which they are or may become affiliated. Due to these existing and potential future affiliations, they may present potential business opportunities to other entities prior to presenting them to us, which could cause additional conflicts of interest. They may also decide that certain opportunities are more appropriate forff other entities with which they are affiliated, and as a result, they may elect not to present those opportunities to us. These conflicts may not be resolved in our favor. For additional discussion of our management’s business affiliations and the potential conflicts of interest of which our stockholders should be aware, see “Item 13—Certain Relationships and Related Transactions, and Director Independence.” The existing positions held by these directors may give rise to fidff ud ciary orr r other dutie d t Our Sponsors and their affiliates are not limited in their ability to compete with us, and the corporate opportunity provisions in our amended and restated certificate of incorporation could enable our Sponsors to benefit from corporate opportunities that might otherwise be available to us. Our governing documents provide that our Sponsors and their affiliates (including portfolio investments of our Sponsors and their affiliates) are not restricted from owning assets or engaging in businesses that compete directly or indirectly with us and that we renounce any interest or expectancy in any business opportunity that may be from time to time presented to our Sponsors or their respective affiliates. In particular, subject to the limitations of applicable law, our amended and restated certificate of incorporation, among other things: • • permits our Sponsors and their affiliates and our directors to conduct business that competes with us and to make investments in any kind of property in which we may make investments; and provides that if our Sponsors or their affiliates or any director or officer of one of our affiliates, our Sponsors or their affiliates who is also one of our directors becomes aware of a potential business opportunity, transaction or other matter, they will have no dutd y to communicate or offer that opportunit y to us. t Our Sponsors or their affiliates may become aware, from time to time, of certain business opportunities (such as acquisition opportunities) and may direct such opportunities to other businesses in which they have invested, in which case we may not become aware of or otherwise have the ability to pursue such opportunity. Further, such businesses may choose to 51 compete with us for these opportunities, possibly causing these opportunities to not be available to us or causing them to be more expensive for us to pursue. In addition, our Sponsors and their affiliates may dispose of oil and natural gas properties or other assets in the future, without any obligation to offer us the opportunity to purchase any of those assets. As a result, our renouncing our interest and expectancy in any business opportunity that may be from time to time presented to our Sponsors and their affiliates could adversely impact our business or prospects if attractive business opportunities are procured by such parties forff their own benefit rather than for ours. Please see Exhibit 4.7 to this Annual Report on Form 10-K “Description of Brigham Minerals, Inc.’s Class A common stock.” t Each of our Sponsors is an establia gas industry and has resources greater than ours, shed participant in the oil and natural which may make it more difficult forff us to compete with our Sponsors with respect to commercial activities as well as for potential acquisitions. We cannot assure you that any conflicts that may arise between us and our stockholders, on the one hand, and our Sponsors, on the other hand, will be resolved in our favor. As a result, competition from our Sponsors and their affiliates could adversely impact our results of operations. t Our amended and restated certificate of incorporation and amended and restated bylaws, as well as Delaware law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market their price of our Class A common stock and could deprive our investors of the opportunity to receive a premium forff shares. Our amended and restated certificate of incorporation authorizes our board of directors to issue preferred stock without ng any series, and fix the rights, stockholder approval in one or more series, designate the number of shares constituti preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. If our board of directors elects to issue preferred stock, it a third party to acquire us. In addition, some provisions of our amended and restated certificate of could be more difficul a third party to acquire control of us, even if incorporation and amended and restated bylaws could make it more difficult forff the change of control would be beneficial to our stockholders. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws: t forff ff t • • • • • • • • • establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates forff election as directors or new business to be brought before meetings of our stockholders; provide that the authorized number of directors constituti of the board of directors; t ng our board of directors may be changed only by resolution provide that all vacancies, including newly created directorships, may, except as otherwise required by law, the terms of the stockholders’ agreement or, if applicablea , the rights of holders of a series of our preferred stock, be filled by the a affirmative vote of a majori ty of our directors then in office, even if less than a quorum; provide that our bylaws can be amended by the board of directors; provide that any action required or permitted to be taken by our stockholders must be effected at a dulyd or special meeting of stockholders and may not be effected by any consent in writing in lieu of a meeting of such stockholders, subject to the rights of the holders of any series of our preferred stock with respect to such series; called annual provide that our certificate of incorporation and bylaws may be amended by the affirmative vote of the holders of not less than 66 2/3% of our then outstanding shares of common stock; provide that special meetings of our stockholders may only be called by our board of directors pursuant to a resolution adopted by the affirmative vote of a majority of the members of the board of directors serving at the time of such vote; provide for our board of directors to be divided into three classes of directors, with each class as nearly equal in number as possible, serving staggered three-year terms, other than directors that may be elected by holders of our preferred stock, if any; provide that the affirmff of common stock entitled to vote generally in the election of directors, voting together as a single class, shall be required to remove any or all of the directors from office, and such removal may only be forff ative vote of the holders of not less than 66 2/3% in voting power of all then outstanding shares “cause”; and • prohibit cumulative voting on all matters. 52 Furthermore, the terms of our amended and restated certificate of incorporation and amended and restated bylaws are subject to the terms of the stockholders’ agreement. See “Item 13—Certain Relationships and Related Transactions, and Director Independence.” Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorabl e judicial forum for disputes with us or our directors, officers, employees or agents. ff ff a Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by appl icable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of iary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action breach of a fiduc asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of our capita al stock will be deemed to have notice of, and consented to, the provisions of our amended and restated certificate of incorporation described in the preceding sentence. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finff ds favorablea for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inappli in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affecff t our business, financial condition or results of operations. to, or unenforceablea cablea a Our ability to pay dividends to our stockholders may be limited by our holding company structure, contractual restrictions and regulatory requirements. t to allow Brigham Minerals to satisfy its actuat Brigham Minerals is a holding company and has no material assets other than its ownership of Brigham LLC Units, and Brigham Minerals does not have any independent means of generating revenue. To the extent Brigham LLC has availabla e cash, Brigham LLC is required to make (i) generally pro rata distributions to all its unitholders, including to Brigham Minerals, in an amount generally intended to allow such holders to satisfy their respective income tax liabilities with respect to their allocable share of the income of Brigham LLC, based on certain assumptim ons and conventions, provided that the distribution will be l tax liabilities and (ii) non-pro rata payments to Brigham Minerals in an ff sufficien amount sufficient to cover its corporate and other overhead expenses. In addition, as the sole managing member of Brigham LLC, Brigham Minerals will cause Brigham LLC to make pro rata distributions to all of its unitholders, including to Brigham Minerals, in an amount sufficient to allow it to fund dividends to its stockholders in accordance with its dividend policy, to the extent its board of directors declares such dividends. Brigham LLC is a distinct legal entity and may be subject to legal or contractual restrictions that, under certain circumstances, may limit Brigham Minerals ability to obtain cash from it. If Brigham LLC is unable to make distributions, we may not receive adequate distributions, which could materially and adversely affect our free cash flow and finaff ncial position and our ability to fund any dividends. ff Although we have paid dividends on our Class A common stock and expect to pay dividends on our Class A common stock in the future, our board of directors will take into account general economic and business conditions, including our al requirements, contractual restrictions, including restrictions and covenants financial condition and results of operations, capita tors that our board of directors considers relevant in contained in our debt agreements, business prospects and other facff determining whether, and in what amounts, to pay such dividends. In addition, our revolving credit facility limits the amount of distributions that Brigham LLC can make to us and the purposes for which distributions could be made. Accordingly, we may not be able to pay dividends even if our board of directors would otherwise deem it appropria te. See “Item 5—Market forff Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividend Policy,” “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Capital Requirements and Sources of Liquidity” and Exhibit 4.7 to this Annual Report on Form 10-K, “Description of Brigham Minerals, Inc.’s Class A common stock.” a In certain circumstances, Brigham LLC will be required to make tax distributions to the Brigham Unit Holders, including Brigham Minerals, and such tax distributions may be substantial. To the extent Brigham Minerals receives tax distributions in excess of its actual tax liabilities and retains such excess cash, the Original Owners would benefit from such accumulated cash balances if they exercise their Redemption Right. 53 ff including an assumed individual Pursuant to the Brigham LLC Agreement, to the extent Brigham LLC has availablea cash (taking into account existing and projected capita al expenditures), Brigham LLC is required to make generally pro rata distributions (which we refer to as “tax distributions”), to all its unitholders, including Brigham Minerals, in an amount generally intended to allow the Brigham Unit Holders to satisfy their respective income tax liabilities with respect to their allocable share of the income of Brigham LLC, based on certain assumptions and conventions, provided that tax distributions will be made sufficien t to allow Brigham ts actual tax liabilities. The amount of such tax distributions will be determined based on certain Minerals to satisfy i assumptions, income tax rate, and will be calculated after taking into account other distributions (including other tax distributions) made by Brigham LLC. Because tax distributions will be made pro rata based to Brigham Minerals and the assumed on ownership and due to, among other items, differences between the tax rates applicablea individual income tax rate used in the calculation and requirements under the applicablea s that Brigham LLC’s net taxable income be allocated disproportionately to its unitholders in certain circumstances, tax distributions may significantly exceed the actual tax liability forff many of the Brigham Unit Holders, including Brigham Minerals. If Brigham Minerals retains the excess cash it receives, the Original Owners would benefit from any value attributablea to such accumulated cash balances upon their exercise of the Redemption Right. However, we expect to use such accumulated cash balances to pay dividends in respect of our Class A common stock or to take other steps to eliminate any material cash balances. In addition, the tax distributions Brigham LLC will be required to make may be substantial and may exceed the tax liabilities that would be owed by a similarly situated corporate taxpayer. Funds used by Brigham LLC to satisfy its tax distribution obligations will not be available forff reinvestment in our business, except to the extent Brigham Minerals uses the excess cash it receives to reinvest in Brigham LLC for additional units. tax ruler ff The U.S. feder tax attributes and the holder’s tax basis in our stock, which are not necessarily predictable and can change over time. al income tax treatment of distributions on our Class A common stock to a holder will depend upon our ff Distributions of cash or property on our Class A common stock, if any, will constitute dividends for U.S. federal income our current or accumulated earnings and profits, as determined under U.S. federal income tax purposes to the extent paid fromff tax principles. To the extent those distributions exceed our current and accumulated earnings and profits, the distributions will be treated as a non-taxable returnt al to the extent of the non-U.S. holder’s tax basis in our Class A common stock and the sale or exchange of such common stock. Also, if any holder sells our Class A common stock, thereafter as capital gain fromff between the amount realized and the holder’s tax basis in such the holder will recognize a gain or loss equal to the difference Class A common stock. of capita ff To the extent that the amount of our distributions is treated as a non-taxable returnt al as described above, such distribution will reduce a holder’s tax basis in the Class A common stock. Consequently, such excess distributions will result in a corresponding increase in the amount of gain, or a corresponding decrease in the amount of loss, recognized by the holder upon the sale of the Class A common stock or subsequent distributions with respect to such stock. Additionally, with regard to U.S. corporate holders of our Class A shares, to the extent that a distribution on our Class A shares exceeds both our current and accumulated earnings and profits and such holder’s tax basis in such shares, such holders would be unable to utilize the to such holder) with respect to the gain corporate dividends-received deduction (to the extent it would otherwise be applicablea resulting fromff such excess distribution. of capita Investors in our Class A common stock are encouraged to consult their tax advisors as to the tax consequences of receiving distributions on our Class A shares that are not treated as dividends for U.S. federal income tax purposes. Future sales of shares of our Class A common stock in the public market, or the perception that such sales may occur, could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us. Certain of our Original Owners own shares of our Class A common stock and, subject to certain limitations and exceptions, the Original Owners that hold Brigham LLC Units may require Brigham LLC to redeem their Brigham LLC Units for shares of Class A common stock (on a one-for-one basis, subject to conversion rate adjustments for stock splits, stock dividends and reclassification and other similar transactions), and our Original Owners may sell any of such shares of Class A common stock. As of February 19, 2021, we had outstanding 43,558,494 shares of Class A common stock and 13,167,687 shares of Class B common stock, representing approximately 23.2% of our total outstanding shares. The Sponsors are party to a registration rights agreement, which requires us to effect the registration of their shares in certain circumstances. See “Item1— and “Item 13—Certain Relationships and Related Transactions, and Director Business—Overview—Our Corporate Structure” Independence.” t We have previously filed a registration statement with the SEC on Form S-8 providing for the registration of 5,999,600 ct to the satisfaction issuance under our equity incentive plan. Subjeu shares of our Class A common stock issued or reserved forff 54 of vesting conditions, shares registered under the registration statement on Form S-8 will be available for resale immediately in the public market without restriction. issuances of our Class A common stock or securities convertible into Class A We cannot predict the size of future common stock or the effect, if any, that future issuances and sales of shares of our Class A common stock will have on the market price of our Class A common stock. Sales of substantial amounts of our Class A common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices of our Class A common stock. ff ff Our organizational structure confers certain benefits upon the Original Owners that will not benefit the holders of our Class A common stock to the same extent as it will benefit the Original Owners. Our organizational structuret confers certain benefits uponu the Original Owners that do not benefit the holders of our Class A common stock to the same extent as it will benefit the Original Owners. Brigham Minerals is a holding company and has no material assets other than its ownership of Brigham LLC Units. As a consequence, our ability to declare and pay dividends to the holders of our Class A common stock is subject to the ability of Brigham LLC to provide distributions to us. If Brigham LLC makes such distributions, the Original Owners will be entitled to receive equivalent distributions from Brigham LLC on a pro rata basis. However, because we must pay taxes, amounts ultimately distributed as dividends to holders of our Class A common stock are expected to be less on a per share basis than the amounts distributed by Brigham LLC to the Original Owners on a per unit basis. This and other aspects of our organizational structuret may adversely impact the future trading market for our Class A common stock. We may issue preferred stock whose terms could adversely affect the voting power or value of our Class A common stock. Our amended and restated certificate of incorporation authorizes our board of directors to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our Class A common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of our preferred stock could adversely impact the voting power or value of our Class A common stock. For example, we might grant holders of a class or series of our preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of our preferred stock could affect the residual value of our Class A common stock. For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies. We are classified as an “emerging growth company” under the Jumpstart Our Business Startups Act (the "JOBS Act"). For as long as we are an emerging growth company, which may be up tu full fiscal years, unlike other public companies, we will not be required to, among other things: (i) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) comply with any new requirements adopted by the Public Company Accounting Oversight Board (the "PCAOB") requiring mandatory audit firmff rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; (iii) provide certain disclosure regarding executive compensation required of (iv) hold nonbinding advisory votes on executive compensation. We may remain an emerging growth company until December 31, 2024, although we will lose that status sooner if we have more than $1.07 billion of revenues in a fisca l year, have more than $700 million in market value of our Class A common stock held by non-affiliates, or issue more than $1 billion of non-convertible debt over a three-year period. larger public companies; or o fiveff ff t To the extent that we rely on any of the exemptim ons available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our Class A common stock to be less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile. a If securities or industry analysts adversely change their recommendations regarding our Class A common stock or if our operating results do not meet their expectations, our stock price could decline. The trading market for our Class A common stock will be influenc ed by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish ff 55 reports on us regularly, we could lose visibility in the financial markets, which in turnt could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrades our Class A common stock or if our operating results do not meet their expectations, our stock price could decline. Because we have elected to take advantage of the extended transition period pursuant to Section 107 of the JOBS Act, our financial statements may not be comparable to those of other public companies. Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This permits an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of this extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required forff private companies. to companies that comply with public company effective dates, Accordingly, our financial statements may not be comparablea and our stockholders and potential investors may have difficulty in analyzing our operating results by comparing us to such companies. 56 Item 1B. Unresolved Staff Comments None. Item 2. Properties Information regarding our properties is contained in "Item 1—Business" and is incorporated by reference here. Item 3. Legal Proceedings Due to the naturet of our business, we are, from time to time, involved in routine litigation or subject to disputes or claims related to our business activities. In the opinion of our management, none of the pending litigation, disputes or claims against us, if decided adversely, will have a material adverse effecff t on our financial condition, cash flows or results of operations. Item 4. Mine Safety Disclosures Not applicable. 57 PART II Item 5. Securities Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Common Stock Our Class A common stock began trading on the NYSE under the symbol “MNRL” on April 18, 2019. Prior to that, there was no public market for our Class A common stock. There is no market for our Class B common stock. As of February 19, 2021, we had 48 holders of record of our Class B common stock. Each share of Class B common stock has no economic rights but entitles its holders to one vote on all matters to be voted on by the shareholders generally. Please see "Item 1—Business—Overview—Our Corporate Structure." Holders of Record On February 19, 2021, the closing price of our Class A common stock on the NYSE was $15.50 per share. As of February 19, 2021, we had approximately 51 holders of record of our Class A common stock. This number excludes owners for whom Class A common stock may be held in “street” name. Dividend Policy We paid our first quarterly cash dividend on our Class A common stock on August 29, 2019 to our Class A stockholders and have continued to pay quarterly cash dividends to date. The amount of our dividend has varied quarter to quarter fromff high of $0.38 per share to a low of $0.14 per share. We expect to pay futuret amounts determined fromff by us will be at the sole discretion of our board of directors, which may change our dividend policy at any time. Our board of directors will take into account: time to time by our board of directors. However, the declaration and payment of any future dividends on our Class A common stock in a ff dividends • • • • • • general economic and business conditions; our financial condition and operating results; our free cash flow and current anticipated cash needs; our capita al requirements; legal, tax, regulatory, and contractual (including under our revolving credit facff payment of dividends by us to our stockholders or by our subsidiaries (including Brigham LLC) to us; and ility) restrictions and implim cations on the such other factors as our board of directors may deem relevant. We are a holding company and have no material assets other than our ownership of Brigham LLC Units. As a consequence, our ability to declare and pay dividends to the holders of our Class A common stock is subject to the ability of Brigham LLC to provide distributions to us. If Brigham LLC makes such distributions, the Original Owners will be entitled to receive equivalent distributions from Brigham LLC on a pro rata basis. However, because we must pay taxes, amounts ultimately distributed as dividends to holders of our Class A common stock are expected to be less on a per share basis than the amounts distributed by Brigham LLC to the Original Owners on a per unit basis. Assuming Brigham LLC makes distributions to us and the Original Owners in any given year, we expect to pay dividends in respect of our Class A common stock out of the portion, if any, of such distributions remaining after our payment of taxes and our expenses (any such portion, an “excess distribution”). However, because our board of directors may determine to pay or not pay dividends in respect of shares of our Class A common stock based on the factors described above, our holders of Class A common stock may not necessarily receive dividend distributions relating to excess distributions, even if Brigham LLC makes such distributions to us. Securities Authorized for Issuance Under Equity Compensation Plans 58 The inforff mation relating to our equity compensation plans required by Item 5 is incorporated by reference to such th in "Item 12—Security Ownership of Certain Beneficial Owners and Management and Related information as set forff Stockholder Matters” contained herein. Issuer Purchases of Equity Securities We did not purchase any shares of our common stock during d the three months ended December 31, 2020. Performance Graph The perforff mance graph below compares the cumulative total returns of our Class A common stock over the period from April 18, 2019, the date our Class A common stock began trading on the NYSE, through December 31, 2020 with the for the same period for the S&P 500 index and S&P Oil and Gas Exploration & Production index. The cumulative total returns cumulative stockholder returnt assumes that $100 was invested, including reinvestment of dividends, if any, in our Class A common stock on April 18, 2019, and in the S&P 500 index and S&P Oil and Gas Exploration & Production index on the same date. t t PERFORMANCE GRAPH Among Brigham Minerals, Inc., the S&P 500 Index, and the S&P Oil and Gas Exploration & Production Index e u l a V t n e m t s e v n I $150 $125 $100 $75 $50 $25 04/18/19 4/19 6/19 9/19 12/19 03/20 06/20 09/20 12/20 Period Ending Brigham Minerals, Inc. S&P 500 S&P Oil and Gas Exploration & Production ***$100 invested on 4/18/19 in stock or 3/31/19 in index, including reinvestment of dividends. Fiscal year ending December 31. The preceding performance graph and related information is being furnished pursuant to Item 2.01(e) of Regulation S-K and shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, other than as provided in Item 2.01(e) of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically request that such information be treated as soliciting material or specifically incorporate it by reference into a filff ing under the Securities Act or the Exchange Act. Item 6. Selected Financial Data Brigham Minerals was formed in June 2018 and had limited historical finaff ncial operating results prior to the IPO. Following the IPO, Brigham Minerals became the sole managing member forff Brigham LLC. As a result, Brigham Minerals consolidates the financial results of Brigham LLC and its subsidiaries and reports temporary equity related to the portion of the Brigham LLC Units not owned by Brigham Minerals. For periods prior to the completion of the IPO, the accompanying 59 consolidated and combined finaff ncial statements include the consolidated and combined historical financial results of Brigham Resources (excluding the historical results of Brigham Operating), our predecessor for accounting purposes, and Brigham Minerals. The selected historical consolidated and combined finaff ncial data as of and for the years ended December 31, 2020, 2019, ncial statements included elsewhere in 2018, and 2017 were derived from the audited historical consolidated and combined finaff this Annual Report. For a detailed discussion of the selected historical financ , please read "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations." The following tablea ncial statements included elsewhere in this Annual Report. Among should also be read in conjunction with our historical finaff other things, the historical financial statements include more detailed informa tion regarding the basis of presentation for the information in the following tablea . Historical results are not necessarily indicative of futuret ial data contained in the following tablea results. ff ff (In thousands, except per share data) STATEMENT OF OPERATIONS DATA: REVENUES Mineral and royalty revenues Lease bonus and other revenues Total revenues OTHER OPERATING INCOME: Gain on sale of oil and gas properties, net OPERATING EXPENSES Gathering, transportation and marketing Severance and ad valorem taxes Depreciation, depletion, and amortization Impairment of oil and gas properties General and administrative Total operating expenses (LOSS) INCOME FROM OPERATIONS Other income (expense): (Loss) gain on derivative instruments, net Interest expense, net Loss on extinguishment of debt Gain on sale and distribution of equity securities Other income, net (Loss) income before income tax expense Income tax (benefit) expense NET (LOSS) INCOME Less: Net income attributable to Predecessor Less: net loss (income) attributable to temporary equity Net (loss) income attributable to Brigham Minerals, Inc. shareholders Net income per share attributable to common stockholders(1) Basic Diluted Weighted-average number of shares Basic Diluted $ $ $ $ $ $ $ $ $ Years Ended December 31, 2020 2019 2018 2017 86,245 5,478 91,723 $ $ 97,886 3,629 101,515 $ $ 59,758 7,506 67,264 $ $ 30,066 10,842 40,908 — — — 94,551 6,985 5,606 48,238 79,569 21,619 162,017 $ (70,294) $ — (890) — — 428 (70,756) $ (12,762) (57,994) $ — 15,582 4,985 6,409 30,940 — 21,963 64,297 37,218 (568) (5,609) (6,892) — 169 24,318 2,679 21,639 (5,092) (9,646) $ $ $ $ $ $ 3,944 3,536 13,915 — 6,638 28,033 39,231 424 (7,446) — 823 110 33,142 327 32,815 $ $ 1,754 1,601 6,955 — 3,935 14,245 121,214 (121) (556) — (4,222) 305 116,620 1,008 115,612 (30,976) (115,612) — (42,412) $ 6,901 $ 1,839 $ (1.11) $ (1.11) $ 0.26 0.26 $ $ 38,178 38,178 22,870 22,870 — $ — $ — — — — — — — — (1) Brigham Minerals was formed in June 2018 and acquired an interest in our predecessor as part of certain reorganization transactions in July 2018 and increased its interest in our predecessor in April 2019 in connection with our IPO. To that end, we began recording net income attributable to shareholders of Brigham Minerals in addition to net income attributable to our predecessor beginning in July 2018. Upon completion of the IPO, net income attributable to our predecessor was reclassified as net income attributable to temporary equity. 60 (In thousands) Other Financial Data: Adjusted EBITDA(2) Adjusted EBITDA ex lease bonus(2) Balance Sheet Data: Cash and cash equivalents Total assets Credit facilities Total liabilities Temporary equity Permanent equity Years Ended December 31, 2020 2019 2018 2017 $ $ $ $ $ $ $ $ 65,042 59,564 9,144 680,961 20,000 29,031 146,280 505,650 $ $ $ $ $ $ $ $ 78,207 74,578 51,133 784,162 $ $ $ $ — $ 12,336 454,507 317,319 $ $ $ 53,146 45,640 31,985 554,026 170,705 180,078 $ $ $ $ $ $ — $ 33,618 22,776 6,886 334,477 27,000 32,303 — 373,948 $ 302,174 (2) Please read “—Non-GAAP Financial Measures” below for the definitions of Adjusted EBITDA and Adjusted EBITDA ex lease bonus and a reconciliation of Adjusted EBITDA and Adjusted EBITDA ex lease bonus to our most directly comparable financial measure, calculated and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Non-GAAP Financial Measures Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA ex lease bonus are non-GAAP supplemental financial measures used by our management and by external users of our financial statements such as investors, research analysts and others to assess the financial performance of our assets and their ability to sustain dividends over the long term without regard to financing methods, capital structure or historical cost basis. We define Adjud sted Net Income as net income (loss) before impairment of oil and gas properties, after tax, and loss on extinguishment of debt, after tax. We define Adjud sted EBITDA as Adjuste d Net Income before depreciation, depletion and amortization, share based compensation expense, interest expense, gain or loss on derivative instruments and income tax expense, less other income, gain on sale of oil and gas properties and income tax benefit.ff We define Adjusted EBITDA ex lease bonus as Adjusted EBITDA furthe r adjusted to eliminate the impacts of lease bonus revenue we receive due to the t unpredictability of timing and magnitude of the revenue. d ff Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA ex lease bonus do not represent and should not be considered alternatives to, or more meaningful than, net income, income from operations, cash flows from operating activities or any other measure of financial perfoff rmance presented in accordance with GAAP as measures of our financial perforff mance. Adjud sted Net Income, Adjusted EBITDA and Adjusted EBITDA ex lease bonus have important limitations as analytical tools because they exclude some but not all items that affect net income, the most directly comparable GAAP financial measure. Our computations computation of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA ex lease bonus may differ fromff of similarly titled measures of other companies. 61 (In thousands) Reconciliation of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA ex lease bonus to net income: Net (loss) income Add: Impairment of oil and gas properties, after tax (1) Loss on extinguishment of debt, after tax (2) Adjusted Net Income Add: Depreciation, depletion, and amortization Share-based compensation expense Interest expense, net Loss on derivative instruments, net Loss on sale and distribution of equity securities Income tax expense Less: Gain on derivative instruments, net Gain on sale of oil and gas properties Other income, net Gain on sale and distribution of equity securities Adjusted EBITDA Less: Lease bonus revenue Adjusted EBITDA ex lease bonus (1) Tax effect of $14.4 million tax benefit for the year ended December 31, 2020. (2) Tax effect of $0.8 million tax benefit for the year ended December 31, 2019. Years Ended December 31, 2020 2019 2018 2017 $ (57,994) $ 21,639 $ 32,815 $ 115,612 65,132 — — 6,134 — — — — $ 7,138 $ 27,773 $ 32,815 $ 115,612 48,238 7,529 890 — — 1,675 — — 428 — 30,940 10,049 5,609 568 — 3,437 — — 169 — 13,915 — 7,446 — — 327 424 — 110 823 6,955 — 556 121 4,222 1,008 — 94,551 305 — $ $ 65,042 $ 78,207 $ 53,146 $ 33,618 5,478 3,629 7,506 59,564 $ 74,578 $ 45,640 $ 10,842 22,776 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysisyy should be read in conjunction with “Item 6—Se accompanying consolidated and combined finff ancial statements and related notes included elsewll lected Financial Data” and the here in this Aii nnual Report. 66 e tt tt ause or contribute The forward-looking statements are dependent upon events,tt The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefse rr ted performance. and may be outside Our actual results could diffeff r materially from those discussed in these forward-looking statements. FacFF tors that atural gas and NGLs, conomic and here in Forward-Looking onary Statement Regarding of these risks, uncertainties and assumptions, the forward-looking any forward-looking statements excepte expec x our control. could c prices forff ll production volumes, estimates of proved, probable and possible reserves, mineral acquisiti competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewll this Aii Statements,”tt events dtt rr as otherwis i iscussed may not occur. We do not undertake akk to such diffeff rences include, but are not limited to, marketkk particularly in “Item 1A—Ris— k FactFF ors” and “CautiCC all of which are diffiff cult to predict. In light oil, nl on capital, el e required by applicable law. nd uncertainties that u on to publicly ull nnual Report, i ny obligati risks akk pdate e e ii tt Overview Brigham Minerals was formed to acquire and actively manage a portfolio of mineral and royalty interests in the core of what we view as the most active, highly economic, liquids-rich resource plays across the continental United States. Our primary business objective is to maximize risk-adjusted total returnt to our shareholders through (i) the growth of our free cash floff w generated from our existing portfolio of approximately 86,285 net royalty acres, and (ii) the continued sourcing and execution of accretive mineral acquisitions in the core of highly economic, liquids-rich resource plays. As of December 31, 2020, we owned 86,285 net royalty acres across 37 counties within the Permian Basin in West Texas and New Mexico, the SCOOP/ 62 STACK plays in the Anadarko Basin of Oklahoma, the DJ Basin in Colorado and Wyoming and the Williston Basin in North Dakota. Financ ii ial and Operational Overview: • Our production volumes increased 28%, to 9,483 Boe/d (72% liquids, 53% oil), for the year ended December 31, 2020 as compared to the prior year. • Our mineral and royalty revenues composed of crude oil, natural t gas and NGL sales decreased 12%, to $86.2 million, for the year ended December 31, 2020 as compared to the prior year. • Our net loss for the year ended December 31, 2020 was $58.0 million. Adjusted Net Income was $7.1 million, the twelve months excluding an after-tax impairment to oil and gas properties of $65.1 million. Our net income forff ended December 31, 2019 was $21.6 million, while Adjusted Net Income was $27.8 million. Adjusted EBITDA and Adjusted EBITDA ex lease bonus decreased 17% to $65.0 million, and 20% to $59.6 million, respectively, for the year ended December 31, 2020 as compared to the prior year. Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA ex lease bonus are non-GAAP financial measures. For a definition of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA ex lease bonus and a reconciliation to our most directly comparablea measure calculated and presented in accordance with GAAP, please read "How We Evaluate Our Operations—Adjusted EBITDA and Adjusted EBITDA Ex Lease Bonus." • On February 19, 2021, the Board of Directors of Brigham Minerals declared a dividend of $0.26 per share of Class A on March 26, 2021 to shareholders of record at the close of business on March 19, 2021.This t al returned common stock payablea brings the total capita to shareholders related to financial results fromff fiscal year 2020 to $1.01 per share. • As of December 31, 2020, Brigham Minerals had a cash balance of $9.1 million and $115.0 million of capac ility, providing the Company with total liquidity of $124.1 million. revolving credit facff a ity on our Market EnvirEE onment and COVID-19 t The ongoing global spread of a novel strain of coronavirus (SARS-Cov-2), which causes COVID-19, has caused a continuing disruption to the oil and natural gas industry and to our business by, among other things, contributing to a significant decrease in demand for crude oil and the price forff oil beginning in the first quarter of 2020 and continuing through the fourth led to agree to and maintain oil price and production quarter of 2020. Additionally, in March 2020, Saudi Arabia and Russia faiff controls within OPEC and Russia. Subsequently, Saudi Arabia announced plans to increase production and reduce the prices at which they sell oil. While OPEC+ subsequently agreed to collectively decrease production, these events, combined with the macro-economic impact of the continued outbreak of the COVID-19 pandemic and declining availability of hydrocarbon storage, exacerbated the decline in commodity prices, including the historic, record low price of negative ($36.98) per barrel that occurred in April 2020. Additionally, in July 2020, OPEC+ agreed to begin easing production cuts starting in August 2020. Market volatility has continued, and we expect it will continue for the foreseeable future . Please see “Item 1A—Risk Factors” for further discussion of these events. ff In response to the COVID-19 pandemic, the potential risk to our workforce and in compliance with stay at home orders, we successfully implemented policies and the technological infrastructuret for all of our employees to work from home in the first quarter of 2020 and ceased all business travel. In compliance with the requirements for the re-opening of the Texas ity while continuing to support working from home for our economy, we are currently operating our office at 75% capac employees that are considered high-risk pursuant to the Centers forff Disease Control and Prevention guidelines or have household members meeting the criteria of the guidelines. Due to these efforts, we have not experienced material disruptions to our operations or the health of our workforce. a al expenditures forff The declining commodity prices have adversely affected the revenues we receive for our royalty interests and could affect al markets on terms favorable to us. Additionally, in response to the declining commodity prices, our ability to access the capita 2020 and have announced similarly al expenditures during many operators on our properties substantially reduced their capita reduced capita 2021 and beyond, which has adversely affected the development of our properties and will continue to affect the development of our properties into 2021 and beyond. While these lower commodity prices initially resulted in some of the Company's operators shutting in or curtailing production from wells on its properties during the second quarter of 2020, the Company saw a majority of its operators resume production for previously curtailed and shut in wells in connection with the improvement of commodity prices in the third and fourth quarters of 2020. As a result of the shut-ins in the second quarter of 2020 and the depressed commodity prices, our revenues, cash flows from operations and dividend amounts d d 63 we are able to pay our stockholders have continued to be negatively impacted. We cannot predict the extent and duration of these and other impacts on our business fromff the COVID-19 pandemic, efforts to fight the pandemic and other market events. ff d In connection with the previously mentioned COVID-19 pandemic and resulting market and commodity price challenges experienced during 2020, we saw reduced levels of potential acquisition opportunities, which could potentially delay our ability to execute on our growth strategy. With an improvement in commodity prices along with our financial strength, we are well positioned to capture al allocation is within our control, we believe that the liquidity provided by our cash flow from operations and borrowings under our revolving credit facility will provide us with sufficient capia tal to execute our current strategy. attractive opportunities in 2021 that will generate shareholder value. Given that our capita a Operational Update Mineral and Royalty Interest Ownership Update During the year ended December 31, 2020, the Company completed 81 transactions acquiring 4,635 net royalty acres rge, Williston and DJ Basins. (standardized to a 1/8th royalty interest) for $66.5 million, in the Permian, SCOOP/STACK/MeKK The Company deployed approximately 92% of its mineral acquisition capita al in 2020 to the Permian Basin (70% Delaware and 22% Midland), 4% to the Anadarko Basin, 2% to the Williston Basin and 2% to the DJ Basin. The acquired minerals are expected to deliver near-term production and cash flow growth with the addition of 165 gross DUCs (0.6 net DUCs) and 97 gross permits (0.3 net permits) to our inventory counts. As of December 31, 2020, the Company owned roughly 86,285 net royalty acres, encompassing 13,496 gross (116.3 net) undeveloped horizontal locations, across 37 counties in what the Company views as the core of the Permian Basin in West Texas and New Mexico, the SCOOP/STACK plays in the Anadarko Basin of Oklahoma, the DJ Basin in Colorado and Wyoming and the Williston Basin in North Dakota. The tablea below summarizes the Company’s mineral and royalty interest ownership as of the dates indicated and changes in such ownership on an annual basis. Delaware Midland SCOOP STACK DJ Williston Other Total 28,330 27,550 26,550 26,550 25,750 2,580 5,220 4,875 4,800 4,575 4,100 1,120 — 10 % — 27 % 11,400 11,400 11,375 11,375 11,100 300 — 10,725 10,725 10,700 10,700 10,700 25 — 15,890 15,600 15,600 15,600 15,600 290 — 7,950 7,825 7,825 7,825 7,750 200 — 6,770 6,725 6,725 6,650 7,200 120 (550) 3 % — % 2 % 3 % (6)% 86,285 84,700 83,575 83,275 82,200 4,635 (550) 5 % Net Royalty Acres December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 Acres Added in 2020 Acres Sold in 2020 % Added in 2020 Operating Activity Update DUC Conversions In 2020, the Company identified approxi 70% of its gross DUC inventory (79% of its net DUCs) as of year-end 2019. 2020 conversions of gross wells by statust summarized in the grapha mately 628 gross DUCs (4.7 net DUCs) converted to production, representing are below: a 6000 5250 4500 3750 3000 4908 424 628 41 16 5985 YE2019 PDP Acquired Wells Converted DUC Converted Permitted Other YE 2020 PDP Drillii ingll Activityii 64 During 2020 the Company saw 381 gross (2.6 net) wells spud on its acreage. 54% of gross (70% net) wells spud were in the Permian Basin, with 35% gross (60% net) wells spud in the Delaware Basin and 19% gross (10% net) wells spud in the Midland Basin: Gross Spuds Net Spuds 400 350 300 250 200 150 100 50 0 24848 2302300 214 2099 18585 208 150 99 82822 2 1.75 1.5 1.25 1 0.75 5757 363636 7979 0.5 0.25 0 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Delaware DJ Basin Midland Williston SCOOP Other STACK Net Spuds DUC and Permit Iii nvII yr entortt The Company expects any near-term production growth will be driven by the continued conversion of its DUC and permit inventory. Brigham’s DUC and permit inventory as of December 31, 2020 by basin is outlined in the tabla e below: Gross Inventory DUCs Permits Net Inventory DUCs Permits Delaware Midland SCOOP STACK DJ Williston Other Total Development Inventory by Basin (1) 187 159 1.8 0.9 218 97 0.7 0.4 62 11 0.3 — 3 6 — — 111 222 0.7 2.2 124 252 0.1 0.5 16 8 0.1 0.1 721 755 3.6 4.2 (1) Individual amounts may not total due to rounding. We use a variety of operational and financial measures to assess our performance. Among the measures considered by management are the following: How We Evaluate Our Operations • • • volumes of oil, natural t gas and NGLs produced; number of rigs on location, permits, spuds, completions and wells turned-in-line; commodity prices; and • Adjusted EBITDA and Adjusted EBITDA ex lease bonus. 65 Volumes of Oil, Natural Gas and NGLs Produced In order to track and assess the performanc e of our assets, we monitor and analyze our production volumes from the various resource plays that comprise our portfolio of mineral and royalty interests. We also regularly compare projected volumes to actual reported volumes and investigate unexpected variances. ff Number of Rigs on Location, Permits, Spuds, Completions and Wells Turned-In-Line In order to track and assess the perfoff rmance of our assets, we monitor and analyze the number of rigs currently drilling our properties. We also constantly monitor the number of permits, spuds, completions and wells on production that are applicable to our mineral and royalty interests in an effort to evaluate near-term production growth from the various basins and resource plays that comprise our asset base. Commodity Prices t Historically, oil, natural gas and NGL prices have been volatile and may continue to be volatile in the future. During the past five years, the posted price forff WTI has ranged from a historic, record low price of negative ($36.98) per barrel in April 2020 to a high of $77.41 per barrel in June 2018. The Henry Hrr gas has ranged from a low of $1.33 per MMBtu in September 2020 to a high of $6.24 per MMBtu in January 2018. As of December 31, 2020, the posted gas was $2.36 per MMBtu. Lower prices price forff t gas and NGLs that our operators can produce may not only decrease our revenues, but also potentially the amount of oil, natural economically. oil was $48.35 per barrel and the Henry Hrr ub spot market price of natural ub spot market price forff t natural t The prices we receive for oil, natural al area. The relative prices of these products are a tors affecting global and regional supply and demand dynamics, such as economic and geopolitical determined by facff conditions, production levels, availability of transportation, weather cycles and other facff tors. In addition, realized prices are influenced by product quality and proximity to consuming and refining markets. Any differences between realized prices and NYMEX prices are referred to as differentials. All of our production is derived from properties located in the United States. gas and NGLs vary by geographic t Oil. The substantial majority of our oil production is sold at prevailing market prices, which fluctuate in response to many factors that are outside of our control. NYMEX light sweet crude oil, commonly referred to as WTI, is the prevailing domestic oil pricing index. The majora ity of our oil production is priced at the prevailing market price with the final realized price affected by both quality and location differentials. The chemical composition of crude oil plays an important role in its refining and subsequent sale as petroleum products. As a result, variations in chemical composition relative to the benchmark crude oil, usually WTI, will result in price adjustments, which are often referred to as quality differentials. The characteristics that most significantly affect quality differentials include the density of the oil, as characterized by its API gravity, and the presence and concentration of impurities, such as sulfur. Location differentials generally result from transportation costs based on the produced oil’s proximity to consuming and refining markets and majoa r trading points. Natural Gas. The NYMEX price quoted at Henry Hub iu United States. The actual volumetric prices realized fromff result of quality and location differentials. the sale of natural t gas differ fromff s a widely used benchmark for the pricing of natural gas in the t the quoted NYMEX price as a Quality differentials result from the heating value of natural t r hydrogen sulfide, carbon and will realize a higher volumetric price than natural gas with a higher concentration of impurities will realize a lower volumetric price dued natural gas when sold or the cost of treating the naturat t gas measured in Btus and the presence of impurities, such as alue gas that is predominantly methane, which has a lower Btu value. Natural to the presence of the impurities in the dioxide and nitrogen. Natural gas containing ethane and heavier hydrocarbons has a higher Btu vt l gas to meet pipeline quality specificff ations. Natural gas, which currently has a limited global transportation system, is subject to price variances based on local supply and demand conditions and the cost to transport natural gas to end-user markets. NGLs.GG NGL pricing is generally tied to the price of oil, but varies based on differences in liquid components and location. Oil and Gas Properties 66 t alized costs of oil and natural Under the full cost method of accounting, total capita gas properties, net of accumulated depletion and related deferred income taxes, may not exceed an amount equal to the present value of future net revenues fromff proved reserves, discounted at 10% per annum ("PV-10"), plus the cost of unevaluated properties, less related income tax s (full cost ceiling limitation). A write-down of the carryirr ng value of the full cost pool ("impairment charge") is a noncash ff effect charge that reduces earnings and impacts equity in the period of occurrence and typically results in lower depletion expense in future periods. A ceiling limitation is calculated at each reporting period. The ceiling limitation calculation is prepared using an unweighted arithmetic average of oil prices ("SEC oil price") and natural gas prices ("SEC gas price") as of the first day of each t the trailing 12-month period ended, as required under the guidelines established by the SEC. As of December 31, month forff 2020, 2019 and 2018, the SEC oil prices were $39.57, $55.65, and $65.66, respectively, per barrel forff oil, adjusted by area forff energy content, transportation fees and regional price differentials, and the SEC gas prices were $2.00, $2.60, and $3.12, respectively, per MMBtu for natural transportation fees and regional price differentials. As a result of the decline in the SEC oil prices and the SEC gas prices during the twelve months ended December 31, 2020, and taking into consideration certain reclassifications of proved undeveloped reserves to probable and possible reserves during the three months ended December 31, 2020, as a result of a slowdown in operator activity, the net book value of oil and natural gas properties exceeded the ceiling limitation, as of September 30, 2020 and December 31, 2020, resulting in an impairment charge of $79.6 million to oil and gas properties, net during the year ended December 31, 2020. There were no impairment charges during the years ended December 31, 2019 and 2018. gas, adjusted by area forff energy content, d t t Further declines in the SEC oil price or the SEC gas price could lead to additional impairment charges in the future and such impairment charges could be material. In addition to the impact of lower prices, any future changes to assumptim ons of of oil and gas properties, proved undeveloped drilling and completion activity, development timing, acquisitions or divestitures locations, and production and other estimates may require revisions to estimates of total proved reserves which would impact the amount of any impairment charge. Based on specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development activities, production data, economics and other facff tors, we periods. The risk that we will be required to may be required to write down the carrying value of our properties in future recognize impairments of our oil, natural gas and NGL properties increases during sustained periods of low commodity prices. In addition, impairments could occur if we were to experience sufficient downward adjustments to our estimated proved reserves or the present value of estimated future net revenues. If we incur impairment charges in the future, our results of operations for the periods in which such charges are taken may be materially and adversely affected. ff ff t t Hedging We may enter into certain derivative instruments to partially mitigate the impact of commodity price volatility on our cash flow generated from operations. From time to time, such instruments may include variable-to-fixed-price swapsa , fixff ed- price contracts, costless collars and other contractual arrangements. The impact of these derivative instruments could affect the amount of cash flows we ultimately realize. Historically, we have only entered into minimal fixed-price swap ca ontracts. Under fixed-price swap contracts, a counterparty is required to make a payment to us if the settlement price is less than the swap strike price. Conversely, we are required to make a payment to the counterparty if the settlement price is greater than the swap strike d-price swap contracts in the future to mitigate the impact of price. We may employ contractual arrangements other than fixeff price flucff of lower prices on our future revenue. tuations. If commodity prices decline in the future, our hedging contracts may partially mitigate the effect ff Our revolving credit facility allows us to hedge up to 85% of our reasonably anticipated projected production from our proved reserves of oil and natural gas or oil derivative contracts in place as of December 31, 2020 and 2019. For the years ended December 31, 2019 and 2018, we recorded a loss on commodity derivative instruments, net of $0.6 million and a gain of $0.4 million, respectively. See “Note 5 ncial statements of Brigham Minerals included elsewhere in —Derivative Instruments” to the consolidated and combined finaff this Annual Report. o 60 months in the future. We did not have any natural gas, calculated separately, for up tu t t Adjusted EBITDA and Adjusted EBITDA Ex Lease Bonus ncial Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA ex lease bonus are non-GAAP supplemental finaff measures used by our management and by external users of our financial statements such as investors, research analysts and others to assess the financial performance of our assets and their ability to sustain dividends over the long term without regard to financing methods, capita al structure or historical cost basis. We defineff Adjusted Net Income as net income (loss) before impairment of oil and gas properties, after tax, and loss on extinguishment of debt, after tax. We define Adjusted EBITDA as Adjusted Net Income beforff e depreciation, depletion and amortization, share based compensation expense, interest expense, gain or loss on derivative instruments and income tax 67 expense, less other income, gain on sale of oil and gas properties and income tax benefit.ff We define Adjusted EBITDA ex lease bonus as Adjusted EBITDA furthe r adjusted to eliminate the impacts of lease bonus revenue we receive due to the t unpredictability of timing and magnitude of the revenue. ff Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA ex lease bonus do not represent and should not be considered alternatives to, or more meaningful than, net income, income from operations, cash flows fromff operating activities or any other measure of financial perfoff rmance presented in accordance with GAAP as measures of our financial perforff mance. Adjud sted Net Income, Adjusted EBITDA and Adjusted EBITDA ex lease bonus have important limitations as analytical tools because they exclude some but not all items that affect net income, the most directly comparable GAAP financial measure. Our computations computation of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA ex lease bonus may differ fromff of similarly titled measures of other companies. For further discussion, please read “Item 6—Selected Financial Data—Naa on- GAAP Financial Measures.” Sources of Our Revenues t Our revenues are primarily derived from the mineral and royalty payments we receive froff m our operators based on the lease bonus payments. Mineral and royalty our properties, as well as fromff sale of oil, natural revenues may vary s ignificantly from period to period as a result of changes in volumes of production sold by our operators, rr production mix and commodity prices. Lease bonus revenues vary from period to period as a result of leasing activity on our mineral interests. gas and NGLs produced fromff The following tablea presents the breakdown of our revenues forff the following periods: Revenue Mineral and royalty revenues Oil sales Natural gas sales NGL sales Total mineral and royalty revenues Lease bonus revenue Total revenue Years Ended December 31, 2020 2019 2018 74 % 11 % 9 % 94 % 6 % 100 % 81 % 9 % 6 % 96 % 4 % 100 % 70 % 11 % 8 % 89 % 11 % 100 % Principle Components of Our Cost Structure The following is a description of the principle components of our cost structure. However, as an owner of mineral and al expenditures to bring a horizontal well on line, royalty interests, we are not obligated to fund drilling and completion capita lease operating expenses to produce our oil, natural gas and NGLs nor the plugging and abandonment costs at the end of a well’s economic life.ff All the aforementioned costs are borne entirely by the exploration and production companies that have leased our mineral and royalty interests. t t Gathering, Transportation and Marketing Expenses Gathering, transportation and marketing expenses include the costs to process and transport our production to applicable sales points. Generally, the terms of the lease governing the development of our properties permits the operator to pass through these expenses to us by deducting a pro rata portion of such expenses from our production revenues. Severance and Ad Valorem Taxes t Severance taxes are paid on produced oil, natural gas or NGLs based on either a percentage of revenues from production sold or the number of units of production sold at fixed rates established by federal, state or local taxing authorities. In general, the production taxes we pay correlate to changes in our oil, natural gas and NGL revenues, which is driven by our production t gas and NGLs. We are also subject to ad valorem taxes in some of the counties volumes and prices received for our oil, natural where our production is located. Ad valorem taxes are generally based on the state or local government’s appraisal of the value gas and NGL of our oil, natural prices. Rates, methods of calculating property values and timing of payments vary across the different counties in which we own mineral and royalty interests. gas and NGL properties, which also trend with anticipated production, as well as oil, natural ff t t t 68 Depreciation, Depletion and Amortization t Depreciation, depletion and amortization (“DD&A”) is the systematic expensing of the capita alized costs incurred to gas properties. We use the full cost method of accounting, and, as such, all acquisition-related acquire evaluated oil and natural costs to acquire evaluated properties are capita alized and amortized in aggregate based on the estimated economic productive lives of our properties. Depletion is the expense recorded based on the cost basis of our properties and the volume of hydrocarbons extracted during each respective period, calculated on a units-of-production basis. Estimates of proved reserves are a major component of our calculation of depletion. We adjust our depletion rates quarterly based upon the quarter-end internally generated reserve reports unless circumstances indicate that there has been a significant change in reserves or costs. The year-end reserve reports are audited by CG&A. d General and Administrative s forff General and administrative (“G&A”) expenses are costs incurred forff our staff, share-based compensation expense, costs of maintaining our headquarters, costs of managing our properties, audit and other feeff professional services and legal compliance. As a result of becoming a public company, we incurred incremental G&A expenses including, but not limited to, costs associated with hiring new personnel, implementation of compensation programs that are competitive with our public company peer group including share-based compensation, annual and quarterly reports to stockholders, tax returnt preparation, independent and internal auditor fees, investor relations activities, registrar and transfer agent fees, incremental director and officer liability insurance costs and independent director compensation. These incremental G&A expenses are not reflected in our historical finff ancial statements before the IPO date. overhead, including payroll and benefits forff Interest Expense We finance a portion of our working capita al requirements and acquisitions with borrowings under our revolving credit facility. As a result, we incur interest expense that is affected by both fluctuations in interest rates and our financing decisions. We reflect interest paid to the lenders under our debt arrangements (currr ently, our revolving credit facility) in interest expense. In connection with the closing of our IPO, we fully repaid the outstanding borrowings under our Owl Rock credit facility. ncial statements of Brigham Minerals included Please see “Note 7—Long-Term Debt” to the consolidated and combined finaff elsewhere in this Annual Report. Income Tax Expense hise tax Brigham Minerals is subject to U.S. federal and state income taxes as a corporation. Texas imposes a franc (commonly referred to as the Texas margin tax) at a rate of up to 1.00% on gross revenues less certain deductions, as specifically set forth in the Texas margin tax statutet . A portion of our mineral and royalty interests are located in Texas basins. Our predecessor was treated as a flowff -through entity, and is currently treated as a disregarded entity, for U.S. federal income tax purposes and, as such, is generally not subject to U.S. federal income tax at the entity level. ff 69 Year Ended December 31, 2020 Compared to Ytt earYY Ended December 31, 2019 Results of Operations The following tablea provides the components of our revenues and expenses forff the periods indicated, as well as each period’s respective average prices and production volumes: (dollars in thousands, except forff Production realized prices) Oil (MBbls) Natural gas (MMcf) NGLs (MBbls) Equivalents (MBoe) Equivalents per day (Boe/d) Revenues Oil sales Natural gas sales NGL sales Total mineral and royalty revenues Lease bonus and other revenue Total revenue Realized prices, without derivatives: Oil ($/Bbl) Natural gas ($/Mcf) NGLs ($/Bbl) Equivalents ($/Boe) Realized prices, with derivatives(1): Oil ($/Bbl) Equivalents ($/Boe) Operating expenses Gathering, transportation and marketing Severance and ad valorem taxes Depreciation, depletion, and amortization Impairment of oil and gas properties General and administrative (before share-based compensation) Total operating expenses (before share-based compensation) Share-based compensation Total operating expenses Other income (expense) (Loss) gain on derivative instruments, net Loss on extinguishment of debt Interest expense, net Total other income (expense), net Unit Expenses ($/Boe) Gathering, transportation and marketing Severance and ad valorem taxes Depreciation, depletion, and amortization General and administrative (before share-based compensation) Share-based compensation expense Interest expense, net 70 Year Ended December 31, 2020 2019 Variance 1,823 5,809 680 3,471 9,483 67,909 10,443 7,893 86,245 5,478 91,723 37.26 1.80 11.61 24.85 37.26 24.85 $ $ $ $ $ 1,515 4,707 407 2,706 7,414 82,048 9,724 6,114 97,886 3,629 101,515 54.16 2.07 15.03 36.17 54.47 36.35 308 1,102 273 765 2,069 (14,139) 719 1,779 (11,641) 1,849 (9,792) (16.90) (0.27) (3.42) (11.32) (17.21) (11.50) $ $ $ $ $ 6,985 $ 4,985 $ 2,000 5,606 48,238 79,569 14,090 154,488 7,529 162,017 $ $ 6,409 30,940 — 11,914 54,248 10,049 (803) 17,298 79,569 2,176 $ 100,240 (2,520) 64,297 $ 97,720 — $ (568) $ — (890) (6,892) (5,609) 568 6,892 4,719 (890) $ (13,069) $ 12,179 $ 2.01 1.62 13.90 4.06 2.17 0.26 $ 1.84 2.37 11.43 4.40 3.71 2.07 0.17 (0.75) 2.47 (0.34) (1.54) (1.81) $ $ $ $ $ $ $ $ $ $ $ 20 % 23 % 67 % 28 % 28 % (17)% 7 % 29 % (12)% 51 % (10)% (31)% (13)% (23)% (31)% (32)% (32)% 40 % (13)% 56 % *** 18 % 185 % (25)% 152 % (100)% (100)% (84)% (93)% 9 % (32)% 22 % (8)% (42)% (87)% (1) Hedge prices reflect the effect gains and losses on cash settlements for commodity derivatives, which we do not designate for hedge accounting. *** A percentage calculation is not meaningful due to change in signs, zero-value denominator or a change greater than 300. of our commodity derivative transactions on our average sales prices. Our calculation of such effects include realized ff Revenues Total revenues for the year ended December 31, 2020 decreased by 10%, or $9.8 million, compared to the year ended to a $11.6 million decrease in mineral and royalty revenues during the December 31, 2019. The decrease was attributablea period, partially offset by a $1.8 million increase in lease bonus revenue. The decrease in mineral and royalty revenues was primarily the result of a decrease in realized commodity prices of 31% resulting in a $39.3 million decrease in mineral and royalty revenues. This was partially offset by an increase in drilling and completion activity on our mineral and royalty interests, and to a lesser degree by acquisitions of proved developed producing reserves, which resulted in a 28% increase in production volumes to 9,483 Boe/d and a corresponding increase in mineral and royalty revenues of $27.7 million. Oil revenues for the year ended December 31, 2020 decreased by 17%, or $14.1 million, compared to the year ended to the 31% decrease in realized oil price to $37.26 December 31, 2019. The decrease in oil revenues was primarily attributablea per barrel resulting in a decrease in revenue of $30.8 million. This was partially offset by a 20% increase in oil production volumes to 4,980 barrels per day resulting in a $16.7 million increase in oil revenues. The increase in oil production volumes for the period was primarily attributablea to increased drilling and completion activity on our properties in the Permian Basin. Natural gas revenues for the year ended December 31, 2020 increased by 7%, or $0.7 million compared to the year ended gas gas to increased drilling and completion activity on our properties in gas price to $1.80 per Mcf resulting in a December 31, 2019. The increase in natural t production volume to 15,871 Mcf/d resulting in a $2.3 million increase in natural production volumes for the period was primarily attributablea the Permian Basin. This was partially offset by a 13% decrease in realized natural decrease in revenue of $1.6 million. to the 23% increase in natural gas sales. The increase in natural gas revenues was primarily attributablea t t t t NGL revenues for the year ended December 31, 2020 increased by 29%, or $1.8 million compared to the year ended to the 67% increase in NGL volumes to 1,858 December 31, 2019. The increase in NGL revenues was primarily attributablea Boe/d resulting in a $4.1 million increase in NGL sales was primarily attributablea to increased drilling and completion activities on our properties in the Permian Basin. This was partially offset by a 23% decrease in NGL prices to $11.61 per barrel resulting in a decrease in revenue of $2.3 million. Lease bonus revenues forff December 31, 2019. The increase was primarily attributablea offset by a decrease in leasing activity in Colorado and Oklahoma. Other revenues include payments forff surface damages and were not a significant portion of the overall amount. the year ended December 31, 2020 increased by 51%, or $1.8 million compared to the year ended to an increase in leasing activity on our interests in Texas, partially right-of-way and Operatingtt tt and other s expense xx Gathering, transportation, and marketing expenses for the year ended December 31, 2020 increased by 40%, or $2.0 million, as compared to the year ended December 31, 2019, which was largely driven by the 28% increase in our production volumes as well as an increase in gathering, transportation and marketing rates. Severance and ad valorem taxes for the year ended December 31, 2020 decreased by 13%, or $0.8 million, as compared to the year ended December 31, 2019, primarily due to the 12% decrease in mineral and royalty revenues. DD&A expense for the year ended December 31, 2020 increased by 56%, or $17.3 million, compared to the year ended December 31, 2019, which was primarily due to an increase in depletion expense of $17.0 million. Higher production volumes increased our depletion expense by $8.6 million, and a higher depletion rate increased our depletion expense by $8.4 million. The depletion rate was $13.63 per Boe and $11.22 per Boe for the years ended December 31, 2020 and 2019, respectively. The on largely de-risked acreage with an increased increase in the depletion rate was a result of recent acquisition efforts focused likelihood of near-term production and development, as well as reclassificatio n of proved undeveloped reserves to probable and possible reserves due to changes in assumptim ons of the development timing as a result of reduced activity by our operators. We adjust our depletion rates quarterly based upon the quarter-end internally generated reserve reports. ff ff As of September 30, 2020 and December 31, 2020, the net capia talized costs of our oil and gas properties exceeded the full cost ceiling limitation primarily due to the decline in oil and gas prices and reclassification of proved undeveloped reserves to probable and possible reserves during the three months ended December 31, 2020 as a result of a slowdown in operator activity. As a result, we recorded impairments of our oil and gas properties, net of $79.6 million for the year ended December 31, 2020. 71 In determining the full cost ceiling impairment at December 31, 2020, we estimated the PV-10 of our total proved oil and natural gas reserves using the SEC oil price and the SEC gas price of $39.57 per Bbl and $2.00 per MMBtu, respectively, which t is a decrease of 29% and 23%, respectively, from the December 31, 2019 SEC oil price and SEC gas price of $55.65 per Bbl and $2.60 per MMBtu, respectively. No impaim rment charge was recorded forff the year ended December 31, 2019. G&A for the year ended December 31, 2020 increased by 18%, or $2.2 million, compared to the year ended December 31, 2019. Increases to G&A expense are a result of: (i) $0.7 million in incremental legal, professional, audit, and tax feeff s as a result of the Company's June 2020 Secondary Offering and September 2020 Secondary Offering, (ii) $0.5 million in additional rent expense, (iii) $0.4 million of incremental directors and officers insurance expenses, and (iv) $0.3 million of additional salaries dued to an increase in headcount. Share-based compensation expense for the year ended December 31, 2020 decreased by 25%, or $2.5 million compared to to a cumulative effect the year ended December 31, 2019. The decrease in share-based compensation expense was dued adjustment of $5.2 million pertaining to the period from the grant date to the IPO, which consists of a $2.0 million cumulative effect adjustment related to the estimated fair value of the Incentive Units and a $3.2 million cumulative effect adjustment related to the estimated fair value of the RSAs, partially offset by share-based compensation expense related to awards granted alizes a portion of the share-based compensation cost during the year ended December 31, 2020. Brigham Minerals capita incurred after the IPO. See tablea ncial statements of Brigham Minerals included elsewhere in this Annual Report for further discussion. below and "Note 10—Share-Based Compensation" to the consolidated and combined finaff (In thousands) Incentive Units RSAs RSUs PSUs Capitalized share-based compensation Total share-based compensation expense Years Ended December 31, 2020 2019 Variance $ 712 $ 2,904 $ 1,254 7,390 4,259 3,972 4,630 2,361 (6,086) (3,818) $ 7,529 $ 10,049 $ (2,192) (2,718) 2,760 1,898 (2,268) (2,520) Interest expense, net for the year ended December 31, 2020 decreased by 84%, or $4.7 million, compared to the year ended December 31, 2019 due to lower average outstanding borrowings and lower average interest rates. For the year ended December 31, 2020, our weighted average debt outstanding on our revolving credit facility was $2.8 million compared to our weighted average debt outstanding on our Owl Rock credit facility and revolving credit facility combined of $55.0 million for the year ended December 31, 2019. Our weighted average interest was 1.91% and 7.29% for the years ended December 31, 2020 and 2019, respectively. In May 2019, a portion of the net proceeds received from the IPO were used to fully repay the outstanding borrowings under the Owl Rock credit facility. In December 2019, a portion of the net proceeds received from the December 2019 Offering were used to fully repay the outstanding borrowings under our revolving credit facility. See table below and “Note 7—Long-Term Debt” and “Note 1—Business and Basis of Presentation” to the consolidated and combined financial statements of Brigham Minerals included elsewhere in this Annual Report for further discussion of this transaction. (In thousands, except for interest rate) Interest expense - Owl Rock credit facility ff Interest expense - Revolving Credit facility Commitment fees Amortization of loan closing costs Interest income Total interest expense, net Years Ended December 31, 2020 2019 Variance — $ 5,238 $ $ $ 55 600 605 (370) 890 590 356 433 (1,008) (5,238) (535) 244 172 638 $ 5,609 $ (4,719) Total weighted average interest rate 1.91 % 7.29 % Total weighted average debt balance $ 2,814 $ 55,000 Loss on extinguishment of debt. As a result of the full repayment of the outstanding balance of the Owl Rock credit facility of $200.0 million in May 2019, we recognized a loss on extinguishment of debt of approximately $6.9 million for the 72 year ended December 31, 2019. The loss on extinguishment of debt consisted of a $4.0 million write-off of capita alized debt issuance costs, a $2.1 million prepayment fee and legal fees of $0.8 million. See “Note 7—Long-Term Debt” to the consolidated and combined finaff ncial statements of Brigham Minerals included elsewhere in this Annual Report for further discussion of these transactions. Loss on derivative instruments, net. Brigham Minerals did not have any derivative contracts in place as of December 31, s index. For the 2020 and 2019. Prior to December 31, 2019, we had certain oil swap contracts based on the NYMEX future to oil year ended December 31, 2019, we recognized a loss on derivative instruments, net of $0.6 million, which is attributablea derivative instruments. We realized $0.5 million of gains on our settled derivative instruments during the year ended December 31, 2019. See “Note 5—Derivative Instruments” to the consolidated and combined finaff ncial statements of Brigham Minerals included elsewhere in this Annual Report for further discussion of these transactions. ff 73 Year EndEE eddd December 31, 2019 Comparem d to Ytt earYY Ended December 31, 2018 The following tablea provides the components of our revenues and expenses forff the periods indicated, as well as each period’s respective average prices and production volumes: (dollars in thousands, except forff Production realized prices) Oil (MBbls) Natural gas (MMcf) NGLs (MBbls) Equivalents (MBoe) Equivalents per day (Boe/d) Revenues Oil sales Natural gas sales NGL sales Total mineral and royalty revenues Lease bonus and other revenues Total revenue Realized prices, without derivatives: Oil ($/Bbl) Natural gas ($/Mcf) NGLs ($/Bbl) Equivalents ($/Boe) Realized prices, with derivatives(1): Oil ($/Bbl) Equivalents ($/Boe) Operating expenses Gathering, transportation and marketing Severance and ad valorem taxes Depreciation, depletion, and amortization General and administrative (before share-based compensation) Year Ended December 31, 2019 2018 Variance 1,515 4,707 407 2,706 7,414 777 2,507 222 1,417 3,881 738 2,200 185 1,289 3,533 $ 82,048 $ 47,040 $ 35,008 7,014 5,704 59,758 7,506 67,264 60.56 2.80 25.72 42.19 59.59 41.66 $ $ $ $ $ $ $ $ $ $ 9,724 6,114 97,886 3,629 $ $ 101,515 54.16 2.07 15.03 36.17 54.47 36.35 $ $ $ $ 4,985 $ 3,944 $ 6,409 30,940 11,914 3,536 13,915 6,638 95 % 88 % 83 % 91 % 91 % 74 % 39 % 7 % 64 % (52)% 51 % (11)% (26)% (42)% (14)% (9)% (13)% 26 % 81 % 122 % 79 % 94 % *** 129 % (234)% *** (25)% 86 % 2,710 410 38,128 (3,877) 34,251 (6.40) (0.73) (10.69) (6.02) (5.12) (5.31) 1,041 2,873 17,025 5,276 26,215 10,049 36,264 (992) (6,892) 1,837 (6,047) Total operating expenses (before share-based compensation) $ 54,248 $ 28,033 $ Share-based compensation Total operating expenses Other income (expense) 10,049 64,297 — 28,033 (Loss) gain on derivative instruments, net $ (568) $ 424 $ Loss on extinguishment of debt Interest expense, net Total other income (expense), net (6,892) (5,609) (13,069) — (7,446) (7,022) Hedged prices reflect the effect (1) gains and losses on cash settlements for commodity derivatives, which we do not designate for hedge accounting. *** A percentage calculation is not meaningful due to change in signs, zero-value denominator or a change greater than 300. of our commodity derivative transactions on our average sales prices. Our calculation of such effects include realized ff Revenues Total revenues for the twelve months ended December 31, 2019 increased by 51%, or $34.2 million, compared to the year ended December 31, 2018. The increase was attributable to a $38.1 million increase in mineral and royalty revenues during the period, partially offset by a $3.9 million decrease in lease bonus revenue. The increase in mineral and royalty revenues was primarily the result of increased drilling and completion activity on our mineral and royalty interests, which resulted in a 91% increase in production volumes to 7,414 Boe/d and a corresponding increase in revenue of $54.4 million. Realized commodity prices decreased 14% resulting in an additional $16.3 million decrease in mineral and royalty revenues. d 74 Oil revenues for the year ended December 31, 2019 increased by 74%, or $35.0 million, compared to the year ended December 31, 2018. Oil production volumes increased 95% to 4,151 barrels per day resulting in a $44.7 million increase in oil revenues. The increase in oil production volumes for the period was primarily attributablea to increased drilling and completion activity on our properties in Texas, Oklahoma, North Dakota and New Mexico. Realized oil prices decreased 11% to $54.16 per barrel resulting in a decrease in revenue of $9.7 million. Natural gas revenues for the year ended December 31, 2019 increased by 39%, or $2.7 million compared to the year ended December 31, 2018. Natural gas production volumes increased 88% to 12,896 Mcf/d resulting in a $6.1 million increase to increased t in natural drilling and completion activity on our properties in Oklahoma, Colorado, North Dakota, Texas and New Mexico. Realized t natural gas prices decreased by 26% to $2.07 per Mcf resulting in a decrease in revenue of $3.4 million. gas production volumes for the period was primarily attributablea gas sales. The increase in natural t NGL revenues for the year ended December 31, 2019 increased by 7%, or $0.4 million compared to the year ended December 31, 2018. NGL production volumes increased by 83% to 1,114 Boe/d resulting in a $4.8 million increase in NGL sales, while realized NGL prices decreased by 42% to $15.03 per barrel resulting in a decrease in revenue of $4.4 million. Lease bonus revenue for the year ended December 31, 2019 decreased by 52%, or $3.9 million, compared to the year to a decrease in leasing activity on our interests in right-of-way and ended December 31, 2018. The decrease was primarily attributablea Oklahoma, partially offset by an increase in leasing activity in Texas. Other revenues include payments forff surface damages and were not a significant portion of the overall amount. Operatingtt tt and other s expense xx Gathering, transportation and marketing expenses for the year ended December 31, 2019 increased by 26%, or $1.0 million, as compared to the year ended December 31, 2018, which was largely driven by the increase in our production volumes, partially offset by lower gathering, transportation and marketing rates. Severance and ad valorem taxes for the year ended December 31, 2019 increased by 81%, or $2.9 million, as compared to the year ended December 31, 2018, which was primarily due to higher severance taxes associated with oil revenue as a result of higher oil production volumes and higher oil prices, as well as higher ad valorem taxes in Texas. DD&A expense for the year ended December 31, 2019 increased by 122%, or $17.0 million, compared to the year ended December 31, 2018, which was primarily due to an increase in depletion expense of $17.1 million. Higher production volumes increased our depletion expense by $12.1 million, and a higher depletion rate increased our depletion expense by $5.0 million. General and administrative expense (before share-based compensation expense) for the year ended December 31, 2019 increased by 79%, or $5.3 million, compared to the year ended December 31, 2018. Increases to G&A expense are a result of: (i) $0.7 million of incremental audit and tax feeff to increase in headcount, (iii) $1.1 million of incremental D&O insurance expenses, (iv) $1.1 million of legal and professional fees and (v) $1.7 million of other incremental expenses as a result of becoming a publicly traded company. s, (ii) $0.7 million of additional salaries dued Share-based compensation expense for the year ended December 31, 2019 was $10.0 million net of $3.8 million of share- alized to unevaluated property. At IPO, we recognized a cumulative effect adjustment of $2.0 based compensation cost capita million of share-based compensation cost related to the Incentive Units, pertaining to the period from the grant date through the IPO. Additionally, in April of 2019, in connection with the IPO, we adopted the Brigham Minerals, Inc. 2019 LTIP and granted restricted stock awards ("RSAs"), restricted stock units ("RSUs") and performance-based vesting units ("PSUs") to our employees and executives. Certain of the RSAs vested immediately and we recognized $3.2 million of share-based compensation cost related to the RSAs. Also, subsequent to the IPO and prior to December 31, 2019, we recognized an additional $8.6 million of share-based compensation cost related to the Incentive Units and the awards granted under the LTIP. No share-based compensation expenses were recognized prior to the IPO because the IPO was not considered probable. See ncial statements of Brigham Minerals, Inc. as of “Note 10—Share-Based Compensation” to the consolidated and combined finaff December 31, 2019 included elsewhere in this Annual Report for further discussion. Interest expense for the year ended December 31, 2019 decreased by $1.8 million, compared to the year ended December 31, 2018 due to lower average outstanding borrowings and lower average interest rates. For the year ended December 31, 2019, our weighted average debt outstanding on our Owl Rock credit facility and revolving credit facility combined was $55.0 million. For the year ended December 31, 2018, our weighted average debt outstanding on our Owl Rock credit facility and prior revolving credit facility combined was $86.9 million. Our weighted average interest was 7.29% and 8.10% for the years ended December 31, 2019 and 2018, respectively. In July 2018, proceeds from the Owl Rock credit facility were used to fully repay the outstanding balance of the prior revolving credit facility. In May 2019, a portion of the net proceeds received from the 75 ff IPO were used to full y repay the outstanding borrowings under the Owl Rock credit facility. In December 2019, a portion of the net proceeds received from the December 2019 Offering were used to fully repay the outstanding borrowings under our revolving credit facility. See “Note 7—Long-Term Debt” and “Note 1—Business and Basis of Presentation” to the consolidated ncial statements of Brigham Minerals, Inc. as of December 31, 2019 included elsewhere in this Annual and combined finaff Report for further discussion of this transaction. Loss on extinguishment of debt. As a result of the full repayment of the outstanding balance of the Owl Rock credit facility of $200.0 million in May 2019, we recognized a loss on extinguishment of debt of approximately $6.9 million. The loss alized debt issuance costs, a $2.1 million prepayment fee on extinguishment of debt consisted of a $4.0 million write-off of capita and legal fees of $0.8 million. See “Note 7—Long-Term Debt” to the consolidated and combined finaff ncial statements of Brigham Minerals, Inc. as of December 31, 2019 included elsewhere in this Annual Report for further discussion of these transactions. to oil derivative instruments. We realized $0.5 million of gains on our settled derivative instruments during For the year ended December 31, 2019, we recognized a loss on derivative instruments, net of $0.6 million, which is attributablea the year ended December 31, 2019. For the year ended December 31, 2018, we recognized a net gain on derivative instruments of $0.4 to derivative instruments based on the price of oil. We realized $0.8 million of losses on our million, which is attributablea d settled derivative instruments during the year ended December 31, 2018. d Factors Affecting the Comparability of Our Results of Operations to Our Historical Results of Operations Our future results of operations may not be comparable to our historical results of operations for the periods presented, primarily for the reasons described below. Corporate Reorganization and Transactions The historical consolidated and combined finaff ncial statements included in this Annual Report for periods on or before April 23, 2019 are based on the financial statements of our predecessor and Brigham Minerals prior to our corporate reorganization consummated in connection with our IPO. As a result, such historical consolidated and combined finaff ncial data may not give you an accurate indication of what our actual results would have been if the corporate reorganization had been completed at the beginning of the periods presented or of what our future results of operations are likely to be. In April 2019, Brigham Minerals completed the IPO of 16,675,000 shares of Class A common stock at a price to the public of $18.00 per share. As a result of the IPO, Brigham Minerals became a holding company whose sole material asset consisted of a 43.3% interest in Brigham LLC, which wholly owns Brigham Resources. Brigham Resources continues to wholly own the Minerals Subsidiaries, which own all of Brigham Resources’ operating assets. In connection with the IPO, Brigham Minerals became the sole managing member of Brigham LLC and is responsible for all operational, management and administrative decisions relating to Brigham LLC’s business and consolidates the financial results of Brigham LLC and its wholly-owned subsidiary, Brigham Resources. On December 16, 2019, Brigham Minerals completed an offering of 12,650,000 shares of its Class A common stock (the "December 2019 Offering"), including 6,000,000 shares issued and sold by Brigham Minerals and an aggregate of 6,650,000 shares sold by certain shareholders of the Company, of which 5,496,813 represents shares issued upon redemption of an equivalent number of their Brigham LLC units, at a price to the public of $18.10 per share. u On June 12, 2020, Brigham Minerals completed an offering of 6,600,000 shares of its Class A common stock (the "June 2020 Secondary Offering"), all of which were sold by certain shareholders of the Company (the “June 2020 Selling Shareholders”), and 4,872,669 of which represented shares issued upon redemption of an equivalent number of the June 2020 Selling Shareholders’ Brigham LLC Units (together with a corresponding number of shares of Class B common stock in Brigham Minerals), at a price to the public of $13.75 per share. Brigham Minerals did not sell any shares of its common stock in the June 2020 Secondary Offering and did not receive any proceeds pursuant to the June 2020 Secondary Offering. u On September 15, 2020, Brigham Minerals completed an offering of 5,021,140 shares of its Class A common stock, including 654,931 shares issued pursuant to the option granted to the underwriter to purchase additional shares to cover over- allotments (the "September 2020 Secondary Offering"), all of which were sold by certain shareholders of the Company (the "September 2020 Selling Shareholders"), and 3,062,011 of which represented shares issued upon redemption of an equivalent number of the September 2020 Selling Shareholders’ Brigham LLC Units (together with a corresponding number of shares of Class B common stock in Brigham Minerals), at a price to the public of $8.20 per share. Brigham Minerals did not sell any u 76 shares of its Class A common stock in the September 2020 Secondary Offering and did not receive any proceeds pursuant to the September 2020 Secondary Offering. In addition, in connection with the September 2020 Secondary Offering, Brigham Minerals repurchased 436,630 shares of its Class A common stock from the September 2020 Selling Shareholders in a privately negotiated transaction at a price equal to the price per share at which the underwriter purchased shares from the September 2020 Selling Shareholders in the September 2020 Secondary Offering (and Brigham LLC redeemed a corresponding number of Brigham LLC Units held by Brigham Minerals). The repurchased shares are presented in the Company's condensed consolidated balance sheet as Treasury Stock, at cost. Following the completion of the September 2020 Secondary Offering and as of December 31, 2020, Brigham Minerals owned a 76.8% interest in Brigham LLC and the Original Owners owned 23.2% of the outstanding voting stock of Brigham Minerals. Certain other entities affiliated with Yorktown Partners LLC and Pine Brook Road Advisors, LP, which are a subset of the Company's Original Owners, collectively owned 16.9% of the outstanding voting stock of Brigham Minerals as of December 31, 2020. The corporate reorganization that was completed contemporaneously with the closing of the IPO provided a mechanism by which the Brigham LLC Units to be allocated amongst the Original Owners, including the holders of our management incentive units, was determined. As a result, the satisfaction of all conditions relating to the vesting of certain management incentive units held in Brigham Equity Holdings, LLC (“Brigham Equity Holdings”) by our management and employees became probable. Accordingly, at IPO, we recognized a cumulative effect adjustment to share-based compensation cost of approximately $2.0 million pertaining to the period from the grant date through the IPO date, related to the estimated fair value of the Incentive Units (as defined in “Note 10—Share-based Compensation—LLC Incentive Units” to the consolidated and combined finaff ncial statements of Brigham Minerals included elsewhere in this Annual Report) at grant, all of which was non- cash. Income Taxes Brigham Minerals is subject to U.S. federal and state income taxes as a corporation. Our predecessor was treated as a flow-through entity, and is currently treated as a disregarded entity, for U.S. federal income tax purposes and, as such, is generally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to its taxable income is passed through to its members, including Brigham Minerals. Accordingly, the financial data of our predecessor contains no provision for U.S. federal income taxes or income taxes in any state or locality (other than franc hise tax in the State of Texas). ff Capital Requirements and Sources of Liquidity Prior to our IPO, our primary sources of liquidity were capita al contributions from our Original Owners, borrowings under our debt arrangements and cash flows from operations. Subsequent to our IPO, our current primary sources of liquidity are cash flows from operations, borrowings under our revolving credit facility and proceeds from any primary issuances of equity securities. Future sources of liquidity may also include other credit facff ilities we may enter into in the future and additional issuances of debt or equity securities. As a result of the COVID-19 pandemic and the decline in commodities prices, coupled al expenditures in 2020 and beyond, our with many of our operators announcing significant reductions in projected capita revenues and cash flows from operations have been and may continue to be negatively impacted and we may not have access to capita al markets on terms favorabl e to us or at all. ff Our primary uses of capita al are for the payment of dividends to our stockholders and for investing in our business, specifically the acquisition of additional mineral and royalty interests. In connection with the ongoing COVID-19 pandemic and the announced reductions in projected capita al expenditures by our operators, our cash flows from operations have been and may continue to be negatively impacted, and as a result, the dividend amount we are able to pay our stockholders has been and may also continue to be negatively impacted. As a mineral and royalty interest owner, we incur the initial cost to acquire our interests, but thereafter do not incur any al expenditures or lease operating expenses, which are entirely borne by the operator. As a result, the vast development capita al expenditures are related to our acquisition of additional mineral and royalty interests. The amount and majoa rity of our capita allocation of future acquisition-related capital expenditures will depend upon a number of facff tors, including the number and size of acquisition opportunities, our cash flows from operations, investing and financing activities and our ability to assimilate acquisitions. For the year ended December 31, 2020, we deployed approximately $72.7 million for acquisition-related capital alized share-based compensation cost. We periodically assess changes in current expenditures, ors to determine the effects and projected free cash flows, acquisition and divestituret activities, debt requirements and other fact inclusive of a $6.1 million capita ff t 77 t u our current oil, natural on our liquidity. Based upon gas and NGL price expectations for the year ended December 31, 2021, we believe that our cash flow from operations and additional borrowings under our revolving credit facility will provide us with sufficient liquidity to execute our current strategy. However, our ability to generate cash is subject to a number of facff tors, many of which are beyond our control, including commodity prices, weather and general economic, financial, competitive, legislative, regulatory and other facff al through partnerships, asset sales, offerings of equity and debt securities or other means. If we are additional borrowings, joint venturet unable to obtain funds when needed or on acceptablea e terms, we may not be able to complete acquisitions that may be favorabl to us. tors. If we require additional capital for acquisitions or other reasons, we may seek such capita ff As of December 31, 2020, our liquidity was as follows: Cash and cash equivalents Revolving credit facility availability Total Liquidity Working Capital (In millions) $ $ $ 9.1 115.0 124.1 Our working capita al, which we definff e as current assets minus current liabilities, totaled $22.6 million as of December 31, 2020, as compared to $71.6 million at December 31, 2019. Our collection of receivables has historically been timely, and losses associated with uncollectible receivables have historically not been significant. When new wells are turned to sales, our collection of receivables has lagged approximately six months from initial production as operators complete the division order process, at which point we are paid in arrears and then kept current. Our cash and cash equivalents balance totaled $9.1 million and $51.1 million at December 31, 2020 and December 31, 2019, respectively. The decrease in cash and cash equivalents was primarily due to acquisitions made and payment of dividends to our stockholders during the year ended December 31, 2020 . See "Note 4—Acquisitions and Divestitures" to the consolidated and ncial statements of Brigham Minerals included elsewhere in this Annual Report for further discussion. We expect combined finaff that our cash flows from operations and additional borrowings under our revolving credit facility will be sufficient to fund our al needs. We expect that the pace of our operators’ drilling and completion of our undeveloped locations, working capita production volumes, commodity prices and differentials to WTI and Henry Hub prices for our oil, natural gas and NGL production will be the largest variablea s affecting our working capita al. t Dividends The following tablea ff sets forth information with respect to cash dividends and distributions declared by our board of directors during 2020: Declaration Date February 27, 2020 May 11, 2020 August 6, 2020 Record Date March 12, 2020 May 27, 2020 August 27, 2020 November 4, 2020 November 30, 2020 (1) Dividends paid to holders of Class A common stock. Payment Date March 19, 2020 June 3, 2020 September 3, 2020 December 7, 2020 Total: $ $ Dividend Amount Dividends paid (in thousands) (1) 0.38 0.37 0.14 0.24 1.13 $ $ 12,969 12,803 5,567 10,877 42,216 The decision to pay any future dividends is solely within the discretion of, and subject to approva l by, our board of directors. Our board of directors’ determination with respect to any such dividends, including the record date, the payment date and the actual amount of the dividend, will depend upon our results of operations, financial condition, capita al requirements, contractual restrictions, restrictions imposed by applicable law and other facff tors that the board deems relevant at the time of such determination. See "Item 5—Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividend Policy" for further discussion of our dividend policy. a Cash Flows The following tablea summarizes our cash flows for the periods indicated: 78 (In thousands) Net cash provided by operating activities Net cash used in investing activities Net cash (used in)/provided by financing activities Year Ended December 31, 2020 2019 2018 $ 75,260 $ 69,025 $ 31,444 (65,425) (51,824) (216,832) (195,268) 166,481 189,397 Analysis of Cash Flow Changes Between the Years Ended December 31, 2020, 2019 and 2018 Net cash provided by ob peo ratingii activtt itiett s Net cash provided by operating activities is primarily affected by production volumes, the prices of oil, natural gas and NGLs, lease bonus revenue and changes in working capita the year ended December 31, 2020 as compared to the year ended December 31, 2019 is primarily due to improved collections of receivables and reduced payments forff interest and income taxes, partly offset by increased payments for operating expenses. al. The increase in net cash provided by operating activities forff t The increase in net cash provided by operating activities forff the year ended December 31, 2019 as compared to the year ended December 31, 2018 is primarily due to: (i) a 91% increase in production volumes and the 14% decrease in realized prices during the year ended December 31, 2019 discussed above; (ii) increases in operating expenses; and (iii) lower lease bonus revenues. Net cash used in i ii nvii esting an ctivtt itiett s Net cash used in investing activities is primarily composed of acquisitions of mineral and royalty interests, net of dispositions. For the year ended December 31, 2020, our net cash used in investing activities was primarily a result of acquisitions of mineral and royalty interests totaling $66.5 million and other fixeff d assets totaling $0.5 million, offset by sales of mineral and royalty interests totaling $1.6 million. For the year ended December 31, 2019, our net cash used in investing activities was primarily a result of acquisitions of d assets of $0.4 million, offset by sales of mineral and royalty interests totaling $219.5 million and additions to other fixeff mineral and royalty interests totaling $3.1 million. For the year ended December 31, 2018, our net cash used in investing activities was primarily a result of acquisitions of d assets of $0.7 million. Our cash flows from the year ended December 31, 2018 also reflects $0.9 million of proceeds from the sale of equity mineral and royalty interests totaling $195.6 million and additions to other fixeff investing activities forff securities. Net cash (used in)/pr ii ovidedii by financing activtt itiett s Net cash used in financing activities forff the year ended December 31, 2020 was primarily a result of dividends paid to holders of our Class A common stock of $42.2 million, distributions to holders of temporary equity of $24.7 million, the repurchase of shares of our Class A common stock from the September 2020 Selling Shareholders for an aggregate purchase price of approximately $3.5 million, and payment related to employee tax withholding for settlement of share-based compensation awards of $1.2 million. This was partially offset by borrowings under our revolving credit facility of $20.0 million. ncing activities forff Net cash provided by finaff the year ended December 31, 2019 included the combined net proceeds generated from the IPO and December 2019 Offering of $379.8 million offset by the combined full repayment of the outstanding balances of the Owl Rock credit facility and revolving credit facility of $175.0 million (net of additional borrowings of $105.0 million incurred during the year), dividends paid to holders of our Class A common stock of $14.7 million, distributions to holders of temporary equity of $20.1 million, payment of debt extinguishment fees of $2.1 million and payment of loan closing costs of $1.3 million. ncing activities forff Net cash provided by finaff al contributions from the Original Owners and $213.4 million in additional borrowings under our prior revolving credit facility and the Owl Rock credit facility combined, net of $4.6 million in associated loan closing costs. This was partially offset by payment of $70.0 million to pay off and terminate the prior revolving credit facility on July 28, 2018 using funds from the new term loan facff the year ended December 31, 2018 included $46.0 million in net capita ility. 79 Owl Rock Credit Facility al Corporation, as administrative agent and On July 27, 2018, we entered into a credit agreement with Owl Rock Capita ct to customary fees, guarantees of collateral agent (our “Owl Rock credit facility”). Our Owl Rock credit facility was subjeu subsidiaries, restrictions and covenants, including certain restricted payments, and was collateralized by certain of our royalty and mineral properties. Our Owl Rock credit facility provided forff a $125.0 million initial term loan and a $75.0 million delayed draw term loan (“DDTL”). Also, a $10.0 million revolving credit facility was available for general corporate purposes, which was undrawn as of May 7, 2019. Our Owl Rock credit facility bore interest at a rate per annum equal to, at our option, (a) the base rate plus 4.50%, or (b) the adjusted LIBOR rate forff such interest period (subject to a 1.00% floor) plus 5.50%. We used a portion of the proceeds from the IPO to repay the outstanding borrowings under the term loan portion and DDTL portion of our Owl Rock credit facility and terminated the Owl Rock credit facility on May 7, 2019. See “Note 7—Long-Term Debt” to the consolidated and combined financial statements of Brigham Minerals included elsewhere in this Annual Report for further discussion. Prior Revolving Credit Facility Prior to entering into our Owl Rock credit facility (which was terminated in May 2019), we maintained a revolving credit facility (our “prior revolving credit facility”) with Wells Fargo Bank, N.A., as administrative agent, and certain lenders party thereto with commitments of $150.0 million (subject to a borrowing base). We repaid the $70.0 million outstanding balance under our prior revolving credit facility with proceeds from our Owl Rock credit facility and terminated the prior revolving credit facility. The borrowing base at the time of termination was $70.0 million. Revolving Credit Facility On May 16, 2019 (the “closing date”), Brigham Resources entered into a credit agreement with Wells Fargo Bank, N.A., as administrative agent for the various lenders from time to time party thereto, providing for a revolving credit facility (our “revolving credit facility”). Our revolving credit facility is guaranteed by Brigham Resources’ domestic subsidiaries and is collateralized by a lien on substantial portion of Brigham Resources and its domestic subsidiaries’ assets, including substantial portion of their respective royalty and mineral properties. Availability under our revolving credit facility is governed by a borrowing base, which is subject to redetermination in May and November of each year. In addition, lenders holding two-thirds of the aggregate commitments may request one additional redetermination each year. Brigham Resources can also request one additional redetermination each year, and such other redeterminations as appropriate when significant acquisition opportunities arise. The borrowing base is subject to further adjustments for asset dispositions, material title deficiencies, certain terminations of hedge agreements and issuances of permitted additional indebtedness. Increases to the borrowing base require unanimous approval of the lenders, while decreases only require approval of lenders holding two-thirds of the aggregate commitments at such time. As of December 31, 2020, the borrowing base on our revolving credit facility was $135.0 million, with outstanding borrowings of $20.0 million, resulting in $115.0 million availabila future borrowings. ity forff Our revolving credit facility bears interest at a rate per annum equal to, at our option, the adjusted base rate or the margin is based on utilization of our revolving credit facility adjusted LIBOR rate plus an applicable margin. The applicablea and ranges fromff (a) in the case of adjusted base rate loans, 0.750% to 1.750% and (b) in the case of adjusted LIBOR rate loans, 1.750% to 2.750%. Brigham Resources may elect an interest period of one, two, three, six, or if available to all lenders, twelve in arrears at the end of each interest period, but no less frequently than quarterly. A commitment fee months. Interest is payablea quarterly in arrears on the daily undrawn available commitments under our revolving credit facility in an amount is payablea ranging from 0.375% to 0.500% based on utilization of our revolving credit facility. Our revolving credit facff ility is subject to other customary fee, interest and expense reimbursement provisions. Our revolving credit facility matures on May 16, 2024. Loans drawn under our revolving credit facility may be prepaid at any time without premium or penalty (other than customary LIBOR breakage) and must be prepaid in the event that exposure exceeds the lesser of the borrowing base and the elected availabila ity at such time. The principal amount of loans that are prepaid are required to be accompanied by accrued and unpaid interest and fees on such amounts. Loans that are prepaid may be reborrowed. In addition, Brigham Resources may permanently reduce or terminate in full the commitments under our revolving credit facility prior to maturity. Any excess exposure resulting from such permanent reduction or termination must be prepaid. Upon the occurrence of an event of default under our revolving credit facility, the administrative agent acting at the direction of the lenders holding a majority of the aggregate commitments at such time may accelerate outstanding loans and terminate all ff 80 commitments under our revolving credit facility, provided that such acceleration and termination occurs automatically upon occurrence of a bankruptcy or insolvency event of default. u the Contractual Obligations A summary of our contractual obligations as of December 31, 2020 is provided in the following tabla e: (In thousands) 2021 2022 2023 2024 2025 Thereafter Total Long-term debt obligations (1) (2) $ — $ — $ — $ 20,000 $ — $ — $ 20,000 Office lease Total 1,272 1,310 1,347 1,383 1,419 $ 1,272 $ 1,310 $ 1,347 $ 21,383 $ 1,419 $ 2,251 2,251 8,982 $ 28,982 By Year (1) As of December 31, 2020, the borrowing base on our revolving credit facility $115.0 million availability for future borrowings. (2) Does not include future unutilized fees, amortization of deferred financing costs, interest expense or other fees related to our revolving credit facility because we cannot determine with accuracy the timing of future loan advances, repayments or future interest rates to be charged. was $135.0 million, with outstanding borrowings of $20.0 million, resulting in ff Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated and ncial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated and combined finaff combined finaff ncial statements requires it to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ fromff these estimates. A complete list of our significant accounting policies are described in the notes to our audited consolidated and combined financial statements forff the year ended December 31, 2020 included elsewhere in this Annual Report. Use of Estimates The preparation of consolidated and combined finaff ncial statements in conformity with GAAP requires management to make estimates and assumptim ons that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure ncial statements and accompanying notes. Although of contingent assets and liabilities in the consolidated and combined finaff management believes these estimates are reasonable, actual results could differ fromff these estimates. Changes in estimates are recorded prospectively. t Our consolidated and combined finaff gas and NGL reserves that are the basis for the calculations of DD&A and impairment of oil and natural ncial statements are based on a number of significant estimates including quantities of gas oil, natural t gas and properties. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas reserves. The accuracy of any there are numerous uncertainties inherent in estimating quantities of proved oil and natural ion of the quality of available data and of engineering and geological interpretation and judgment. As reserve estimate is a funct a result, reserve estimates may differff gas that are ultimately recovered. Our reserve estimates are audited by CG&A, an independent petroleum engineering firm. Other items subject to significant estimates and gas properties, valuation of derivative instruments and revenue assumptim ons include the carrying amount of oil and natural accruals. from the quantities of oil and natural ff t t t t Receivables Receivables consist of mineral and royalty income due from operators for oil and gas sales to purchasers. Those purchasers remit payment for production to the operator of the properties and the operator, in turn, remits payment to us. Receivables from third parties forff which we did not receive actual information, either dued to timing delays or due to the unavailability of data at the time when revenues are recognized, are estimated. Volume estimates for wells with available historical actual data are based the months the historical upon (i) the historical actual data forff actual data is not available. We do not recognize revenues for wells with no historical actuat l data because we cannot conclude that it is probable that a significant revenue reversal will not occur in future periods. Pricing estimates are based upon actual the average basis differential from market on a basin-by-basin basis. prices realized in an area by adjusting the market price forff , or (ii) engineering estimates forff the months the data is availablea 81 We routinely review outstanding balances, assess the financial strength of our operators and record a reserve for amounts not expected to be fully recovered. We recorded an allowance for doubtful accounts of $0.3 million, $0.6 million and $0.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. Oil and Gas Properties We use the full cost method of accounting for our oil and natural t incurred for the purpose of acquiring mineral and royalty interests and certain related employee costs are capita cost pool. Costs associated with general corporate activities are expensed in the period incurred. gas properties. Under this method, all acquisition costs alized into a full ff Capita alized costs are amortized using the units-of-production method. Under this method, the provision for depletion is calculated by multiplying total production for the period by a depletion rate. The depletion rate is determined by dividing the total unamortized cost base by the net equivalent proved reserves at the beginning of the period. Costs associated with unevaluated properties are excluded from the amortizable cost base until a determination has been made as to the existence of proved reserves. Unevaluated properties are reviewed periodically to determine whether the costs incurred should be reclassified to the full cost pool and subjected to amortization. The costs associated with unevaluated alized interest. Unevaluated properties are assessed for properties primarily consist of acquisition and leasehold costs and capita impairment on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: expectation of future drilling activity; past drilling results and activity; geological and geophysical evaluations; the assignment of proved reserves; and the economic viabila ity of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative acquisition costs incurred to date forff such property are transferred to the full cost pool and are then subject to amortization. There was no impairment recorded forff the years ended December 31, 2020, 2019 and 2018. unevaluated properties forff Sales and abandonments of oil and natural as adjustments to the full cost pool, with no gain or loss recognized unless the adjustments would significantly alter the relationship between capita alized costs and proved reserves. A significant alteration would not ordinarily be expected to occur upon the sale of reserves involving less than 25% of the reserve quantities of a cost center. gas properties being amortized are accounted forff t Natural gas volumes are converted to Boe at the rate of six thousand Mcf of natural gas to one Bbl of oil. This convention is not an equivalent price basis and there may be a large difference in value between an equivalent volume of oil versus an equivalent volume of natural gas. t t t alized costs of oil and natural Under the full cost method of accounting, total capita gas properties, net of accumulated depletion and related deferred income taxes, may not exceed an amount equal to the present value of future net revenues fromff proved reserves, discounted at 10% per annum ("PV-10"), plus the cost of unevaluated properties, less related income tax effect s (full cost ceiling limitation). A write-down of the carrying value of the full cost pool ("impairment charge") is a noncash ff charge that reduces earnings and impacts equity in the period of occurrence and typically results in lower depletion expense in future periods. A ceiling limitation is calculated at each reporting period. The ceiling limitation calculation is prepared using the gas price ("SEC gas price") as of the first day of each unweighted arithmetic average of oil price ("SEC oil price") and natural t the trailing 12-month period ended, as required under the guidelines established by the SEC. As of December 31, month forff 2020, 2019 and 2018, the SEC oil prices were $39.57, $55.65, and $65.66, respectively, per barrel forff r adjusted by energy content, transportation fees and regional price diffff erff entials and the SEC gas prices were $2.00, $2.60, and $3.12, area forff respectively, per MMBtu for natural energy content, transportation fees and regional price differentials. As a result of the decline in the SEC oil prices and SEC gas prices during the twelve months ended December 31, 2020, and taking into consideration certain reclassification of proved undeveloped reserves to probable and possible reserves during the three months ended December 31, 2020, as a result of a slowdown in operator activity, the net book value of oil and natural resulting in an t impaim rment charge of $79.6 million to oil and gas properties, net during the year ended December 31, 2020. There were no impairment charges during gas properties exceeded the ceiling limitation as of September 30, 2020 and December 31, 2020, the years ended December 31, 2019 and 2018. r adjusted by area forff ff gas, furthe ff oil, furthe d t Future declines in the unweighted arithmetic average SEC oil prices used in the full cost ceiling test may result in additional impairment charges in the future and such impairments could be material. In addition to the impact of lower prices, any future changes to assumptim ons of drilling and completion activity, development timing, acquisitions or divestitures of oil and gas properties, proved undeveloped locations, and production and other estimates may require revisions to estimates of total proved reserves which would impact the amount of any impairment charge. t 82 During the year ended December 31, 2020, Brigham Minerals reduced its proved undeveloped reserves by 8,209 MBoe primarily due to a reclassification of 7,036 MBoe from proved undeveloped reserves to probable and possible reserves, as a result of decreased rig activity, a 29% reduction in SEC oil prices over the twelve months ended December 31, 2019, and conversion from proved undeveloped to proved developed reserves. The reduction in rig activity led to changes in the development timing and a reduction of the number of proved undeveloped locations that Brigham Minerals expects will be developed within fiveff years after the date of booking. We engage CG&A, our independent petroleum engineering firm, to audit our total estimated proved, probable and possible reserves. We expect proved, probable and possible reserve estimates will change as additional information becomes available and as commodity prices and costs change. We evaluate and estimate our proved, probable and possible reserves internally each quarter and CG&A audits our proved, probable and possible reserves annually. Reserve estimates are inherently imprecise. Accordingly, the estimates are expected to change as more current information becomes available. The estimates of proved, probable and possible reserves are based upon the use of technical and economic data including, but not limited to, well logs, geologic mapsa , seismic data, well test data, production data, historical price and cost information, historical and future operator development plans, and property ownership interests. Standard engineering and geoscience methods, such as reservoir modeling, performance analysis, volumetric analysis and analogy, which are considered to be appropri ate and necessary to sh reserve quantities and reserve categorization that conform to SEC definitions and rules and regulations, are also used. establia As in all aspects of oil and natural gas evaluation, there are uncertainties inherent in the interpretation of engineering and geoscience data; therefore, these estimates necessarily represent only informed professional judgment. a t ff It is possible that, because of changes in market conditions or the inherent imprecision of reserve estimates, the estimates gas reserves, the remaining estimated lives of oil and economic economic volumes generally increase per unit of future cash inflows, natural t volumes generally reduce per unit depletion rates while decreases in recoverablea depletion rates. gas properties or any combination of the above may be increased or reduced. Increases in recoverablea future gross revenue, the amount of oil and natural t It should not be assumed that the standardized measure included in this report as of December 31, 2020 is the current market value of our estimated proved reserves. In accordance with SEC requirements, we based the 2020 standardized measure on the SEC oil price and SEC gas price as of December 31, 2020, and prevailing costs on the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs utilized in the estimate. See “Item 1—Business— Oil, Natural Gas, and NGLs Data—Proved, Probable and Possible Reserves” and “Item 1A—Risk Factors” for additional information regarding estimates of proved, probable and possible reserves. aa ff Revenue from Contracts with Customers In 2019, we adopted the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, ("ASC 606") using the modified retrospective approach, which only applied to contracts that were in effect as of the date of adoption. The adoption did not require an adjustment to opening retained earnings for the cumulative effect adjustment and did not impact our previously reported results of operations, nor our ongoing consolidated and combined balance sheets, statements of cash flowff or statements of changes in shareholders' and members' equity. Overall, there were no material changes in the timing of the satisfaction of our performance obligations or the allocation d to legacy U.S. GAAP. of the transaction price to our performance obligations in applying the guidance in ASC 606 as comparem Oil and natural gas sales t Oil, natural gas and NGLs sales revenues are generally recognized when control of the product is transferred to the customer, the perfoff rmance obligations under the terms of the contracts with customers are satisfied and collectability is reasonably assured. As a non-operator, we have limited visibility into the timing of when new wells start producing and production statements may not be received for 30 to 90 days or more after the date production is delivered. As a result, we are required to estimate the amount of production delivered to the purchaser and the price that we will receive forff the sale of the product. The expected sales volumes and prices for these properties are estimated and recorded within the Accounts receivable line item in the accompanying consolidated and combined balance sheets. The difference between our estimates and the actual amounts received for oil and natural gas sales is recorded in the month that payment is received from the third party. ff t Lease bonus and other tt income We earn revenue from lease bonuses, delay rentals, and right-of-way payments. We generate lease bonus revenue by leasing our mineral interests to exploration and production companies. A lease agreement represents our contract with a customer and generally transfers the rights to any oil or natural gas discovered, grants us a right to a specified royalty interest, and requires that drilling and completion operations commence within a specified time period. We recognize lease bonus revenues when the lease agreement has been executed, payment has been received, and we have no further obligation to refund the payment. At the time we execute the lease agreement, we expect to receive the lease bonus payment within a reasonable t 83 time, though in no case more than one year, such that we have not adjusted the expected amount of consideration for the effects of any significant financing component per the practical expedient in ASC 606. Share-Based Compensation Brigham Minerals accounts for its share-based compensation, including grants of the Incentive Units, restricted stock awards, time-based restricted stock units and performance-based stock units, in the condensed consolidated and combined r values at grant date. Brigham Minerals uses a Monte Carlo simulation to statements of operations based on their estimated faiff determine the fair value of performance-based stock units. Brigham Minerals recognizes expense on a straight-line basis over the vesting period of the respective grant, which is generally the requisite service period. Brigham Minerals capitalizes a portion of the share-based compensation cost to oil and gas properties on the consolidated and combined balance sheets. Share-based compensation expense is included in general and administrative expenses in Brigham Minerals’ consolidated and combined statements of operations included within this Annual Report. There was approximately $17.0 million of unamortized compensation expense relating to outstanding awards at December 31, 2020, a portion of which will be capita alized. The unrecognized compensation expense will be recognized on a straight-line basis over the remaining vesting periods of the awards. Brigham Minerals accounts for forfeitures as they occur. Income Taxes Brigham Minerals accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributablea to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to appl y to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. a We periodically assess whether it is more likely than not that we will generate sufficient taxable income to realize our deferred income tax assets, including net operating losses. In making this determination, we consider all available positive and negative evidence and make certain assumptim ons. We consider, among other things, our deferred tax liabia lities, the overall business environment, our historical earnings and losses, current industry trends and our outlook for futuret years. Temporary Equity Brigham Minerals accounts for the Original Owners’ 23.2% interest in Brigham LLC (as of December 31, 2020) as temporary equity as a result of certain redemption rights held by the Original Owners as discussed in “Note 9—Temporary Equity” to the consolidated and combined finaff ncial statements of Brigham Minerals included elsewhere in this Annual Report. As such, Brigham Minerals adjusts temporary equity to its maximum redemption amount at the balance sheet date, if higher than the carrying amount. The redemption amount is based on the 10-day volume-weighted average closing price (“VWAP”) of Class A shares at the end of the reporting period. Changes in the redemption value are recognized immediately as they occur, as if the end of the reporting period was also the redemption date forff the instrument, with an offsetting entry to additional paid-in to permanent equity (i) upon Conversion of Class B common stock (and an equivalent capita number of Brigham LLC Units) to Class A common stock, or (ii) when holders of Class B common stock no longer control a majori ty of the votes of the board of directors through direct representation on the board of directors, and no longer control the a determination of whether to make a cash payment upon a Brigham Unit Holder's exercise of its Redemption Right. al. Temporary equity is reclassifiedff Recently Issued Accounting Pronouncements See “Note 2—Significant Accounting Policies—Recently Issued Accounting Standards Not Yet Adopted” in our a discussion of recent accounting ncial statements included elsewhere in this Annual Report, forff consolidated and combined finaff pronouncements. We are an “emerging growth company,” under the JOBS Act, which allows us to take advantage of an extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. 84 Internal Controls and Procedures r Upon becoming a public company, we were required to comply with the SEC’s rules implementing Section 302 and s-Oxley Act, which requires our management to certify financial and other information in our Section 404 of the Sarbane quarterly and annual reports, and, for the year ended December 31, 2020, provide an annual management report on the effectiveness of our internal control over financial reporting. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404 beginning to our ceasing to be an “emerging growth company” within the meaning of with our first annual report subsequent Section 2(a)(19) of the Securities Act. As of December 31, 2020, we did not have any material off-balance sheet arrangements. Off-Balance Sheet Arrangements Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk, including the effects of adverse changes in commodity prices and interest rates as described below. The primary objective of the following information is to provide quantitative and qualitative information about our potential exposure to market risks. The term “market risk” refers to the risk of loss arising from adverse changes in gas and NGL prices and interest rates. The disclosures are not meant to be precise indicators of expected future oil, natural losses, but rather indicators of reasonably possible losses. This forwar d-looking information provides indicators of how we view and manage our ongoing market risk exposures. All of our market risk sensitive instruments were entered into for purposes other than speculative trading. ff t Commodity Price Risk t t gas and NGLs has been volatile and unpredictable forff Our majora market risk exposure is in the pricing that our operators receive for the oil, natural gas and NGLs produced gas and t from our properties. Realized prices are primarily driven by the prevailing global prices for oil and prices for natural NGLs in the United States. Pricing for oil, natural several years, and we expect this volatility to continue in the future. During the past fivff e years, the posted price forff WTI has ranged from a historic, record low price of negative ($36.98) per barrel in April 2020 to a high of $77.41 per barrel in June 2018, and as of December 31, 2020, the posted price forff oil was $48.35 per barrel. NGL prices generally correlate to the price of oil, and accordingly prices for these products have likewise declined and are likely to continue following that market. Prices forff domestic natural ub gas has ranged from a low of $1.33 per MMBtu in September 2020 to a high of $6.24 per MMBtu spot market price forff gas was $2.36 per MMBtu. The ub spot market price of natural in January 2018, and as of December 31, 2020, the Henry Hrr prices our operators receive for the oil, natural our properties depend on numerous factors beyond their and our control, some of which are discussed in “Item 1A—Risk Factors—Risks Related to Our Business—Substantially all of our revenues are derived from royalty payments that are based on the price at which oil, natural gas and NGLs produced gas and NGLs are volatile due to factors beyond our from the acreage underlying our interests are sold. Prices of oil, natural control. The significant drop in the price of oil in 2020 has adversely affected, and any further decline in commodity prices in the future may adversely affecff gas have also fluctuated significantly over the last several years. During the past fivff e years, the Henry Hrr t our business, financial condition or results of operations.” gas and NGLs produced fromff t natural t t t t t A $1.00 per barrel change in our realized oil price would have resulted in a $1.8 million change in our oil revenues for gas price would have resulted in a $0.6 the year ended December 31, 2020. A $0.10 per Mcf change in our realized natural million change in our natural the year ended December 31, 2020. A $1.00 per barrel change in NGL prices would have resulted in a $0.7 million change in our NGL revenues for the year months ended December 31, 2020. Royalty revenues from oil sales contributed 74% of our total revenues for the year ended December 31, 2020. Royalty revenue from natural gas sales contributed 11% and royalty revenue from NGL sales contributed 9% of our total revenues for the year ended t December 31, 2020. gas revenues forff t t We may enter into derivative instruments, such as collars, swapsa and basis swaps, to partially mitigate the impact of commodity price volatility. These hedging instruments allow us to reduce, but not eliminate, the potential effects of the variability in cash flow from operations due to fluctuations in oil, natural gas and NGL prices and provide increased certainty of cash flows for our debt service requirements. However, these instruments provide only partial price protection against declines gas and NGL prices and may partially limit our potential gains from future increases in prices. Our revolving in oil, natural t t 85 credit facility allows us to hedge up to 85% of our reasonablya and natural gas, calculated separately, for up to 60 months in the futff ure. t anticipated projected production from our proved reserves of oil We did not have any oil or gas derivative contracts in place as of December 31, 2020 and December 31, 2019. Counterparty and Customer Credit Risk When we enter into them, our derivative contracts expose us to credit risk in the event of nonperformance by counterparties. While we do not require counterparties to our derivative contracts to post collateral, we evaluate the credit standing of such counterparties as we deem appropria te. a Our principal exposures to credit risk are through receivables generated by the production activities of our operators. The inabila lure of our significant operators to meet their obligations to us or their insolvency or liquidation may adversely ity or faiff affect our financial results. See "Item 1A—Risk Factors—Risk Related to Our Business—We may experience delays in the payment of royalties and be unable to replace operators that do not make required royalty payments, and we may not be able to lting lessees if any of the operators on those leases declare bankruptcy. We may also experience terminate our leases with defauff improper deductions in the payment of royalties." Interest Rate Risk Our revolving credit facility bears interest at a rate per annum equal to, at our option, the adjusted base rate or the margin is based on utilization of our revolving credit facility adjusted LIBOR rate plus an applicable margin. The applicablea and ranges fromff (a) in the case of adjusted base rate loans, 0.750% to 1.750% and (b) in the case of adjusted LIBOR rate loans, 1.750% to 2.750%. Brigham Resources may elect an interest period of one, two, three, six, or if available to all lenders, twelve in arrears at the end of each interest period, but no less frequently than quarterly. A commitment fee months. Interest is payablea quarterly in arrears on the daily undrawn available commitments under our revolving credit facility in an amount is payablea ranging from 0.375% to 0.500% based on utilization of our revolving credit facility. Our revolving credit facility is subjec t to other customary fee, interest and expense reimbursement provisions. As of December 31, 2020, the borrowing base on our revolving credit facility was $135.0 million, with outstanding borrowings of $20.0 million, resulting in $115.0 million availability for futuret borrowings. u Item 8. Financial Statements and Supplementary Data The Company's consolidated and combined finaff ncial statements required by this item are included in this Annual Report beginning on page F-1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls tt and Procedures As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”), our principal executive officer, and our Chief Financial Officer (“CFO”), our principal finaff ncial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as definff ed in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2020. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports filff ed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO as appropriate, to allow timely decisions regarding required disclosure. Based on ive at December 31, this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effect 2020. ff ff Management’s Report ee on Internal Control tt FF over Financ ial Reporting. ii As management, we are responsible for establia shing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 86 of the Sarbanes-Oxley Act, we have conducted an assessment, including testing using the criteria in Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the external purposes in accordance with GAAP. reliabila Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and, even when determined to be effective, can only provide reasonable assurance with respect to finff ancial statement preparation and presentation. ncial reporting and the preparation of financial statements forff ity of finaff Based on our assessment, we have concluded that the Company maintained effective internal control over financial reporting as of December 31, 2020, based on criteria in Internal Control—Integrated Framework (2013) issued by COSO. This Annual Report does not include an attestation report of our independent registered public accounting firm due to a transition period establia shed by the rules of the SEC forff newly public companies. Changes in Internal tt tt Control FF over Financ ial Reportingii . There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fourth quarter of 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. Item 9B. Other Information Not applicable. 87 PART III Item 10. Directors, Executive Officers and Corporate Governance Information as to Item 10 is incorporated by reference fromff the information in our definitive proxy statement for the 2021 Annual Meeting of Stockholders, which we will file pursuant to Regulation 14A with the SEC within 120 days after the close of the year ended December 31, 2020. Item 11. Executive Compensation Information as to Item 11 is incorporated by reference fromff the information in our definitive proxy statement for the 2021 Annual Meeting of Stockholders, which we file pursuant to Regulation 14A with the SEC within 120 days after the close of the year ended December 31, 2020. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information as to Item 12 is incorporated by reference fromff the information in our definitive proxy statement for the 2021 Annual Meeting of Stockholders, which we file pursuant to Regulation 14A with the SEC within 120 days after the close of the year ended December 31, 2020. Item 13. Certain Relationships and Related Transactions, and Director Independence Information as to Item 13 is incorporated by reference fromff the information in our definitive proxy statement for the 2021 Annual Meeting of Stockholders, which we file pursuant to Regulation 14A with the SEC within 120 days after the close of the year ended December 31, 2020. Item 14. Principal Accounting Fees and Services Information as to Item 14 is incorporated by reference fromff the information in our definitive proxy statement for the 2021 Annual Meeting of Stockholders, which we file pursuant to Regulation 14A with the SEC within 120 days after the close of the year ended December 31, 2020. 88 Item 15. Exhibits, Financial Statement Schedules (1) Financial Statements PART IV The consolidated and combined finaff ncial statements of Brigham Minerals, Inc. and the Report of Independent Registered c Accounting Firm are included in Part II, "Item 8— Financial Statements and Supplementary Data” of this Annual Publiu Report. Reference is made to the accompanying Index to Financial Statements. (2) Financial Statement Schedules All financial statement scheduled s have been omitted because they are not applicable or the required information is presented in the financial statements or notes thereto. (3) Index to Exhibits The exhibits required to be filed or furnished ff pursuant to Item 601 of Regulation S-K are set forth below. Exhibit Number Description 2.1 2.2 3.1 3.2 4.1 4.2 4.3 4.4 4.5 4.6 4.7 Master Reorganization Agreement, dated April 17, 2019, by and among Brigham Minerals, Inc. and the parties named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on April 22, 2019) Contribution and Distribution Agreement, dated April 23, 2019, by and among Brigham Minerals, Inc. and the parties named therein (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on April 29, 2019) Amended and Restated Certificate of Incorporation of Brigham Minerals, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on April 29, 2019) Amended and Restated Bylaws of Brigham Minerals, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on April 29, 2019) Registration Rights Agreement, dated April 23, 2019, by and among Brigham Minerals, Inc. and the stockholders named therein (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K on April 29, 2019)) Stockholders’ Agreement, dated April 23, 2019, by and among Brigham Minerals, Inc. and the stockholders named therein (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on April 29, 2019) Form of Restricted Stock Unit Grant Notice (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form S-8 filed on April 23, 2019) Form of Restricted Stock Unit Grant Notice (Directors) (incorporated by reference to Exhibit 4.7 to the Registrant’s Registration Statement on Form S-8 filed on April 23, 2019) Form of Performance Stock Unit Grant Notice (incorporated by reference to Exhibit 4.8 to the Registrant’s Registration Statement on Form S-8 filed on April 23, 2019) Form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 4.9 to the Registrant’s Registration Statement on Form S-8 filed on April 23, 2019) Description of Brigham Minerals, Inc.’s Class A common stock (incorporated by reference to Exhibit 4.7 to the Registrant's Annual Report on Form 10-K filed on February 28, 2020) 10.1† Brigham Minerals, Inc. 2019 Long-Term Incentive Plan (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-8 filed on April 23, 2019) 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 Indemnification Agreement (Ben M. Brigham) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 22, 2019) Indemnification Agreement (Robert M. Roosa) (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on April 22, 2019) Indemnification Agreement (Blake C. Williams) (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on April 22, 2019) Indemnification Agreement (Harold D. Carter) (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on April 22, 2019) Indemnification Agreement (John Holland) (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on April 22, 2019) Indemnification Agreement (W. Howard Keenan, Jr.) (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on April 22, 2019) Indemnification Agreement (James R. Levy) (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed on April 22, 2019) Indemnification Agreement (Richard Stoneburner) (incorporated by reference to Exhibit 10.8 to the Registrant’s Current Report on Form 8-K filed on April 22, 2019) 89 Indemnification Agreement (John R. Sult) (incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K filed on April 22, 2019) Amended and Restated Limited Liability Company Agreement of Brigham Minerals Holdings, LLC, dated April 23, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 29, 2019) Second Amended and Restated Limited Liability Company Agreement of Brigham Equity Holdings, LLC, dated April 23, 2019 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on April 29, 2019) Credit Agreement, dated as of May 16, 2019, among Brigham Resources, LLC, as borrower, the financial institutions party thereto, Wells Fargo Bank, N.A., as administrative agent, and Wells Fargo Securities, LLC, as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.13 to the Registrant’s Quarterly Report on Form 10-Q filed on May 20, 2019) First Amendment to Credit Agreement, dated as of November 7, 2019, among Brigham Resources, LLC, as borrower, the financial institutions party thereto, Wells Fargo Bank, N.A., as administrative agent, and Wells Fargo Securities, LLC, as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.14 to the Registrant's Annual Report on Form 10-K filed on February 28, 2020) Second Amendment to Credit Agreement, dated as of February 25, 2020, among Brigham Resources, LLC, as borrower, the financial institutions party thereto, Wells Fargo Bank, N.A., as administrative agent, and Wells Fargo Securities, LLC, as sole lead arranger and sole bookrunner (incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K filed on February 28, 2020) First Lien Credit Agreement, dated as of July 27, 2018, by and among Brigham Resources, LLC, Brigham Minerals, LLC, Owl Rock Capital Corporation, as first lien administrative agent and first lien collateral agent, Owl Rock Capital Advisors LLC, as the lead arranger and bookrunner, and the lenders and issuing banks party thereto (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1 on March 18, 2019) Indemnification Agreement (Carrie Clark) (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on February 27, 2020) Indemnification Agreement (A. Lance Langford) (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on August 12, 2020) Subsidiaries of Brigham Minerals, Inc. Consent of KPMG LLP Consent of Cawley, Gillespie & Associates, Inc. Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Cawley, Gillespie & Associates, Inc., Summary of Reserves of Brigham Resources, LLC at December 31, 2020 The following financial information from this Annual Report on Form 10-K of Brigham Minerals, Inc. for the year ended December 31, 2020 is formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated and Combined Statement of Operations, (iii) Consolidated and Combined Statement of Changes in Shareholders' and Members' Equity, (iv) Consolidated and Combined Statement of Cash Flows and (v) Notes to the Condensed Consolidated and Combined Financial Statements, tagged as blocks of text. Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 21.1* 23.1* 23.2* 31.1* 31.2* 32.1* 32.2* 99.1* 101 104 * † Filed herewith Compensatory plan or arrangement. Item 16. Form 10-K Summary None. 90 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this registration authorized, in the City of Austin, State of Texas. statement to be signed on its behalf by the undersigned, thereunto dulyd SIGNATURES BRIGHAM MINERALRR S, INC. By: Name: /s/ Robert M. Roosa Robert M. Roosa Chief Executive Officff er and Director Date: February 25, 2021 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capac a ities indicated on February 25, 2021. Name /s/ Ben M. Brigham Ben M. Brigham /s/ Robert M. Roosa Robert M. Roosa /s/ Blake C. Williams Blake C. Williams /s/ Harold D. Carter Harold D. Carter /s/ Carrie Clark Carrie Clark /s/ W. Howard Keenan, Jr. W. Howard Keenan, Jr. /s/ A. Lance Langford A. Lance Langford /s/ James R. Levy James R. Levy /s/ Richard Stoneburner Richard Stoneburner /s/ John R. Sult John R. Sult Title Executive Chairman Chief Executive Officff er and Director (Principal Executive Officff er) Chief Financial Officer (Principal Financial Officer and er) Principal Accounting Officff Director Director Director Director Director Director Director 91 INDEX TO FINANCIAL STATEMENTS BRIGHAM MINERALS, INC. Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2020 and 2019 Consolidated and Combined Statements of Operations for the years ended December 31, 2020, 2019, and 2018 Consolidated and Combined Statements of Comprehensive Income for the years ended December 31, 2020, 2019, and 2018 Consolidated and Combined Statements of Changes in Shareholders' and Members' Equity for the years ended December 31, 2020, 2019, and 2018 Consolidated and Combined Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018 Notes to Consolidated and Combined Financial Statements 1. Business and Basis Presentation 2. Significant Accounting Policies 3. Oil and Gas Properties 4. Acquisitions and Divestitures 5. Derivative Instruments 6. Fair Value Measurements 7. Long-Term Debt 8. Shareholders' and Members' Equity 9. Temporary Equity 10. Share-Based Compensation 11. Income Taxes 12. Commitments and Contingencies 13. Related Party 14. COVID-19 Pandemic 15. Subsequent Events 16. Quarterly Financial Information (Unaudited) 17. Reserve and Related Financial Data (SMOG) (Unaudited) Page F - 2 F - 3 F - 4 F - 5 F - 6 F - 8 F - 10 F - 10 F - 11 F - 17 F - 18 F - 19 F - 19 F - 20 F - 21 F - 23 F - 24 F - 26 F - 28 F - 29 F - 29 F - 30 F - 30 F - 30 F-1 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Brigham Minerals, Inc.: Opinion on the Consolidated and Combined FinFF ancial Statements We have audited the accompanying consolidated balance sheets of Brigham Minerals, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated and combined statements of operations, comprehensive income (loss), changes in shareholders’ and members’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes (collectively, the consolidated and combined finaff ncial statements). In our opinion, the ncial statements present fairly, in all material respects, the financial position of the Company as consolidated and combined finaff of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. ff Basis for Opinion These consolidated and combined finaff ncial statements are the responsibility of the Company’s management. Our responsibility ncial statements based on our audits. We are a public is to express an opinion on these consolidated and combined finaff accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicablea rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated and combined finaff ncial statements are freff e of material misstatement, whether dued to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated and combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated and combined finaff ncial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated and combined finaff ncial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2013. Austin, Texas r February 25, 2021 F-2 BRIGHAM MINERALS, INC. CONSOLIDATED BALANCE SHEETS ASSETS (In thousands, except share data) Current assets: Cash and cash equivalents Accounts receivable Prepaid expenses and other Total current assets Oil and gas properties, at cost, using the full cost method of accounting: Unevaluated property Evaluated property Less accumulated depreciation, depletion, and amortization Oil and gas properties—net Other property and equipment Less accumulated depreciation Other property and equipment—net Deferred tax asset Other assets, net Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities Total current liabilities Long-term debt Other non-current liabilities Temporary equity Shareholders' equity: Preferred stock, $0.01 par value; 50,000,000 authorized; no shares issued and outstanding at December 31, 2020 and December 31, 2019 Class A common stock, $0.01par value; 400,000,000 authorized, 43,995,124 shares issued and 43,558,494 shares outstanding at December 31, 2020; 34,040,934 issued and outstanding at December 31, 2019 Class B common stock, $0.01 par value; 150,000,000 authorized, 13,167,687 shares issued and outstanding at December 31, 2020; 22,847,045 shares issued and outstanding at December 31, 2019 Additional paid-in capital Accumulated deficit Treasury stock, at cost; 436,630 shares at December 31, 2020 and no shares at December 31, 2019 Total shareholders' equity attributable to Brigham Minerals, Inc. December 31, 2020 2019 $ 9,144 $ 17,632 3,693 30,469 325,091 488,301 (189,546) 623,846 5,587 (4,632) 955 24,920 771 51,133 30,291 1,688 83,112 291,664 449,061 (61,103) 679,622 5,095 (3,703) 1,392 18,823 1,213 680,961 $ 784,162 $ $ 7,905 $ 7,905 20,000 1,126 146,280 — 440 — 601,129 (92,392) (3,527) 505,650 11,533 11,533 — 803 454,507 — 340 — 323,578 (6,599) — 317,319 784,162 Total liabilities, temporary equity and shareholders' equity $ 680,961 $ The accompanying notes are an integral part of these consolidated and combined finff ancial statements. F-3 BRIGHAM MINERALS, INC. CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIRR ONS (In thousands, except per share data) REVENUES Mineral and royalty revenues Lease bonus and other revenues Total revenues OPERATING EXPENSES Gathering, transportation and marketing Severance and ad valorem taxes Depreciation, depletion, and amortization Impairment of oil and gas properties General and administrative Total operating expenses (LOSS) INCOME FROM OPERATIONS (Loss) gain on derivative instruments, net Interest expense, net Loss on extinguishment of debt Gain on sale and distribution of equity securities Other income, net (Loss) income before income tax expense Income tax (benefit) expense NET (LOSS) INCOME Less: Net income attributable to Predecessor Less: net loss (income) attributable to temporary equity Net (loss) income attributable to Brigham Minerals, Inc. shareholders NET (LOSS) INCOME PER COMMON SHARE Basic Diluted WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic Diluted Years Ended December 31, 2019 2018 2020 $ $ $ $ $ $ $ $ $ 86,245 5,478 91,723 $ $ 97,886 3,629 101,515 $ $ 6,985 5,606 48,238 79,569 21,619 162,017 $ (70,294) $ — (890) — — 428 (70,756) $ (12,762) (57,994) $ — 15,582 (42,412) $ (1.11) $ (1.11) $ 38,178 38,178 4,985 6,409 30,940 — 21,963 64,297 37,218 (568) (5,609) (6,892) — 169 24,318 2,679 21,639 (5,092) (9,646) 6,901 0.26 0.26 22,870 22,870 $ $ $ $ $ $ $ 59,758 7,506 67,264 3,944 3,536 13,915 — 6,638 28,033 39,231 424 (7,446) — 823 110 33,142 327 32,815 (30,976) — 1,839 — — — — The accompanying notes are an integral part of these consolidated and combined finff ancial statements. F-4 BRIGHAM MINERALS, INC. CONSOLIDATED AND COMBINED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (In thousands) NET (LOSS) INCOME Other comprehensive income Unrealized gains on available for sale equity securities, net Reclassification of gains on sale and distribution of available for sale equity securities Other comprehensive loss COMPREHENSIVE (LOSS) INCOME Comprehensive income attributable to Predecessor Comprehensive loss (income) attributable to temporary equity Years Ended December 31, 2020 2019 2018 $ (57,994) $ 21,639 $ 32,815 — — — — — — 141 (823) (682) $ (57,994) $ 21,639 $ 32,133 $ $ — $ (5,092) $ (30,294) 15,582 $ (9,646) $ — Comprehensive (loss) income attributable to shareholders $ (42,412) $ 6,901 $ 1,839 The accompanying notes are an integral part of these consolidated and combined finff ancial statements. F-5 BRIGHAM MINERALS, INC. CONSOLIDATED AND COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' AND MEMBERS’ EQUITY (In thousands) Members' Contributed Capital Class A Common Stock Class B Common Stock Shares Amount Shares Amount Additional Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings (accumulated deficit) Total Shareholders' and Members' Equity Balance - December 31, 2017 $ 166,030 — $ Contributions Distributions Other comprehensive income Deferred tax liability arising from corporate reorganization Proceeds from sale of equity securities Net income attributable to shareholders Net income attributable to predecessor 45,078 (3,313) — — 933 — — — — — — — — — Balance - December 31, 2018 $ 208,728 — $ Net income attributable to shareholders Net income attributable to Predecessor Balance prior to corporate reorganization and IPO — — — — $ 208,728 — $ — — — — — — — — — — — — — $ — $ — $ 682 $ 135,462 $ 302,174 — — — — — — — — — — — — — — — — — (3,057) — — — — — (682) — — — — — — — — — 1,839 45,078 (3,313) (682) (3,057) 933 1,839 30,976 30,976 — $ — $ (3,057) $ — $ 168,277 $ 373,948 — — — — — — — — 848 5,092 848 5,092 — $ — $ (3,057) $ — $ 174,217 $ 379,888 Conversion of PE Units for Class A Common Stock and Class B Common Stock Issuance of common stock in IPO, net of offering cost Deferred tax asset arising from the IPO Reclassification of noncontrolling interests to temporary equity Issuance of common stock upon vesting of RSUs, net of shares withheld for income taxes Share-based compensation expense Dividends declared Dividend equivalent rights declared Net income attributable to shareholders Adjustment of temporary equity to redemption amount Issuance of common stock in the December 2019 Offering, net of offering costs Deferred tax asset arising from issuance of common stock in the December 2019 Offering Conversion of shares of Class B Common Stock to Class A Common Stock Restricted stock forfeited (208,728) 5,322 53 28,778 — 16,675 167 — — — — — — — — — — 124 — — — — — — 6,000 — — — — 5,931 (11) — — 1 — — — — — 60 — 59 — — — — — — — — — — — — (5,931) — — — — 380,205 273,281 13,664 — (518,000) — — — — — (1,256) 13,888 — — — — (51,572) — 102,620 — — — 9,508 104,331 (34) — — — — — — — — — — — — — — (171,530) — — — — — — (14,663) (676) 6,053 — — — — — 273,448 13,664 (518,000) (1,255) 13,888 (14,663) (676) 6,053 (51,572) 102,680 9,508 104,390 (34) Balance - December 31, 2019 $ — 34,041 $ 340 22,847 $ — $ 323,578 $ — $ (6,599) $ 317,319 The accompanying notes are an integral part of these consolidated and combined finff ancial statements. F-6 BRIGHAM MINERALS, INC. CONSOLIDATED AND COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS' AND MEMBERS’ EQUITY (CONTINUED) (In thousands) Shares Amount Shares Amount Class A Common Stock Class B Common Stock Additional Paid-In Capital Accumulated Deficit Treasury Stock Shares Amount Total Shareholders' Equity Balance - December 31, 2019 34,041 $ 340 22,847 $ — $ 323,578 $ (6,599) — $ — $ 317,319 Issuance of common stock upon vesting of RSUs, net of shares withheld for income taxes Shares surrendered for tax withholdings on vested equity awards Conversion of shares of Class B Common Stock to Class A Common Stock Reduction in deferred tax asset arising from conversion of shares of Class B Common Stock to Class A Common Stock Purchase of treasury stock Share-based compensation Restricted stock forfeitures Dividends declared Dividend equivalent rights declared Net loss attributable to shareholders Adjustment of temporary equity to redemption value 304 (19) 2 — — — 9,679 98 (9,679) — (437) — (10) — — — — — — — — — — — — 440 — — — — — — — — — — — — — — — — — — — (993) (185) 97,393 (2,640) — 13,615 — — — — — — — — — — — (41,601) (1,780) (42,412) 170,361 — — — — — 437 — — — — — — — — — — (3,527) — — — — — — (991) (185) 97,491 (2,640) (3,527) 13,615 — (41,601) (1,780) (42,412) 170,361 505,650 Balance - December 31, 2020 43,558 $ 13,168 $ — $ 601,129 $ (92,392) 437 $ (3,527) $ The accompanying notes are an integral part of these consolidated and combined finff ancial statements. F-7 BRIGHAM MINERALS, INC. CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income Adjustments to reconcile net earnings to net cash provided by operating activities: Years Ended December 31, 2019 2020 2018 $ (57,994) $ 21,639 $ 32,815 Depreciation and amortization Impairment of oil and gas properties Share-based compensation expense Loss on extinguishment of debt Amortization of debt issue costs Deferred income tax (benefit)/expense Loss (gain) on derivative instruments, net Net cash received (paid) for derivative settlements Gain on sale and distribution of equity securities Bad debt expense Changes in operating assets and liabilities: Decrease (increase) in accounts receivables (Increase) decrease in other current assets Decrease in other deferred charges (Decrease) increase in accounts payables and accrued liabilities Increase in other long-term liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Additions to oil and gas properties Additions to other fixed assets Proceeds from sale of oil and gas properties, net Proceeds from sale of equity securities Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Payments of short-term related party loan Borrowing of short-term related party loan Payments of short-term debt Payments of long-term debt Borrowing of long-term debt Payment of debt extinguishment fees Proceeds from issuance of Class A common stock sold in initial public offering, net of offering costs Proceeds from issuance of Class A common stock, net of offering costs Capital contributions Capital distributions Purchase of treasury stock Dividends paid Distributions to holders of temporary equity Debt issuance cost Employee tax withholding for settlement of equity compensation awards Net cash (used in) provided by financing activities (Decrease) increase in cash and cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of period Cash, cash equivalents and restricted cash end of period 48,238 79,569 7,529 — 605 (9,942) — — — 299 12,359 (2,005) 45 (3,608) 165 75,260 $ 30,940 — 10,049 6,892 433 665 568 470 — 669 (10,246) 1,787 — 5,112 47 69,025 (66,498) (492) 1,565 — (65,425) $ (219,481) (474) 3,123 — (216,832) $ — — — — 20,000 — — — — — (3,527) (42,216) (24,670) (208) (1,203) (51,824) $ (41,989) 51,133 9,144 $ — — (4,596) (275,404) 105,000 (2,091) 277,075 102,680 — (441) — (14,663) (19,731) (1,348) — 166,481 18,674 32,459 51,133 $ $ 13,915 — — — 690 237 (424) (754) (823) 382 (8,022) (6,116) — (484) 28 $31,444 (195,603) (723) 125 933 (195,268) (7,000) 7,000 — (70,000) 218,000 — — — 46,011 — — — — (4,614) — 189,397 25,573 6,886 32,459 $ $ $ $ The accompanying notes are an integral part of these consolidated and combined finff ancial statements. F-8 BRIGHAM MINERALS, INC. CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS (CONTINUED) (In thousands) Supplemental disclosure of non-cash activity: Equity securities distributed Accrued capital expenditures Capitalized share-based compensation cost Temporary equity cumulative adjustment to fair value Supplemental cash flow information: Cash (payments) for loan commitment fees and interest Cash received/(paid) for taxes Years Ended December 31, 2019 2020 2018 $ $ — $ 146 — $ 63 6,086 (170,361) 3,818 51,572 3,313 1,426 — — (715) $ 1,211 (6,192) $ (832) (6,123) (604) The accompanying notes are an integral part of these consolidated and combined finff ancial statements. F-9 BRIGHAM MINERARR LS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 1. Business and Basis of Presentation Description of the Business Brigham Minerals, Inc. (together with its wholly owned subsidiaries, “Brigham Minerals” or the “Company”) is a Delaware corporation formed in June 2018 to become a holding company. Brigham Minerals acquired an indirect interest in Brigham Resources, LLC (“Brigham Resources”), our predecessor, on July 16, 2018 in a series of restructuring transactions Pincus LLC (“Warburg Pincus”) contributed all of their respective pursuant to which certain entities affiliated with Warburg interests in the entities through which they held interests in Brigham Resources to Brigham Minerals in exchange for all of the outstanding shares of common stock of Brigham Minerals (the “July 2018 restructuring” ). As a result of such restructuring transactions, Brigham Minerals became wholly owned by an entity affiliated with Warburg Pincus, and Brigham Minerals indirectly owned a 16.5% membership interest in Brigham Resources. The remaining outstanding membership interests of Brigham Resources remained with certain other entities affiliated with Warburg Pincus, Yorktown Partners LLC and Pine Brook Road Advisors, LP, Brigham Minerals’ management and its other investors (collectively, the “Original Owners”). r r t On November 20, 2018, Brigham Resources underwent a second series of restructuring transactions (the “November 2018 restructuring”). In the November 2018 restructuring, Brigham Resources became a wholly owned subsidiary of Brigham Minerals Holdings, LLC (“Brigham LLC”), which was a wholly owned subsidiary of Brigham Equity Holdings, LLC (“Brigham Equity Holdings”), and Brigham Equity Holdings became wholly owned by the owners of Brigham Resources immediately prior to such restructuring, directly or indirectly, through Brigham Minerals. As a result of the foregoing transactions, there was no change in the control or economic interests of the Original Owners and Brigham Minerals in Brigham Resources, although their ownership became indirect through Brigham Equity Holdings and its wholly owned subsidiary, Brigham LLC. The July 2018 restructuring and the November 2018 restructuring are collectively referred to herein as the “2018 corporate reorganizations.” Brigham Resources wholly owns Brigham Minerals, LLC and Rearden Minerals, LLC (collectively, the “Minerals Subsidiaries”), which acquire and actively manage a portfolio of mineral and royalty interests. The Minerals Subsidiaries are Brigham Resources’ sole material assets. Initial Public Offering ff In April 2019, Brigham Minerals completed its' initial public offering (the "IPO") of 16,675,000 shares of Class A common stock at a price to the public of $18.00 per share. This resulted in net proceeds of approximately $273.4 million, after deducting underwriting commissions and discounts and offering expenses, which proceeds were used to repay $200.0 million of existing indebtedness and to fund mineral and royalty acquisitions. As a result of the IPO and the corporate restructuring described in "Note 9—Temporary Equity", Brigham Minerals became a holding company whose sole material asset consisted of a 43.3% interest in Brigham LLC, which wholly owns Brigham Resources. Brigham Resources continues to wholly own the Minerals ries, which own all of Brigham Resources’ operating assets. In connection with the IPO, Brigham Minerals became the Subsidia sole managing member of Brigham LLC and is responsible for all operational, management and administrative decisions relating to Brigham LLC’s business and consolidates the financial results of Brigham LLC and its wholly owned subsidiary, Brigham Resources. u December 2019 Offeff ring On December 16, 2019, Brigham Minerals completed an offering of 12,650,000 shares of its Class A common stock (the "December 2019 Offering"), including 6,000,000 shares issued and sold by Brigham Minerals and an aggregate of 6,650,000 shares sold by certain shareholders of the Company (the "Selling Shareholders"), of which 5,496,813 represents shares issued upon redemption of an equivalent number of their Brigham LLC units, at a price to the public of $18.10 per share ($17.376 per share net of underwriting discounts and commissions). After deducting underwriting discounts, commissions and offering expenses, Brigham Minerals received net proceeds of approximately $102.7 million which were used to repay $80.0 million of existing indebtedness under our revolving credit agreement and will be used to fund future mineral and royalty acquisitions. Brigham Minerals did not receive any proceeds from the sale of shares of Class A common stock by the Selling Shareholders. June 2020 Secondary Offeff ring On June 12, 2020, Brigham Minerals completed an offering of 6,600,000 shares of its Class A common stock (the "June 2020 Secondary Offering"), all of which were sold by certain shareholders of the Company (the “June 2020 Selling F-10 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Shareholders”), and 4,872,669 of which represented shares issued upon redemption of an equivalent number of the June 2020 Selling Shareholders’ Brigham LLC Units (together with a corresponding number of shares of Class B common stock in Brigham Minerals), at a price to the public of $13.75 per share. Brigham Minerals did not sell any shares of its common stock in the June 2020 Secondary Offeri ng and did not receive any proceeds pursuant to the June 2020 Secondary Offering. ff September 2020 Secondary Offeff ring On September 15, 2020, Brigham Minerals completed an offering of 5,021,140 shares of its Class A common stock, including 654,931 shares issued pursuant to the option granted to the underwriter to purchase additional shares to cover over- allotments (the "September 2020 Secondary Offering"), all of which were sold by certain shareholders of the Company (the "September 2020 Selling Shareholders"), and 3,062,011 of which represented shares issued upon redemption of an equivalent number of the September 2020 Selling Shareholders’ Brigham LLC Units (together with a corresponding number of shares of Class B common stock in Brigham Minerals), at a price to the public of $8.20 per share. Brigham Minerals did not sell any shares of its Class A common stock in the September 2020 Secondary Offering and did not receive any proceeds pursuant to the September 2020 Secondary Offering. In addition, in connection with the September 2020 Secondary Offering, Brigham Minerals repurchased 436,630 shares of its Class A common stock from the September 2020 Selling Shareholders in a privately negotiated transaction at a price equal to the price per share at which the underwriter purchased shares from the September 2020 Selling Shareholders in the September 2020 Secondary Offering (and Brigham LLC redeemed a corresponding number of Brigham LLC Units held by Brigham Minerals). The repurchased shares are presented in the Company's consolidated balance sheet as Treasury Stock, at cost. Following the completion of the September 2020 Secondary Offering and as of December 31, 2020, Brigham Minerals owned a 76.8% interest in Brigham LLC and the Original Owners owned 23.2% of the outstanding voting stock of Brigham Minerals. Certain other entities affiliated with Yorktown Partners LLC and Pine Brook Road Advisors, LP, which are a subset of the Company's Original Owners, collectively owned 16.9% of the outstanding voting stock of Brigham Minerals as of December 31, 2020. Basis of Presentation Subsequent to the July 2018 restructuring and prior to the IPO, Brigham Minerals used the equity method of accounting for its investment in Brigham Resources, its predecessor, because its 16.5% ownership in Brigham Resources provided Brigham Minerals with significant influence, but not with a controlling financial interest or the ability to direct the most significant activities of Brigham Resources. Upon the completion of the IPO, Brigham Minerals indirectly owned an approximate 43.3% interest of Brigham Resources and 100% of the voting rights and consolidates the results of operations of Brigham Resources. In order to furnish comparative financial information, the accompanying consolidated and combined financial statements and related notes of Brigham Minerals for periods prior to the IPO have been retrospectively recast to ncial information of both Brigham Resources (at historical carrying values) and Brigham include the combined historical finaff ral income taxes and liabilities associated with Brigham Minerals. All intercompany Minerals, taking into account state and fede transactions between Brigham Minerals and Brigham Resources have been eliminated. Because Brigham Minerals acquired an interest in Brigham Resources as part of the 2018 corporate reorganization, net income is attributablea to stockholders of Brigham Minerals in addition to our Predecessor beginning in 2018. ff The accompanying consolidated and combined finaff ncial statements of Brigham Minerals have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated and combined finaff all normal recurring adjustments that, in the opinion of management, are necessary for a fair representation. Brigham Minerals operates in one segment: oil and natural gas exploration and production. ncial statements reflect ff 2. Significant Accounting Policies Emerging Growth Company Status As a company with less than $1.07 billion in revenues during its last fisff cal year, Brigham Minerals qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other regulatory requirements. F-11 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Brigham Minerals will remain an “emerging growth company” until as late as the last day of Brigham Minerals’ 2023 fiscal year, or until the earliest of (i) the last day of the fiscal year in which Brigham Minerals has $1.07 billion or more in annual revenues; (ii) the date on which Brigham Minerals becomes a “large accelerated filer” (the fiscal year-end on which the total market value of Brigham Minerals’ common equity securities held by non-affiliates is $700 million or more as of June 30); (iii) the date on which Brigham Minerals issues more than $1.0 billion of non-convertible debt over a three-year period. As a result of Brigham Minerals’ election to avail itself of certain provisions of the JOBS Act, the information that Brigham Minerals provides may be differe ff nt than the information provided by other public companies. Use of Estimates The preparation of consolidated and combined finaff ncial statements in conformity with GAAP requires management to make estimates and assumptim ons that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure ncial statements and accompanying notes. Although of contingent assets and liabilities in the consolidated and combined finaff management believes these estimates are reasonable, actual results could differ fromff these estimates. Changes in estimates are recorded prospectively. The accompanying consolidated and combined finaff ncial statements are based on a number of significant estimates gas and NGLs reserves that are the basis for the calculations of depreciation, depletion, t including quantities of oil, natural gas properties. Reservoir engineering is a subjective process of amortization (“DD&A”) and impairment of oil and natural gas and there are numerous uncertainties inherent in estimating estimating underground accumulations of oil and natural ion of the quality of available ff quantities of proved oil and natural from the quantities data and of engineering and geological interpretation and judgment. As a result, reserve estimates may differff of oil and natural gas that are ultimately recovered. Brigham Minerals’ reserve estimates are audited by Cawley, Gillespie & Associates, Inc. (“CG&A”), an independent petroleum engineering firm. Other items subject to significant estimates and assumptim ons include the carrying amount of oil and natural gas properties, valuation of derivative instruments, share-based r compensation and revenue accrual gas reserves. The accuracy of any reserve estimate is a funct s. t t t t t Cash and Cash Equivalents Brigham Minerals considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Receivables Receivables consist of royalty income due from operators for oil and gas sales to purchasers. Those purchasers remit payment for production to the operator of our properties and the operator, in turn, remits payment to us. Receivables from third to timing delays or due to the unavailability of data at the parties forff which we did not receive actual information, either dued l data are based time when revenues are recognized, are estimated. Volume estimates for wells with available historical actuat the months the historical upon (i) the historical actual data forff actual data is not available. We do not recognize revenues for wells with no historical actuat l data because we cannot conclude that it is probable that a significant revenue reversal will not occur in future periods. Pricing estimates are based upon actual the average basis differential from market on a basin-by-basin basis. prices realized in an area by adjusting the market price forff , or (ii) engineering estimates forff the months the data is availablea Brigham Minerals routinely reviews outstanding balances, assesses the financial strength of its customers and records a reserve for amounts not expected to be fully recovered. We recorded an allowance forff doubtful accounts of $0.3 million and $0.6 million for the year ended December 31, 2020 and 2019, respectively, which was included in general and administrative expenses. At December 31, 2020 and 2019, accounts receivable was comprised of the folff lowing: (In thousands) Oil and gas sales Allowance for doubtful accounts Other Total accounts receivables December 31, 2020 2019 $ $ 17,413 $ (855) 1,074 17,632 $ 27,888 (556) 2,959 30,291 F-12 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS BRIGHAM MINERALSRR , INC. Concentration of Credit Risk and Significant Customers Financial instruments that potentially subject Brigham Minerals to concentrations of credit risk consist of cash, accounts receivable, commodity derivative financial instruments and our revolving credit facility. Cash and cash equivalents are held in a ons in amounts that may, at times, exceed federally insured limits. However, no losses have been incurred few financial instituti and management believes that counterparty risks are minimal based on the reputation and history of the instituti ons selected. Accounts receivable are concentrated among operators and purchasers engaged in the energy industry within the United States. Management periodically assesses the financial condition of these entities and institutions and considers any possible credit risk to be minimal. Concentrations of oil and gas sales to significant customers (operators) are presented in the tabla e below. t t Occidental Petroleum Corp. Royal Dutch Shell Exxon Mobil Corp. Continental Resources, Inc. For the year ended December 31, 2020 2019 2018 12 % 12 % 11 % 10 % 16 % — % 10 % 12 % 15 % — % — % 10 % Management does not believe that the loss of any customer would have a long-term material adverse effect on our financial position or the results of operations. Investments in Equity Securities In January 2019, the Company adopted ASU 2016-01, Financial Instrume nts-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU changes to the current GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements forff financial instruments. Under the new standard, all equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through earnings. There will no longer be an available- for-sale classification (changes in fair value reported in other comprehensive income) for equity securities with readily determinablea fair values. rr ff value. Changes in faiff Prior to January 2019, Brigham Minerals classified its equity securities as available-for-sale, and as such, they were carried at fair r value of available-for-sale securities were reported as a component of other comprehensive income. Losses were recognized within the consolidated and combined statement of operations when a decline in value is determined to be other-than-temporary. Brigham Minerals used the average cost method to determine the realized gain or loss for each sale or distribution of availablea -for-sale securities. Financial Instruments Brigham Minerals’ financial instruments consist of cash and cash equivalents, receivables, payablea s, derivative assets and liabilities, investments in equity securities and long-term debt. The carrying amounts of cash and cash equivalents, receivables and payables approximate fair value due to the highly liquid or short-term nature of these instruments. The fair values of Brigham Minerals’ derivative assets and liabilities are based on a third-party industry-standard pricing model using contract terms and prices and assumptim ons and inputs that are substantially observable in active markets throughout the full term of the instruments, including forward oil and gas price curves, discount rates, volatility factors and credit risk adjustments. The carrying amount of long-term debt associated with borrowings outstanding under Brigham Minerals’ revolving credit r value as borrowings bear interest at variable market rates. See “Note 5—Derivative Instruments,” mates faiff facility approxi a “Note 6—Fair Value Measurements” and “Note 7—Long-Term Debt.” F-13 BRIGHAM MINERARR LS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Oil and Gas Properties Brigham Minerals uses the full cost method of accounting for its oil and natural gas properties. Under this method, all acquisition costs incurred for the purpose of acquiring mineral and royalty interests and certain related employee costs are capita cost pool. Costs associated with general corporate activities are expensed in the period incurred. alized into a full ff t Capita alized costs are amortized using the units-of-production method. Under this method, the provision for depletion is calculated by multiplying total production for the period by a depletion rate. The depletion rate is determined by dividing the total unamortized cost base by net equivalent proved reserves at the beginning of the period. Costs associated with unevaluated properties are excluded from the amortizable cost base until a determination has been made as to the existence of proved reserves. Unevaluated properties are reviewed periodically to determine whether the costs incurred should be reclassified to the full cost pool and subjected to amortization. The costs associated with unevaluated alized general and administrative costs. Unevaluated properties are properties primarily consist of acquisition costs and capita assessed for impairment on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: expectation of future drilling activity; past drilling results and activity; geological and geophysical evaluations; the assignment of proved reserves; and the economic viabila ity of development if proved reserves are assigned. During any period in which these factors indicate an impairment, the cumulative acquisition such property are transferred to the full cost pool and are then subject to amortization. There was no costs incurred to date forff unevaluated properties in 2020, 2019 and 2018. impairment recorded forff Sales and abandonments of oil and natural as adjustments to the full cost pool, with no gain or loss recognized unless the adjustments would significantly alter the relationship between capita alized costs and proved reserves. A significant alteration would not ordinarily be expected to occur upon the sale of reserves involving less than 25% of the reserve quantities of a cost center. gas properties being amortized are accounted forff t Natural gas volumes are converted to barrels of oil equivalent (Boe) at the rate of six thousand cubic feeff t (Mcf) of natural gas to one barrel (Bbl) of oil. This convention is not an equivalent price basis and there may be a large difference in value between an equivalent volume of oil versus an equivalent volume of naturat l gas. t t alized costs of oil and natural Under the full cost method of accounting, total capita gas properties, net of accumulated depletion and related deferred income taxes, may not exceed an amount equal to the present value of future net revenues fromff proved reserves, discounted at 10% per annum ("PV-10"), plus the cost of unevaluated properties less related income tax effects (the ceiling limitation). A ceiling limitation is calculated at each reporting period. If total capita alized costs, net of accumulated DD&A and related deferred income taxes are greater than the ceiling limitation, a write-down or impairment of the full cost pool is required. A write-down of the carrying value of the full cost pool is a noncash charge that reduces earnings and impacts equity in the period of occurrence and typically results in lower depletion expense in future periods. Once incurred, a write- down cannot be reversed at a later date. The ceiling limitation calculation is prepared using an unweighted arithmetic average of oil prices ("SEC oil price") and natural the trailing 12-month energy content, transportation fees and regional price differentials, as period ended December 31, 2020, adjusted by area forff icable, these net wellhead prices would be further adjusted to required under the guidelines established by the SEC. If appl include the effects of any fixed price arrangements forff gas. For the year ended December 31, 2020, as a result of its quarterly full cost ceiling analysis, Brigham Minerals recorded impairments of proved oil and gas properties of $79.6 million, due to declines in the 12-month average realized price of crude oil, as well as reclassificff ation of proved undeveloped reserves to probable and possible reserves, as a result of a slowdown in operator activity. See “Note 3—Oil and Gas Properties” for further discussion. gas prices ("SEC gas price") as of the first day of each month forff the sale of oil and natural a ff t t Share-Based Compensation Brigham Minerals accounts for its share-based compensation including grants of the Incentive Units (as hereinafter defined), restricted stock awards, time-based restricted stock units and performance-based stock units in the consolidated and combined statements of operations based on their estimated faiff r values at grant date. Brigham Minerals uses a Monte Carlo simulation to determine the fair value of performance-based stock units. Brigham Minerals recognizes expense on a straight- line basis over the vesting period of the respective grant, which is generally the requisite service period. Brigham Minerals capita alizes a portion of the share-based compensation cost to oil and gas properties on the consolidated balance sheets. Share- based compensation expense is included in general and administrative expenses in Brigham Minerals’ consolidated and combined statements of operations included within this Annual Report. There was approximately $17.0 million of unamortized compensation expense relating to outstanding awards at December 31, 2020, a portion of which will be capia talized. The F-14 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS unrecognized share-based compensation expense will be recognized on a straight-line basis over the remaining vesting periods as they occur. of the awards. Brigham Minerals accounts forff t forfeitures Earnings Per Share Brigham Minerals uses the “if-converted” method to determine the potential dilutive effecff t of its Class B common stock and the treasury stock method to determine the potential dilutive effect of outstanding Incentive Units, RSAs, RSUs, and PSUs. Employee Benefit Plan We sponsor a 401(k) tax-deferred savings plan forff our employees. We match 100% of each employee’s contributions, up to 6% of the employee’s total compensation. Brigham Resources may also contribute additional amounts at its discretion. Brigham Resources contributed $0.4 million, $0.3 million and $0.2 million, to the 401(k) plan forff each of the years ended December 31, 2020, 2019, and 2018. Income Taxes Brigham Minerals accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributablea to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to appl y to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. a Brigham Minerals periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets, including net operating losses. In making this determination, Brigham Minerals considers all available positive and negative evidence and makes certain assumptim ons. Brigham Minerals considers, among other things, its deferred tax liabia lities, the overall business environment, its historical earnings and losses, current industry trends and its outlook for future years. Temporary Equity Brigham Minerals accounts for the Original Owners’ 23.2% interest in Brigham LLC as of December 31, 2020, as temporary equity as a result of certain redemption rights held by the Original Owners as discussed in “Note 9—Temporary Equity.” As such, the Company adjusts temporary equity to its maximum redemption amount at the balance sheet date, if higher than the carrying amount. The redemption amount is based on the 10-day volume-weighted average closing price (“VWAP”) of Class A shares at the end of the reporting period. Changes in the redemption value are recognized immediately as they occur, as if the end of the reporting period was also the redemption date forff the instrument, with an offsetting entry to additional paid-in capita al. Temporary equity is reclassifieff d to permanent equity (i) upon Conversion of Class B common stock (and an equivalent number of Brigham LLC Units) to Class A common stock, or (ii) when holders of Class B common stock no longer control a ty of the votes of the board of directors through direct representation on the board of directors, and no longer control the a majori determination of whether to make a cash payment upon a Brigham Unit Holder's exercise of its Redemption Right. Revenue from Contracts with Customers In 2019, the Company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, ("ASC 606") using the modified retrospective approach, which only applied to contracts that were in effect as of the date of adoption. The adoption did not require an adjustment to opening retained earnings for the cumulative effect adjustment and did not impact the Company’s previously reported results of operations, nor its ongoing consolidated balance sheets, consolidated or statements of changes in shareholders' and members' equity. Overall, there were no and combined statements of cash flowff material changes in the timing of the satisfaction of the Company’s performance obligations or the allocation of the transaction price to its performance obligations in applying the guidance in ASC 606 as comparem d to legacy U.S. GAAP. Oil and natural gas sales Oil, natural gas and NGLs sales revenues are generally recognized when control of the product is transferred to the customer, the performa ity is reasonably assured. All of the Company’s oil, natural gas and NGL sales are made under contracts with customers (operators). f The perforff mance obligations for the Company’s contracts with customers are satisfied at a point in time through the delivery orr oil and natural gas to its customers. Accordingly, the Company’s contracts do not give rise to contract assets or liabilities. The nce obligations under the terms of the contracts with customers are satisfied and collectabila ff F-15 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS BRIGHAM MINERALSRR , INC. t gas and NGL sales within 60 days of the month of delivery, which can Company typically receives payment for oil, natural extend up to 9 months after initial production from the well. The Company’s contracts forff gas and NGL sales are standard industry contracts that include variable consideration based on the monthly index price and adjustments that may include counterparty-specific provisions related to volumes, price differentials, discounts and other adjustments and deductions. As each unit of product represents a separate performance obligation and the consideration is variable as it relates to oil and natural gas sales using the allocation exception for t variable consideration in ASC 606. gas prices, Brigham Minerals recognizes revenue from oil and natural oil, natural t t Lease bonus and other tt income Brigham Minerals also earns revenue from lease bonuses, delay rentals, and right-of-way payments. We generate lease bonus revenue by leasing our mineral interests to exploration and production companies. A lease agreement represents our contract with a customer and generally transfers the rights to any oil or natural gas discovered, grants us a right to a specified royalty interest, and requires that drilling and completion operations commence within a specified time period. The Company recognizes lease bonus revenues when the lease agreement has been executed, payment has been received, and the Company has no further obligation to refund the payment. At the time Brigham Minerals executes the lease agreement, Brigham Minerals expects to receive the lease bonus payment within a reasonable time, though in no case more than one year, such that Brigham Minerals has not adjusted the expected amount of consideration for the effects of any significant financing component per the practical expedient in ASC 606. Brigham Minerals also recognizes revenue from delay rentals to the extent drilling has not started within the specified period, payment has been received, and we have no further obligation to refund the payment. Right- of-way payments are recorded by the Company when the agreement has been executed, payment is determined to be collectable, and the Company has no further obligation to refund the payment. t Allocll ationtt of transaction price to remaining pn tt erformance obligat ions ll Oil and natural gas sales Brigham Minerals’ right to royalty income does not originate until production occurs and, therefore, is not considered to exist beyond each day’s production. Therefore, there are no remaining performance obligation under any of our royalty income contracts. Lease bonus and other income Given that Brigham Minerals does not recognize lease bonus or other income until a lease agreement has been executed, at which point its performance obligation has been satisfied, and payment is received, Brigham Minerals does not record revenue for unsatisfied or partially unsatisfied performance obligations as of the end of the reporting period. Prior-period rr tt performance obligat ions ll Brigham Minerals records revenue in the month production is delivered to the purchaser. As a non-operator, Brigham Minerals has limited visibility into the timing of when new wells start producing and production statements may not be received for 30 to 90 days or more after the date production is delivered. As a result, Brigham Minerals is required to estimate the amount of production delivered to the purchaser and the price that will be received forff the sale of the product. The expected sales volumes and prices for these properties are estimated and recorded within the accounts receivable line item in the between the Company’s estimates and the actual amounts received accompanying consolidated balance sheets. The difference for oil and natural is received from the third party. For the years ended December 31, 2020, 2019 and 2018, revenue recognized in the reporting periods related to performance obligations satisfied in prior reporting periods was immaterial. gas sales is recorded in the month that payment ff t Debt Issuance Cost Other assets include capita alized debt issuance costs of $0.8 million, net of accumulated amortization of $0.8 million as of December 31, 2020. As of December 31, 2019, capita alized debt issuance costs of $1.2 million, net of accumulated amortization of $0.2 million, was included in long-term debt on the consolidated balance sheets. Debt issuance costs were incurred in shing and amending credit facilities for Brigham Resources and are amortized over the term of the credit connection with establia facilities using the straight-line method, which approximates the effective interest rate method. Amortization expense for debt issue costs was $0.6 million, $0.4 million and $0.7 million for the years ended December 31, 2020, 2019, and 2018. During the year ended December 31, 2020, we wrote off debt issuance cost of $0.3 million as a result of the reduction of the borrowing base on our revolving credit facility that occurred in May 2020. On July 27, 2018, the prior revolving credit facility was terminated and replaced with the Owl Rock credit facility. On May 16, 2019, the Owl Rock credit facility was terminated and F-16 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS replaced with a new revolving credit facility. See furff combined finaff ncial statements. ther discussion in "Note 7—Long-Term Debt" in our consolidated and Recently Issued Accounting Standards Not Yet Adopted Brigham Minerals’ status as an emerging growth company ("EGC") under Section 107 of the JOBS Act permits it to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Brigham Minerals is choosing to take advantage of this extended transition period and, as a result, it will comply with new or revised private companies. If Brigham accounting standards on the relevant dates on which adoption of such standards is required forff loses its status as an EGC before the adoption dates for private companies, Brigham Minerals will be required to accelerate the adoption of new or revised accounting standards. t In February 2016, the FASB issued ASU 2016-02, Leases, which requires all leasing arrangements to be presented in the balance sheet as liabilities along with a corresponding asset. ASU 2016-02 does not apply to leases of mineral rights to explore for or use crude oil and natural gas. The ASU will replace most existing lease guidance in GAAP when it becomes effective. In January 2018, the FASB issued ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842, to provide an optional practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under Topic 840. In July 2018, the FASB issued ASU 2018-11 Leases (Topic 842): Targeted Improvements, which provides forff another transition method, in addition to the existing transition method, by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption (i.e. comparative periods presented in the financial statements will continue to be in accordance with current GAAP (Topic 840, Leases)). The new standard becomes effective for us during the fiscal year ending December 31, 2022 and interim periods within the fiscal year ending December 31, 2023 and early adoption is permitted. We are currently evaluating the impact that the adoption of this updat ncial statements and related disclosures. e will have on our consolidated and combined finaff u In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses. In May 2019, ASU 2016-13 was subsequently amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses and ASU 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. ASU 2016-13, as amended, affects trade receivables, financial assets and certain other instruments that are not measured at fair value through net income. instruments measured at This ASU will replace the currr ently required incurred loss approach with an expected loss model forff amortized cost and is effective for financial statements issued for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ASU 2016-13 will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is e will have on our condensed consolidated and effective. We are currently evaluating the impact that the adoption of this updat combined finaff ncial statements and related disclosures. u 3. Oil and Gas Properties Brigham Minerals uses the full cost method of accounting for its oil and natural gas properties. Under this method, all the purpose of acquiring mineral and royalty interests, including certain internal costs, are cost pool. Costs associated with general corporate activities are expensed in the period incurred. Oil and ff t acquisition costs incurred forff capita gas properties consisted of the folff alized into a full lowing: (In thousands) Oil and gas properties, at cost, using the full cost method of accounting: Not subject to depletion Subject to depletion Total oil and gas properties, at cost Less accumulated depreciation, depletion, and amortization Total oil and gas properties, net December 31, 2020 2019 $ 325,091 $ 488,301 813,392 (189,546) 291,664 449,061 740,725 (61,103) $ 623,846 $ 679,622 Costs not subject to depletion are as follows, by the year in which such costs were incurred: F-17 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (In thousands) Property Acquisition costs Total $ 325,091 2020 $ 34,032 2019 $ 80,799 2018 $ 72,884 2017 $ 65,925 2016 $ 10,624 Prior 60,827 $ By Year: Capita alized costs are depleted on a unit of production basis based on proved oil and natural gas reserves. Depletion expense was $47.3 million, $30.4 million and $13.3 million for the year ended December 31, 2020, 2019 and 2018, respectively. Average depletion of proved properties was $13.63, $11.22 and $9.38 per Boe for the year ended December 31, 2020, 2019 and 2018, respectively. t The costs associated with unevaluated properties primarily consist of acquisition costs and capita alized general and administrative costs. Brigham Minerals capitalizes certain overhead expenses and other internal costs attributablea to the acquisition of mineral and royalty interests as part of its investment in oil and gas properties over the periods benefitted by these activities. Capitalized costs do not include any costs related to general corporate overhead or similar activities. Capitalized costs were $10.2 million, $7.4 million and $2.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, 2019 and 2018, the SEC oil price and SEC gas price used in the calculation of the ceiling test, energy content, transportation fees and regional price differentials, were $39.57, $55.65, and $65.66 per adjusted by area forff barrel of oil and $2.00, $2.60, and $3.12 per MMbtu ot gas, respectively. During the year ended December 31, 2020, Brigham Minerals recorded ceiling test impairment charges of $79.6 million to oil and gas properties, net, as a result of its quarterly ceiling test analysis. The impairment charges were due to declining SEC oil prices and SEC gas prices, as well as n of proved undeveloped reserves to probable and possible reserves, as a result of a slowdown in operator certain reclassificatio activity. There was no impairment charge during the year ended December 31, 2019 and 2018. t f natural ff Further decline in the SEC oil price or the SEC gas price could lead to additional impairment charges in the future and such impairment charges could be material. In addition to the impact of lower prices, any future changes to assumptim ons of of oil and gas properties, proved undeveloped drilling and completion activity, development timing, acquisitions or divestitures locations, and production and other estimates may require revisions to estimates of total proved reserves which would impact the amount of any impairment charge. t During the year ended December 31, 2020, Brigham Minerals reduced its proved undeveloped reserves by 8,209 MBoe primarily due to a reclassification of 7,036 MBoe from proved undeveloped reserves to probable and possible reserves, as a result of decreased rig activity, a 29% reduction in SEC oil prices over the twelve months, and conversion from proved undeveloped to proved developed reserves. The reduction in rig activity led to changes in the development timing and a reduction of the number of proved undeveloped locations that Brigham Minerals expects will be developed within fiveff years after the date of booking. 4. 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 assets, the set will not be considered a business. If concentrated in a single identifiable asset, or a group of similar identifiablea 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 finaff ncial 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 tablea gas property balance is comprised of payments forff alized general and administrative expenses that were funded with borrowings under its Owl Rock credit facff ility, our revolving credit facility and proceeds from the IPO. acquisitions of minerals, land brokerage costs and capita below. The change in the oil and natural t (In thousands) Year ended December 31, 2020 Year ended December 31, 2019 Assets Acquired Evaluated 30,856 Unevaluated 35,725 $ 140,025 $ 78,093 $ $ Cash Consideration Paid $ $ 66,581 218,118 F-18 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS BRIGHAM MINERALSRR , INC. 5. Derivative Instruments Brigham Minerals periodically uses commodity derivative instrume nts to reduce its exposure to commodity price volatility for a portion of its forec gas sales and thereby achieve a more predictable level of cash flows. None of the derivative instruments are designated as hedges. Brigham Minerals does not enter into derivative instruments forff speculative or trading purposes. asted crude oil and natural ff rr t Because the counterparties to Brigham Minerals derivative instruments have investment grade credit ratings, Brigham its counterparties. Minerals believes it does not have significant credit risk and does not anticipate nonperformance fromff Brigham Minerals continually monitors the credit ratings of its counterparties. Concurrent with the termination of its prior revolving credit facility in July 2018, Brigham Resources posted cash d price swap contracts. The cash collateral was $1.6 million in May 2019 entering into our revolving collateral of $1.4 million for its existing WTI fixeff prior to the termination of the Owl Rock credit facility and was returned credit facility. to Brigham Resources uponu t Brigham Minerals had no derivative contracts in place as of December 31, 2020 and 2019. Prior to December 31, 2019, ontracts based on the New York Mercantile Exchange ("NYMEX") futures index. we had certain oil swap ca The following tablea summarizes Brigham Minerals' (loss) gain on derivative instruments, net on its consolidated and combined statement of operations for the year ended December 31, 2020, 2019 and 2018: (In thousands) Realized gain (loss) Unrealized (loss) gain (Loss) gain on derivative instruments, net 6. Fair Value Measurements Years Ended December 31, 2020 2019 2018 $ $ — $ — — $ 470 $ (1,038) (568) $ (754) 1,178 424 We classify financial assets and liabia lities that are measured and reported at fair value on a recurring basis using a hierarchy based on the inputs used in measuring fair value. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liabia lity in an orderly transaction between market participants at the measurement date (exit price). We classify the inputs used to measure fair value into the folff lowing hierarchy: • Level 1: Inputs based on quoted market prices in active markets forff identical assets or liabia lities at the measurement date. • Level 2: Inputs based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable and can be corroborated by observable market data. • Level 3: Inputs that reflect management’s best estimates and assumptim ons of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer would be reported at the beginning of the period in which the change occurs. Assets and Liabilities Measured at Fair Value on a Recurring Basis Brigham Minerals had no financial assets or liabilities that were accounted forff at fair value on a recurring basis at December 31, 2020 and 2019. Brigham Minerals had no derivative contracts in place as of December 31, 2020 and 2019 as disclosed in "Note 5— Derivative Instruments." Commodity derivative instruments are valued using a third-party industry-standard pricing model using contract terms and prices and assumptim ons and inputs that are substantially observable in active markets throughout the F-19 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS BRIGHAM MINERALSRR , INC. full term of the instruments, including forward oil and gas price curves, discount rates and volatility factors. The fair values are also compared to the values provided by the counterparties forff the counterparties’ credit quality forff derivative liabilities. As such, these derivative contracts are classifiedff within Level 2. derivative assets and our credit quality forff ness and are adjusted forff reasonablea Brigham Minerals had no transfers into or out of Level 1 and no transfers into or out of Level 2 forff the years ended December 31, 2020 and 2019. Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis Certain nonfinancial assets and liabilities, such as assets and liabilities acquired in a business combination, are measured at fair value on a nonrecurring basis on the acquisition date and are subject to fair value adjustments under certain circumstances. The inputs used to determine such fair value are primarily based upon internally developed cash flowff models and include factors such as estimates of economic reserves, future operating and development costs, future commodity prices and a risk-adjusted discount rates, and are classified within Level 3. Fair Value of Other Financial Instruments The carrying value of cash, trade and other receivables and trade payablea s are considered to be representative of their respective fair values dued of these instruments. The carrying amount of debt outstanding pursuant to our term loan and our revolving credit facility approximates fair value as interest rates on these instruments approximate current market rates. We categorized our long-term debt within Level 2 of the fair value hierarchy. to the short-term naturet 7. Long-Term Debt Prior Revolving Credit Facilitytt Prior to its termination on July 27, 2018, the Minerals Subsidiaries maintained a secured revolving credit facility with a syndicate of financial instituti ons (the “prior revolving credit facility”), which had been amended periodically. The prior revolving credit facility had a commitment of $150 million, and a borrowing base and outstanding borrowings of $70 million each as of July 27, 2018. Brigham Minerals terminated the prior revolving credit facility on July 27, 2018 with proceeds from the Owl Rock credit facility (as defined below). Additionally, during the third quarter of 2018, Brigham Resources wrote off approximately $0.3 million of unamortized debt issuance costs that were related to the prior revolving credit facility. t Owl Rock Credit Facilitytt ility On July 27, 2018, the prior revolving credit facility was terminated in conjunction with the entry into a new credit facff (the “Owl Rock credit facility”) with Owl Rock Capital Corporation as administrative agent and collateral agent. Brigham Resources used the proceeds from the Owl Rock credit facility to repay the outstanding $70 million of principal under the prior revolving credit facility and to fundff mineral and royalty acquisitions. The Owl Rock credit facility was subject to customary fees, guarantees of subsidiaries, restrictions and covenants, including certain restricted payments, and was collateralized by certain oil and natural a $125 million initial gas properties of Brigham Resources. The Owl Rock credit facility provided forff term loan, a $75 million delayed draw term loan (“DDTL”) and a $10 million revolving credit facility, bore interest at a rate per annum equal to, at Brigham Resources’ option, (a) the base rate plus 4.50%, or (b) the adjusted LIBOR rate forff such interest period (subject to a 1.00% floor) plus 5.50%, matured on July 27, 2024 and required Brigham Resources to maintain compliance with certain financial and collateral coverage ratios. t On May 7, 2019, the Owl Rock credit facility was terminated and paid off using a portion of the net proceeds generated from the IPO. As a result of the debt repayment, Brigham Minerals recognized a loss on extinguishment of debt of $6.9 million, which consisted of a $4.0 million write-off of capita alized debt issuance costs, a $2.1 million prepayment fee and legal fees of $0.8 million. Revolving Credit Facilitytt On May 16, 2019 (the “closing date”) Brigham Resources entered into a credit agreement with Wells Fargo Bank, N.A., as administrative agent for the various lenders from time to time party thereto, providing for a new revolving credit facff ility (our "revolving credit facility”). Our revolving credit facility is guaranteed by Brigham Resources’ domestic subsidiaries and is collateralized by a lien on substantially all of Brigham Resources and its domestic subsidiaries’ assets, including substantially all of their respective royalty and mineral properties. F-20 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Availability under our revolving credit facility is governed by a borrowing base, which is subject to redetermination in May and November of each year. In addition, lenders holding two-thirds of the aggregate commitments may request one additional redetermination each year. Brigham Resources can also request one additional redetermination each year, and such other redeterminations as appropriate when significant acquisition opportunities arise. The borrowing base is subject to further asset dispositions, material title deficiencies, certain terminations of hedge agreements and issuances of adjustments forff permitted additional indebtedness. Increases to the borrowing base require unanimous approval of the lenders, while decreases only require approval of lenders holding two-thirds of the aggregate commitments at such time. As of December 31, 2020, the borrowing base on our revolving credit facility was $135.0 million, with outstanding borrowings of $20.0 million, resulting in $115.0 million availabila future borrowings. ity forff Our revolving credit facility bears interest at a rate per annum equal to, at our option, the adjusted base rate or the margin is based on utilization of our revolving credit facility adjusted LIBOR rate plus an applicable margin. The applicablea and ranges fromff (a) in the case of adjusted base rate loans, 0.750% to 1.750% and (b) in the case of adjusted LIBOR rate loans, 1.750% to 2.750%. Brigham Resources may elect an interest period of one, two, three, six, or if available to all lenders, twelve months. Interest is payablea in arrears at the end of each interest period, but no less frequently than quarterly. A commitment fee quarterly in arrears on the daily undrawn available commitments under our revolving credit facility in an amount is payablea ranging from 0.375% to 0.500% based on utilization of our revolving credit facility. Our revolving credit facility is subjec t to other customary fee, interest and expense reimbursement provisions. u Our revolving credit facility matures on May 16, 2024. Loans drawn under our revolving credit facility may be prepaid at any time without premium or penalty (other than customary LIBOR breakage) and must be prepaid in the event that exposure ity at such time. The principal amount of loans that are prepaid exceeds the lesser of the borrowing base and the elected availabila are required to be accompanied by accrued and unpaid interest and fees on such amounts. Loans that are prepaid may be reborrowed. In addition, Brigham Resources may permanently reduce or terminate in full the commitments under our revolving credit facility prior to maturity. Any excess exposure resulting from such permanent reduction or termination must be prepaid. Upon the occurrence of an event of default under our revolving credit facility, the administrative agent acting at the direction of the lenders holding a majority of the aggregate commitments at such time may accelerate outstanding loans and terminate all commitments under our revolving credit facility, provided that such acceleration and termination occurs automatically upon the occurrence of a bankruptcy or insolvency event of default. u ff Our revolving credit facility contains customary affirmative and negative covenants, including, without limitation, reporting obligations, restrictions on asset sales, restrictions on additional debt and lien incurrence and restrictions on making distributions (subject only to no default or borrowing base deficiency) and investments. In addition, our revolving credit facility requires us to maintain (a) a current ratio of not less than 1.00 to 1.00 and (b) a ratio of total net funded debt to consolidated EBITDA of not more than 4.00 to 1.00. As of December 31, 2020, we were in compliance with all covenants in accordance with our revolving credit facility. 8. Shareholders' and Members' Equity Shareholders' Equity CC Class A Common Stock Brigham Minerals has approximately 43.6 million shares of its Class A common stock outstanding as of December 31, 2020. Holders of Class A common stock are entitled to one vote per share on all matters to be voted upon by the stockholders and are entitled to ratably receive dividends when and if declared by the Company’s board of directors. Upon liquidation, dissolution, distribution of assets or other winding up, the holders of Class A common stock are entitled to receive ratably the assets available forff distribution to the stockholders after payment of liabilities. u CC Class B Common Stock Brigham Minerals has approximately 13.2 million shares of its Class B common stock outstanding as of December 31, by the 2020. Holders of the Class B common stock are entitled to one vote per share on all matters to be voted upon stockholders. Holders of Class A common stock and Class B common stock generally vote together as a single class on all matters presented to Brigham Minerals’ stockholders for their vote or approval. Holders of Class B common stock generally do not have any right to receive dividends or distributions upon a liquidation or winding up of Brigham Minerals. u Treasury Stock F-21 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS Brigham Minerals repurchased 436,630 shares of its Class A common stock fromff the September 2020 Selling Shareholders at a price of $8.08 per share (and Brigham LLC redeemed a corresponding number of Brigham LLC Units held by Brigham Minerals). See "Note 1—Business and Basis of Presentation." As of December 31, 2020, there were 436,630 shares of Class A common stock held in treasury. Earnings per Share Basic earnings per share (“EPS”) measures the performance of an entity over the reporting period. Diluted earnings per share measures the performance of an entity over the reporting period while giving effect to all potentially dilutive common shares that were outstanding during the period. Brigham Minerals uses the “if-converted” method to determine the potential dilutive effect of exchanges of outstanding shares of Class B common stock (and corresponding Brigham LLC Units), and the treasury stock method to determine the potential dilutive effect of vesting of its outstanding RSAs, RSUs, PSUs and unvested Incentive Units. Brigham Minerals does not use the two-class method because the Class B common stock and the unvested share-based awards are nonparticipating securities. For the year ended December 31, 2020, the Class B common stock, the Incentive Units, RSAs and RSUs were not recognized in dilutive EPS calculations as the effect would have been antidilutive. For the year ended December 31, 2019, Brigham Minerals’ EPS calculation includes only its share of net income forff the period subsequent to the IPO, and omits income or loss prior to the IPO. In addition, the basic weighted average shares outstanding calculation is based on the actual days in which the shares were outstanding from the IPO through December 31, 2019. There were no shares of Class A or Class B common stock outstanding for the year ended December 31, 2018, therefore no earnings per share information has been presented forff the indicated period. ff The following tablea reflects the allocation of net income (loss) to common shareholders and EPS computations for the period indicated based on a weighted average number of common stock outstanding for the period: (In thousands, except per share data) Basic EPS Numerator: Years Ended December 31, 2020 2019 2018 Basic net (loss) income attributable to Brigham Minerals, Inc. shareholders $ (42,412) $ 6,901 $ Less net income attributable to shareholders pre-IPO — Basic net (loss) income attributable to Brigham Minerals, Inc. shareholders post-IPO (1) (42,412) (848) 6,053 Denominator: Basic weighted average shares outstanding (1) Net (loss) income per common share Numerator: Diluted EPS Basic net (loss) income attributable to Brigham Minerals, Inc. shareholders post-IPO (1) Diluted net (loss) income attributable to Brigham Minerals, Inc. shareholders Denominator: Basic weighted average shares outstanding (1) Effect of dilutive securities: Diluted weighted average shares outstanding Net (loss) income per common share 38,178 22,870 $ (1.11) $ 0.26 $ (42,412) (42,412) 38,178 — 38,178 6,053 6,053 22,870 — 22,870 $ (1.11) $ 0.26 $ — — — — — — — — — — — (1) - Represents earnings per share of Class A common stock and weighted average shares of Class A common stock for the period following the IPO. As of December 31, 2020, there were 1,187,811 shares related to PSUs (based on target), that could vest in the future dependent on predetermined performance goals. These units were not included in the computation of EPS for the year ended December 31, 2020, because the performanc e goals had not been met, assuming the end of the reporting period was the end of the contingency period. ff F-22 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS 9. Temporary Equity Temporary equity represents the Original Owners’ 23.2% ownership of Brigham LLC, as of December 31, 2020. In addition, the Original Owners own all of our Class B common stock. Each share of Class B common stock does not have any economic rights but entitles its holder to one vote on all matters to be voted on by our stockholders, generally and a redemption right into Class A shares. As discussed below, following the IPO: • Each holder of Brigham LLC Units foll other than Brigham Minerals and its subsidiaries, t received a number of shares of Class B common stock equal to the number of Brigham LLC Units held by such Brigham Unit Holder following the IPO; owing the restructuring, ff • Brigham Minerals contributed, directly or indirectly, the net proceeds of the IPO to Brigham LLC in exchange for an additional number of Brigham LLC Units such that Brigham Minerals holds, directly or indirectly, a total number of Brigham LLC Units equal to the number of shares of Class A common stock outstanding following the IPO; and ff • Under the Amended and Restated Limited Liability Company Agreement of Brigham LLC (the “Brigham LLC Agreement”), each Brigham Unit Holder, subject to certain limitations, has a right (the “Redemption Right”) to cause Brigham LLC to acquire all or a portion of its Brigham LLC Units for, at Brigham LLC’s election, (i) shares of our Class A common stock at a redemption ratio of one share of Class A common stock for each Brigham LLC Unit redeemed, subject to conversion rate adjustments for stock splits, stock dividends and reclassification and other similar transactions or (ii) an equivalent amount of cash. We will determine whether to issue shares of Class A common stock or cash based on facts in existence at the time of the decision, which we expect would include the relative value of the Class A common stock (including trading prices for the Class A common stock at the time), the cash purchase price, the availabila ity of other sources of liquidity (such as an issuance of preferred stock) to acquire the Brigham LLC Units and alternative uses for such cash. Alternatively, upon the exercise of the Redemption Right, Brigham Minerals (instead of Brigham LLC) will have a call right to, for administrative convenience, acquire each tendered Brigham LLC Unit directly from the redeeming Brigham Unit Holder for, at its election, (x) one share of Class A common stock or (y) an equivalent amount of cash (the “Call Right”). The decision to make a cash payment upon a Brigham Unit Holder’s exercise of its Redemption Right is required to be made by the Company’s directors who are independent under Section 10A-3 of the Securities Act and do not hold any Brigham LLC Units subject to such redemption. In connection with any redemption of Brigham LLC Units pursuant to the Redemption Right or acquisition pursuant to our Call Right, the corresponding number of shares of Class B common stock will be cancelled. Class B common stock is classified as temporary equity in the consolidated balance sheet as, pursuant to the Brigham LLC Agreement, the Redemption Rights of each Brigham Unit Holder for either shares of Class A common stock or an equivalent amount of cash is not solely within Brigham Minerals’ control. This is dued to the fact that the holders of Class B common stock control a majority of the votes of the board of directors through direct representation on the board of directors, which allows the holders of Class B common stock to control the determination of whether to make a cash payment upon a Brigham Unit Holder's exercise of its Redemption Right. Temporary equity is recorded at the greater of the carrying value or redemption amount with a corresponding adjustment to additional paid-in capita From the date of the IPO through December 31, 2020, the Company recorded adjustmd ents to the value of temporary equity as presented in the tablea below: al. (In thousands) Balance - April 17, 2019 (1) Conversion of Class B shares to Class A shares Net income attribution to temporary equity Distribution to holders of temporary equity Adjustment of temporary equity to redemption amount (2) Balance - December 31, 2019 Conversion of Class B shares to Class A shares Net loss attribution to temporary equity Distribution to holders of temporary equity Adjustment of temporary equity to redemption amount (3) Balance - December 31, 2020 F-23 Temporary equity adjustments $ $ $ 518,000 (104,390) 9,646 (20,321) 51,572 454,507 (97,491) (15,582) (24,793) (170,361) 146,280 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS BRIGHAM MINERALSRR , INC. (1) (2) (3) Based on 28,777,802 shares of Class B common stock outstanding and Class A share price of $18.00. In connection with the IPO, the balance transferred from additional paid-in capital to temporary equity was the greater of redemption value or carrying value of the shares of Class B common stock at IPO and included an initial upward adjustment to redemption amount totaling $194.5 million. Based on 22,847,045 shares of Class B common stock outstanding and Class A share 10-day VWAP of $19.89 at December 31, 2019. Based on 13,167,687 shares of Class B common stock outstanding and Class A share 10-day VWAP of $11.11 at December 31, 2020. 10. Share-Based Compensation LLC Incentive Units As part of the Second Amended and Restated Limited Liability Company Agreement of Brigham Resources, LLC dated May 8, 2015, Brigham Resources authorized 120,000 restricted incentive units forff issuance to management, independent directors, employees, and consultants (such incentive units, as converted as described below, the “Incentive Units”). Brigham Resources granted Incentive Units in April 2013 and September 2015 and 2018. In connection with the 2018 corporate reorganizations and the corporate reorganization consummated in connection with Brigham Minerals’ IPO (collectively with the 2018 corporate reorganizations, the “corpora te reorganization”), these Incentive Units were converted into units in Brigham Equity Holdings, LLC (“Brigham Equity Holdings”) with equivalent rights, responsibilities, and preferences. The Incentive Units are subject to vesting as follows: 20% of the Incentive Units were vested on the date of grant and 20% of the Incentive Units vest on each anniversary of the date of grant if the holder remains continuously employed by Brigham Resources or its affiliates through the applicablea vesting date. Upon vesting of the Incentive Units, holders of the Incentive Units receive one share of Brigham Minerals’ Class B common stock and one Brigham LLC Unit for each vested Incentive Unit. rr In connection with the completion of the IPO, Brigham LLC and Brigham Equity Holdings discontinued granting new Incentive Units; however Brigham Equity Holdings will continue to administer the existing awards that remain outstanding. As discussed in “Note 9—Temporary Equity,” participants may receive one share of Brigham Minerals’ Class A common stock in exchange for one share of Class B common stock and one Brigham LLC Unit, or cash at the option of Brigham Minerals. Brigham Minerals accounts for the Incentive Units as compensation cost measured at the fair value of the award on the date of . grant. No compensation expense was recognized prior to the IPO because the IPO was not considered probablea A summary of the Incentive Unit activity forff the year ended December 31, 2020 is as follows: Outstanding—January 1, 2020 Vested Outstanding—December 31, 2020 Long Term Incentive Plan Incentive Units Number of Incentive Units Grant-date Fair Value 212,733 (70,913) 141,820 $ $ $ 10.04 10.04 10.04 In connection with the IPO, Brigham Minerals adopted the Brigham Minerals, Inc. 2019 Long Term Incentive Plan (“LTIP”) for employees, consultants and directors who perform services for Brigham Minerals. The LTIP provides forff issuance of awards based on shares of Class A common stock. Brigham Minerals has issued restricted stock awards ("RSAs"), restricted stock units ("RSUs") and performance-based vesting units ("PSUs") under the LTIP. The shares to be delivered under the LTIP shall be made available fromff (i) authorized but unissued shares, (ii) shares held as treasury stock or (iii) previously issued shares reacquired by Brigham Minerals including shares purchased on the open market. A total of 5,999,600 shares of Class A issuance under the LTIP. At December 31, 2020, 3,548,923 shares of Class A common common stock have been authorized forff stock remained available forff future grants. Currently, all outstanding RSAs, RSUs and PSUs granted under the LTIP are entitled to receive dividends (in the case of RSAs) or have dividend equivalent rights (“DERs”), which entitle holders of RSUs and PSUs to the same dividend value per share as holders of the Company’s Class A common stock. Such dividends and DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSAs, RSUs, and PSUs. Dividends and DERs are accumulated and paid when the underlying shares vest. The fair value of the RSA awards granted with the right to receive dividends and RSU awards granted with the right to receive DERs are generally based on the trading price of the Company’s Class A common stock as of the date of grant. Brigham Minerals accounts for the awards granted under the LTIP as compensation cost measured at the fair value of the award on the date of grant. Brigham Minerals accounts for forfeitures forff each of the RSAs, RSUs, and PSUs as they occur. F-24 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS RSAs are grants of shares of Class A common stock subject to a risk of forfeiture and restrictions on transferability. The share-based compensation expense of such RSAs was determined using the closing price of Class A common stock on April 23, 2019, the date of grant, of $21.25. On April 23, 2019, 312,189 RSAs were granted and 152,742 RSAs vested immediately. The RSAs generally vest in one-third increments on each of April 23, 2020, 2021 and 2022 and are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases providing services to Brigham Minerals prior to the lapsea of such restrictions. A summary of the RSA activity for the year ended December 31, 2020 is as follow ff s: Unvested at January 1, 2020 Vested Forfeited Unvested at December 31, 2020 Restricted Stock Awards Number of RSAs Grant Date Fair Value 148,456 $ (69,594) $ (10,569) $ 68,293 $ 21.25 21.25 21.25 21.25 RSUs represent the right to receive shares of Class A common stock at the end of the vesting period in an amount equal to the number of RSUs that vest. The RSUs that have been granted generally vest in one-third increments on each of the first three anniversaries of the grant date and are subject to restrictions on transfer and are generally subject to a risk of forfeiture if the award recipient ceases providing services to Brigham Minerals prior to the date the award vests. The share-based compensation expense of the RSUs is determined using the closing share price on the date of grant applied to the total number of RSUs granted. Brigham Minerals accounts for forfeitures as they occur. Brigham Minerals withheld 88,476 RSUs to satisfy employee tax withholding obligations totaling $1.0 million, related to the RSUs that vested in 2020. A summary of the RSU activity for the year ended December 31, 2020 is as follows: Unvested at January 1, 2020 Granted Vested Forfeited Unvested at December 31, 2020 Restricted Stock Units Number of RSUs Grant Date Fair Value 415,815 555,534 $ $ (392,528) $ (15,950) $ 562,871 $ 21.25 16.41 19.36 20.57 17.81 PSUs represent the right to receive shares of Class A common stock at the end of a specified performance period. 753,546 PSUs (based on target) were granted on April 23, 2019, with a performance period that ends on December 31, 2021. During the year ended December 31, 2020, 434,265 PSUs (based on target) were granted with a performance period that ends on December 31, 2022. The terms and conditions of the PSUs allow for vesting of the awards ranging between 0% (or forfeiture) and 200% of target. The vesting level is calculated based on the actual total stockholder returnt achieved during the performance period including projected dividends. The fair value of such PSUs was determined using a Monte Carlo simulation perforff mance period. The Monte Carlo simulation model utilizes multiple input and will be recognized over the applicablea variables that determine the probability of satisfying the market condition stipulated in the award to calculate the fair value of the award. Expected volatilities in the model were estimated using a historical period consistent with the perforff mance period of approximately three years. The risk-freff e interest rate was based on the United States Treasury rate forff a term commensurate below, Brigham Minerals estimated the fair value of with the expected life off PSUs to be $15.98 and $20.36, respectively, for PSUs granted in 2020 and 2019, respectively. f the grant. Using the assumptions in the tablea Expected dividend yield Risk-free interest rate Volatility F-25 Years Ended December 31, 2020 2019 11.5 % 1.4 % 35 % 8.1 % 2.3 % 30 % NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS BRIGHAM MINERALSRR , INC. A summary of the PSU activity for the year ended December 31, 2020 is as follows: Unvested at January 1, 2020 Granted Unvested at December 31, 2020 e Share-Based Compensation Expens x Performance-Based Restricted Stock Units Target PSUs Estimated Earned PSUs Grant Date Fair Value 753,546 434,265 1,187,811 450,836 174,106 624,942 $ $ $ 20.36 15.98 19.14 Share-based compensation expense is included in general and administrative expense in the Company’s consolidated and ion award, ion cost recorded for each type of share-based compensat m combined statement of operations. Share-based compensat the periods indicated: was as follows forff m (In thousands) Incentive Units (1) (3) RSAs (2) (3) RSUs (3) PSUs (4) Capitalized share-based compensation (5) (6) Total share-based compensation expense Years Ended December 31, 2019 2020 2018 $ 712 $ 2,904 $ 1,254 7,390 4,259 3,972 4,630 2,361 (6,086) (3,818) $ 7,529 $ 10,049 $ — — — — — — (1) (2) (3) (4) (5) (6) Includes a cumulative effect adjustment to share-based compensation cost of $2.0 million pertaining to the period from the grant date through the IPO date. No compensation expense was recorded prior to the IPO because the IPO was not considered probable. Includes $3.2 million recorded at grant date of April 23, 2019, associated with 152,742 RSAs, which vested immediately during the year ended December 31, 2019. Share-based compensation expense relating to Incentive Units, RSAs, and RSUs with ratable vesting is recognized on a straight-line basis over the requisite service period for the entire award. Share-based compensation expense relating to PSUs with cliff-vesting is recognized on a straight-line basis over the performance period for the entire award. During the year ended December 31, 2020, Brigham Minerals capitalized $3.0 million of the share-based compensation to unevaluated property and $3.0 million to evaluated property on its consolidated balance sheet. Brigham Minerals capitalizes a portion of the share-based compensation cost incurred after the IPO. In addition to the time-based vesting conditions described above a , the Incentive Units could be earned upon the completion of an initial public offering or another liquidity event, considered a performance condition, which was not deemed probable and therefore no compensation expense was recognized prior to December 31, 2018. Future Share-Based Compensation Expex nse The following tablea reflects the future share-based compensat m ion expense to be recorded forff the share-based compensation awards that were outstanding at December 31, 2020, a portion of which will be capia talized: (In thousands) Incentive Units RSAs RSUs PSUs Total 712 534 $ 1,246 $ 726 225 951 $ 6,851 2,653 9,504 4,374 966 $ 5,340 $ 12,663 4,378 17,041 Year 2021 2022 Total 11. Income Taxes The Company accounts forff recognized for the future tax consequences attributablea existing assets and liabilities and their respective tax bases. Deferre income taxes using the asset and liability method. Deferred tax assets and liabilities are to differences between the financial statement carrying amounts of d tax assets and liabilities are calculated by applying existing ff F-26 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS BRIGHAM MINERALSRR , INC. y to taxable income in the years in which those temporary differences are expected to be tax laws and the rates expected to appl recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. a Brigham Minerals periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets, including net operating losses. In making this determination, Brigham Minerals considers all available positive and negative evidence and makes certain assumptim ons. Brigham Minerals considers, among other things, its deferred tax liabia lities, the overall business environment, its historical earnings and losses, current industry trends and its outlook for future years. Brigham Minerals' management believes that it is more likely than not that the results of future operations will generate suffiff cient taxable income to realize the deferred tax assets and as a result, Brigham Minerals did not record a valuation allowance at December 31, 2020 and 2019. Brigham Minerals has evaluated all tax positions for which the statute of limitations remains open and believes that the material positions taken would more likely than not be sustained by examination. Therefore, at December 31, 2020 and 2019, Brigham Minerals had not establia nor recorded any unrecognized benefits related to, uncertain tax positions. shed any reserves for, ff Brigham Resources, the Company’s predecessor, is a limited liability company that is not subject to U.S. federal income tax, but is subject to the Texas Margin Tax and state income taxes in Oklahoma, North Dakota, and Colorado. As part of the corporate reorganization, certain entities affiliated with Warburg Pincus contributed all of their respective interests in certain wholly owned “blocker” entities through which they held interests in Brigham Resources to Brigham Minerals in exchange for all of the outstanding shares of common stock of Brigham Minerals. On the date of the corporate reorganization, a sh a net deferred tax liabia lity for corresponding “first day” tax charge of approximately $3.1 million was recorded to establia differences between the tax and book basis of the investment in Brigham Resources. The offset of the deferred tax liabia lity was recorded to additional paid-in-capital. Brigham Minerals is a corporation and is subject to U.S. federal income tax. In April 2019, Brigham Minerals completed the IPO of 16,675,000 shares of Class A common stock at a price to the public of $18.00 per share. The tax implications of the as a taxable corporation subject to U.S. federal income July 2018 restructuring, IPO and the tax impact of the Company’s statust ncial statements. On IPO date, a corresponding tax tax have been reflected benefit of approximately $13.7 million was recorded associated with the difference s between the tax and book basis of the investment in Brigham Resources. The offset of the deferred tax asset was recorded to additional paid-in capia tal. in the accompanying consolidated and combined finaff ff ff After the December 2019 Offering, as discussed in "Note 1—Business and Basis of Presentation", a corresponding tax benefit of approximately $9.5 million was recorded associated with the difference s between the tax and book basis of the investment in Brigham Resources. After the June 2020 Secondary Offering and September 2020 Secondary Offering, and corresponding redemptions, as discussed in "Note 1—Business and Basis of Presentation", a corresponding reduction to the tax benefit of approximately $0.8 million and $2.8 million, respectively, was recorded associated with the difference s between the tax and book basis of the investment in Brigham Resources. The offset of the deferred tax asset was recorded to additional paid- in capita al. ff ff The effective combined U.S. federal and state income tax rate for the year ended December 31, 2020 was 18%. During the year ended December 31, 2020, the Company recognized income tax benefitff of $12.8 million. During the years ended December 31, 2019 and 2018, the Company recognized income tax expense of $2.7 million and $0.3 million, respectively. Total income tax expense for the years ended December 31, 2020, 2019 and 2018 differed from amounts computed by applying the U.S. federal statutory tax rate of 21% due to the impact of the temporary equity, net income attributable to Predecessor, state taxes (net of the anticipated fede ral benefit), and percentage depletion in excess of basis. ff F-27 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (In thousands) State Income Tax Current expense/(benefit) Deferred (benefit)/expense Federal Income Tax Current (benefit)/expense Deferred (benefit)/expense Totals: Total current income tax (benefit)/expense Total deferred income tax (benefit)/expense Totals: Years Ended December 31, 2020 2019 2018 $ 122 $ 692 $ (1,876) 63 (23) (138) (2,942) (8,066) 1,322 602 $ (12,762) $ 2,679 $ (2,820) $ 2,014 (9,942) 665 $ (12,762) $ 2,679 $ $ $ 114 374 327 91 236 327 The following tabla e reconciles the income tax provision with income tax expense at the federal statutory t rate for the periods indicated: (In thousands) (Loss) income before income taxes Less: income before income taxes attributable to predecessor Less: loss (income) before income taxes attributable to temporary equity (Loss) income before income taxes attributable to shareholders Income tax at the federal statutory rate State income taxes, net of federal benefit Other federal tax effects Percentage depletion in excess of basis Total income tax provision Years Ended December 31, 2020 2019 $ (70,756) $ — 15,270 24,318 (5,118) (9,858) $ (55,486) $ 9,342 $ (11,652) $ 1,962 (1,223) 113 — 717 — — $ $ $ $ (12,762) $ 2,679 $ 2018 33,142 (30,805) — 2,337 491 (150) — (14) 327 Brigham Minerals had $24.9 million and $18.8 million recorded as deferred tax asset as of December 31, 2020 and 2019. The tax effects of temporary m differences that give rise to significant portions of the deferre ff d tax assets were are folff lows: (In thousands) Deferred tax assets: Loss carryforwards Investment in subsidiary Total deferred tax assets: Deferred tax liabilities: Oil and gas properties Investment in subsidiary Total deferred tax liabilities 12. Commitments and Contingencies Commitments Years Ended December 31, 2020 2019 $ $ $ $ 627 24,405 25,032 $ $ — 19,021 19,021 (112) $ — (112) $ (198) — (198) Brigham Minerals leases office space under operating leases. Rent expense forff the year ended December 31, 2020, 2019, and 2018 was $1.1 million, $0.6 million, and $0.3 million, respectively. Future minimum lease commitments under noncancelablea operating leases at December 31, 2020 are presented below (in thousands): F-28 NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS BRIGHAM MINERALSRR , INC. Year 2021 2022 2023 2024 2025 2026 and Thereafter Total Contingencies Commitment 1,272 1,310 1,347 1,383 1,419 2,251 8,982 $ $ $ Brigham Minerals may, froff m time to time, be a party to certain lawsuits and claims arising in the ordinary course of business. The outcome of such lawsuits and claims cannot be estimated with certainty and management may not be able to estimate the range of possible losses. Brigham Minerals records reserves for contingencies when information available indicates that a loss is probable and the amount of the loss can be reasonably estimated. Brigham Minerals had no reserves forff contingencies at December 31, 2020 and December 31, 2019. 13. Related-Party Transactions Brigham Land Management (“BLM”) occasionally provides us with land brokerage services. The services are provided at market prices and are periodically verified by third-party quotes. BLM is owned by Vince Brigham, an advisor to us and brother of Ben M. Brigham, founder and Executive Chairman of the Board. For the year ended December 31, 2020, the amounts paid to BLM for land brokerage services were immaterial. For the years ended December 31, 2019 and 2018, the amounts paid to BLM for land brokerage services were $0.1 million and $0.1 million, respectively. At December 31, 2020 and 2019, the liabilities recorded for services performed by BLM during the respective periods were immaterial. Brigham Exploration Company, partially owned by Ben M. Brigham, on occasion leases some of our acreage at market rates. Brigham Minerals did not lease any acreage to Brigham Exploration Company during the years ended December 31, 2020 and 2018. We received $0.4 million for the year ended December 31, 2019 in connection with such leases. The Company is party to a services agreement with RS Energy Group, which provides the Company with certain software and services that assist in evaluating the acquisition of mineral interests. Warburg Pincus owned a controlling stake in RS Energy Group until February 2020. The service feeff s incurred under this agreement were $0.1 million and $0.2 million for the years ended December 31, 2020 and 2019. During the year ended December 31, 2018, Brigham Resources borrowed $7.0 million from Brigham Operating, at an interest rate of 7.00% and repaid the loan prior to December 31, 2018. 14. COVID-19 Pandemic and Impact on Global Demand forff Oil and Natural Gas t The ongoing global spread of a novel strain of coronavirus (SARS-Cov-2), which causes COVID-19, has caused a gas industry and to our business by, among other things, contributing to a significant continuing disruption to the oil and natural decrease in global crude oil demand and the price forff h oil beginning in the firff st quarter of 2020 and continuing through the fourt quarter of 2020. The declining commodity prices have adversely affected the revenues the Company receives for its royalty al markets on terms favorable to the Company. Additionally, in response interests and could affect its abila to the decline in commodity prices, many operators on the Company's properties have announced reductions in their estimated 2021 and beyond, which has and will adversely affect the near-term development of the Company's capita the second half of the year and into 2021. While these lower commodity prices initially resulted in some of properties during the Company's operators shutting in or curtailing production from wells on its properties during the second quarter of 2020, we saw a majority of the Company’s operators resume production for previously curtailed and shut in wells in connection with the improvement of commodity prices in the second half of 2020. ity to access the capita al expenditures forff d d ff In response to the COVID-19 pandemic, the potential risk to Brigham Minerals' workforce and in compliance with stay at for all of its employees to home orders, the Company successfully implemented policies and the technological infrastructuret work from home in the first quarter of 2020 and ceased all business travel. In compliance with the requirements for the re- F-29 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS ity while continuing to support opening of the Texas economy, the Company is currently operating its office at 75% capac remote working for its employees that are considered high-risk pursuant to the Center forff Disease Control and Prevention guidelines or have household members meeting the criteria of those guidelines. Due to these efforts, the Company has not experienced material disruptions to its operations or the health of its workforce and has maintained the engagement and connectivity of its personnel. a 15. Subsequent Events On February rr 19, 2021, Brigham Minerals declared a dividend of $0.26 per Class A common stock payablea on March 26, 2021, to stockholders of record at the close of business on March 19, 2021. 16. Quarterly Financial Information-Unaudited Summarized quarterly finaff ncial data forff the years ended December 31, 2020 and 2019 are presented in the following s. During the periods presented below, earnings per share information is not available dued to no shares being recognized tablea for accounting purposes forff periods prior to the IPO. (In thousands, except per share amount) Year ended December 31, 2020: Total revenues Income (loss) from operations - (3) Net income (loss) Year ended December 31, 2019: Total revenues Income from operations Net income (loss) Net income (loss) attributable to Brigham Minerals, Inc. Basic EPS attributable to Brigham Minerals, Inc. shareholders Diluted EPS attributable to Brigham Minerals, Inc. shareholders $ $ Net income (loss) attributable to Brigham Minerals, Inc. - (2) Basic EPS attributable to Brigham Minerals, Inc. shareholders - (1) Diluted EPS attributable to Brigham Minerals, Inc. shareholders - (1) $ $ Quarter First Second Third Fourth $ 32,280 $ 12,605 $ 23,078 $ 23,760 10,413 8,801 4,706 0.14 0.14 (7,144) (6,816) (4,050) (15,885) (13,017) (9,465) $ $ (0.11) $ (0.11) $ (0.24) $ (0.24) $ $ 18,265 $ 24,529 $ 25,107 $ 8,707 4,036 534 — $ — $ 5,034 (3,207) (1,856) (0.12) $ (0.12) $ 9,115 8,464 3,146 0.14 0.14 $ $ (57,678) (46,962) (33,603) (0.78) (0.78) 33,614 14,362 12,346 5,077 0.20 0.20 (1) Represents earnings per share of Class A common stock and weighted average shares of Class A common stock for the period from April 17, 2019 through December 31, 2019, the period following the IPO. See "Note 8— Shareholders' and Members' Equity" for additional information. (2) Represents net income attributable to Brigham Minerals for the period starting with the completion of the July 2018 restructuring. See "Note 1—Business and Basis of Presentation" for additional information. (3) Third and fourth quarters of 2020 include $18.9 million and $60.7 million of impairment of oil and gas properties, respectively. See "Note 3—Oil and Gas Properties" for further discussion of this transaction. 17. Reserve and Related Financial Data (SMOG) -Unaudited Oil and Natural Gas Reserves gas and NGLs which, by analysis of geoscience and engineering data, Proved reserves represent quantities of oil, natural in the future from known reservoirs under existing economic can be estimated with reasonable certainty to be recoverablea conditions, operating methods and government regulations. Proved developed reserves are proved reserves which can be t F-30 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS and operating methods. Proved reserves expected to be recovered through existing wells with existing equipment, infrastructuret 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 facff tors. 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. Proved reserve quantities, December 31, 2017 Sales of minerals-in-place Extensions and discoveries Acquisitions Revisions of previous estimates Production Proved reserve quantities, December 31, 2018 Sales of minerals-in-place Extensions and discoveries Acquisitions Revisions of previous estimates Production Proved reserve quantities, December 31, 2019 Sales of minerals-in-place Extensions and discoveries Acquisitions Revisions of previous estimates Production Proved reserve quantities, December 31, 2020 Proved reserve quantities at December 31, 2020 attributable to temporary equity Proved developed reserve quantities: December 31, 2018 December 31, 2019 December 31, 2020 Proved developed reserves at December 31, 2020 attributable to temporary equity Proved undeveloped reserve quantities: December 31, 2018 December 31, 2019 December 31, 2020 Proved undeveloped reserves at December 31, 2020 attributable to temporary equity Crude Oil (MBbl) Natural Gas (MMcf) NGL (MBbl) Total (MBoe) 8,724 — 1,765 3,669 (390) (777) 12,991 (182) 1,997 4,256 (586) (1,515) 16,961 — 876 1,235 (4,049) (1,823) 13,200 38,401 — 5,285 13,862 (3,245) (2,507) 51,796 (697) 7,780 13,053 (5,495) (4,707) 61,730 (286) 2,545 3,652 (18,188) (5,809) 43,644 3,980 — 562 1,374 (577) (222) 5,117 (110) 817 1,218 (797) (407) 5,838 (1) 291 331 (1,189) (680) 4,590 19,104 — 3,208 7,354 (1,508) (1,417) 26,741 (409) 4,110 7,651 (2,299) (2,706) 33,088 (48) 1,591 2,174 (8,271) (3,471) 25,063 3,064 10,131 1,065 5,818 6,067 9,924 9,403 2,183 6,924 7,037 3,797 881 21,735 33,232 31,873 7,399 30,061 28,498 11,771 2,732 1,898 2,494 3,426 795 3,219 3,344 1,164 270 11,588 17,957 18,141 4,211 15,153 15,131 6,922 1,607 Changes in proved reserves that occurred during d 2020 were primarily due to: F-31 BRIGHAM MINERARR LS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS • 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 probable, possible and contingent resources to proved, due to continuous activity and locations were converted fromff 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 ruler for PUDs; and positive revision of 1,410 MBoe attributablea processing assumptions, and unit configuration. to estimate ultimate recovery ("EUR") adjustments, refined gas and NGL Changes in proved reserves that occurred during d 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 probable, possible and contingent resources to proved, due to continuous activity and locations were converted fromff 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 attributablea to operator development timing, unit configuration and EUR adjustments to existing proved locations. to pricing as well as approximately 1,397 MBoe attributablea Changes in proved reserves that occurred during 2018 were primarily dued 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 probable, possible and contingent resources to proved, due to continuous activity and delineation of converted fromff 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 attributablea to operator development timing as well as 944 MBoe of revisions associated with unit configuration and EUR adjustments to existing proved locations. to pricing and were offset by negative revisions of 1,100 MBoe attributablea Standardized Measure of Discounted Future Net Cash Flows ff Guidelines prescribed in FASB’s Accounting Standards Codification (“ASC”) Topic 932 Extractive Industries—Oil and owed for computing a standardized measure of future net cash flows and changes therein relating to are determined by applying prices and costs, including transportation, quality, gas and NGLs to be produced in the future. The Gas, have been foll estimated proved reserves. Future cash inflows and basis differentials, to the year-end estimated quantities of oil, natural resulting futuret net cash flows are reduced to present value amounts by applying a ten percent annual discount factor. ff t The assumptim ons used to compute the standardized measure are those prescribed by the FASB and the SEC. These assumptim ons 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 shed proved producing oil and gas properties. Accordingly, these estimates are expected to imprecise than estimates of establia . change as future information becomes availablea F-32 BRIGHAM MINERALRR S, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS The folff lowing 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: (In thousands) Future crude oil, natural gas, and NGL sales Future severance tax and ad valorem taxes Future income tax expense Future net cash flows 10% annual discount Standardized measure of discounted future net cash flows Standardized measure of discounted future net cash flows attributable to temporary equity For the Year Ended December 31, 2020 2019 2018 562,545 (39,318) (46,908) 476,319 (205,551) 270,768 66 62,853 $ $ $ 1,042,118 (73,627) (143,599) 824,892 (359,258) 465,634 186,999 $ $ $ 1,049,141 (70,248) (144,421) 834,472 (391,013) 443,459 — $ $ $ The following prices were used in the determination of standardized measure: Oil (per Bbl) Natural gas (per Mcf) NGLs (per Bbl) For the Year Ended December 31, 2020 2019 2018 $ 36.35 $ 51.01 $ 1.03 8.19 1.51 14.39 61.31 2.51 23.98 These prices were based on the 12-month arithmetic average first-of-month West Texas Intermediate (“WTI”) price of oil gas. The NGL pricing varied by basin at 10% to 25% of WTI. All prices have been adjusted for t and Henry Hub price of natural transportation, quality, basis differentials and post-production costs. The principal sources of change in the standardized measure of discounted future ff net cash flows are: (In thousands) Standardized measure of discounted future net cash flows, beginning of the year For the Year Ended December 31, 2020 2019 2018 $ 465,634 $ 443,459 $ 316,468 Changes in the year resulting from: Sales, less production costs Revisions of previous quantity estimates Extensions, discoveries, and other additions Net change in prices and production costs Accretion of discount Purchase of reserves in place Divestitures of reserves in place Net change in taxes Timing differences and other (73,654) (135,926) 21,011 (131,886) 54,741 27,241 (250) 53,786 (9,929) (86,492) (41,539) 69,057 (99,660) 51,949 137,819 (5,783) (5,739) 2,563 (52,278) (22,942) 71,668 71,770 31,713 148,580 — (75,369) (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 capita alized for oil and natural t gas producing activities and related aggregate amounts of accumulated depletion follow: F-33 BRIGHAM MINERALS, INC. NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (In thousands) Oil and gas properties, at cost, using full cost method of accounting: Not subject to depletion Subject to depletion Total oil and gas properties, at cost Less accumulated depreciation, depletion, and amortization Total oil and gas properties, net For the Year Ended December 31, 2020 2019 2018 $ $ 325,091 $ 291,664 $ 488,301 813,392 (189,546) 449,061 740,725 (61,103) 623,846 $ 679,622 $ 228,151 289,851 518,002 (27,628) 490,374 Costs incurred in oil and natural gas activities The following costs were incurred in oil and natural t gas producing activities: (In thousands) Acquisition of oil and gas properties Unevaluated Evaluated Total For the Year Ended December 31, 2019 2018 2020 $ $ 35,725 30,856 66,581 $ $ 78,093 140,025 218,118 $ $ 59,460 137,496 196,956 F-34 Board of Directors Senior Leadership Stockholder Information M. “Bud” Ben Executive Chairman Brigham M. “Bud” Ben Executive Chairman Brigham Robert M. Roosa Chief Executive Offiff cer Robert M. Roosa Chief Executive Offiff cer Harold D. Carter Director Carrie Clark Director Jon-Al Duplantier Director W. Howard Keenan Jr. Director Lance Langford Director James R. Levy Director Richard Stoneburner Director John R. “J.R.” Sult Director Geoff Boyd Vice President of Acquisitions S. Bradley Burris Vice President of Land Hamilton W. Hogsett Vice President of Reservoir Engineering Kevin J. L’abbé Vice President of Exploration – Oklahoma/Colorado A. Dax McDavid Vice President of Exploration – Texas/North Dakota Kari A. Potts Vice President, General Counsel, Compliance Officer & Secretary Jordan K. Spearman Vice President of Business Development Blake C. Williams Chief Financial Offiff cer CORPORATE HEADQUARTERS 5914 W. Courtyrr ard Drive Suite 200 Austin, Texas 78730 (512) 220-6350 www.brighamminerals.com ANNUAL MEETING The 2021 Annual Meeting of Stockholders will be held virtually on Wednesday, May 26, 2021, at 1 p.m. CDT STOCK EXCHANGE LISTING New York Stock Exchange Trading Symbol “MNRL” TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Company 6201 15th Avenue Brooklyn, New York 11219 INDEPENDENT AUDITOR KPMG LLP 111 Congress Avenue Suite 1900 Austin, Texas 78710 Brigham Minerals 5914 W. Courtyrr ard Dr. Suite 200 Austin, TX 78730 

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