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 pursuant to which certain entities affiliated with Warburg Pincus LLC (“Warburg Pincus”) contributed all of their respective 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”).

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

In April 2019, Brigham Minerals completed an initial public offering of 16,675,000 shares of Class A common stock at a price to the public of $18.00 per share (the “IPO”). This resulted in net proceeds of approximately $273.4 million, after deducting underwriting commissions and discounts and offering expenses. As a result of the IPO and the corporate restructuring described below, 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.

In connection with the IPO,


•	all of the outstanding membership interests in Brigham LLC were converted into a single class of common units in Brigham LLC (the “Brigham LLC Units”);


•	Brigham Minerals issued shares of Class A common stock to certain of our Original Owners in exchange for incentive units in Brigham Equity Holdings;

•

Brigham Equity Holdings distributed all of its equity interests in Brigham LLC, other than its interests in Brigham LLC attributable to certain unvested incentive units in Brigham Equity Holdings, to the Original Owners and Brigham Minerals (which resulted in the ownership in Brigham LLC of our Original Owners with respect to unvested incentive units remaining consolidated in Brigham Equity Holdings);


•	Brigham Minerals issued 16,675,000 shares of Class A common stock, including the Underwriters' overallotment, to purchasers in the IPO in exchange for the cash proceeds of the IPO;


•	each holder of Brigham LLC Units following the restructuring (a “Brigham Unit Holder”), other than Brigham Minerals and its subsidiaries, 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; and


•	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.

After the transactions discussed above and after the IPO,


•	the Original Owners own all of Brigham Minerals' Class B common stock, representing 56.7% of Brigham Minerals' capital stock;


•	the Original Owners own 5,322,197, or 24.2%, of Brigham Minerals' Class A common stock, representing 10.5% of Brigham Minerals' capital stock;


•	investors in the IPO own 16,675,000 shares, or 75.8%, of Brigham Minerals' Class A common stock, representing 32.8% of Brigham Minerals' capital stock;


•	Brigham Minerals owns an approximate 43.3% interest in Brigham LLC; and


•	the Original Owners own directly an approximate 56.7% interest in Brigham LLC (in addition to the 10.5% interest in Brigham LLC the Original Owners own indirectly through their ownership of shares of Brigham Minerals' Class A common stock).

Following the IPO, and prior to December 31, 2019, Brigham Resources:


•	fully repaid the $200.0 million outstanding balance under the Owl Rock credit facility (as defined below) on May 7, 2019;


•	wrote-off $4.0 million of capitalized debt issuance cost and incurred $2.1 million in prepayment fees and $0.8 million in accrued legal fees resulting in a loss on extinguishment of debt of approximately $6.9 million in its statement of operations;


•	applied capitalized issuance cost of $8.7 million as a reduction of additional paid-in-capital of which $3.6 million was incurred in 2018 and $5.1 million was incurred in 2019;


•	recognized a cumulative effect adjustment of $2.0 million of share-based compensation cost related to the Incentive Units (as defined below), pertaining to the period from the grant date through the IPO;

•

recognized an additional charge for share-based compensation cost of approximately $11.9 million related to the estimated fair value of the restricted stock awards (“RSAs”), restricted stock units subject to time-based vesting (“RSUs”) and restricted stock units subject to performance based vesting (“PSUs”), net of $3.8 million of capitalized share-based compensation expense, all of which was non-cash. In addition, as the vesting conditions of the Incentive Units, RSAs, RSUs and PSUs are satisfied, Brigham Minerals will recognize additional non-cash charges for share-based compensation cost of approximately $19.3 million, a portion of which will be capitalized;


•	entered into a credit agreement on May 16, 2019 with a banking syndicate, including Wells Fargo Bank, N.A., as administrative agent for a new revolving credit facility (as defined below) with a borrowing base of $135.0 million and subsequently increased to $150.0 million as of December 31, 2019; and


•	received a full refund of the cash collateral related to the existing WTI fixed price swap contracts, which was $1.6 million as of May 2019, upon entering into the new revolving credit facility.

December 2019 Offering

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.

Following the completion of the December 2019 Offering and certain redemptions of Class B shares and an equivalent number of Brigham LLC units to Class A shares completed during November and December 2019, Brigham Minerals owned a 59.8% interest in Brigham LLC and the Sponsors collectively owned 39.1% of the outstanding voting stock of Brigham Minerals as of December 31, 2019.

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 include the combined historical financial information of both Brigham Resources (at historical carrying values) and Brigham Minerals, taking into account state and federal income taxes and liabilities associated with Brigham Minerals. All intercompany transactions between Brigham Minerals and Brigham Resources have been eliminated. Because Brigham Minerals acquired an interest in Brigham Resources as part of certain reorganization transactions in 2018, net income is attributable to stockholders of Brigham Minerals in addition to our Predecessor beginning in 2018.

The accompanying consolidated and combined financial 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 financial statements reflect 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.

Brigham Resources has historically owned and operated two distinct lines of business through its subsidiaries:


•	the Minerals Business through the Minerals Subsidiaries; and


•	an upstream oil and gas exploration and production business (the “Upstream Business”) in the Southern Delaware Basin of West Texas (including interests in certain related gathering systems) through Brigham Resources Operating, LLC (“Brigham Operating”).

In February 2017, Brigham Operating completed the sale of substantially all of its oil and natural gas properties to an unrelated third-party purchaser, following which Brigham Operating’s only material assets consisted of an ownership interest in Oryx Southern Delaware Holdings, LLC (“Oryx”), an entity that operates a crude oil gathering system located in the southern Delaware Basin. Immediately prior to the IPO, Brigham Resources distributed to its members or their affiliates 100% of the equity interests in Brigham Operating. Subsequent to such distribution Brigham Resources no longer had any direct or indirect ownership interest in Brigham Operating. Accordingly, the accompanying consolidated financial statements of Brigham Minerals exclude the assets, liabilities and results of operations of Brigham Operating.

Subsequent to the issuance of our December 31, 2017 consolidated financial statements, we corrected the amount of equity securities distributed, included in the supplemental disclosure of non-cash activity, from $37,988 to $20,092 (in thousands) for the year ended December 31, 2017. Additionally, we corrected the presentation of gains and losses on sales of assets, and we included these gains and losses in other operating income for all periods presented. This resulted in a $94.6 million increase to previously reported operating expenses and a corresponding increase to previously reported operating income for the year ended December 31, 2017. These corrections did not impact the previously reported consolidated balance sheet as of December 31, 2017 or statements of comprehensive income, members’ equity or cash flows and have been accounted for as immaterial corrections of errors.