Dorchester Minerals, L.P. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; filed May 4, 2023. Dorchester owns mineral and royalty interests across 28 states and receives a net profits interest (NPI) in properties operated by an affiliate. Financial statements are unaudited.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Operating revenue | $40.167 million | $40.401 million | Down 0.6% |
| Net income | $28.070 million | $30.624 million | Down 8.3% |
| Net income per common unit | $0.71 | $0.80 | Down 11.3% |
| Operating cash flow | $38.745 million | $28.415 million | Up 36% |
| Cash and cash equivalents, period-end | $44.999 million | $40.754 million at Dec. 31, 2022 | Up $4.245 million |
Royalties were $24.684 million, down from $34.879 million; NPI revenue rose to $14.947 million from $5.470 million. Lease bonus and other revenue was $0.536 million versus $0.052 million. Operating costs, including production taxes, fell 17% to $2.718 million. Depreciation, depletion and amortization rose 49% to $6.641 million, and general and administrative expense increased 34% to $2.738 million. Management attributed the G&A increase to compensation adjustments and higher professional fees.
Liquidity, capital and distributions
Current assets were $62.172 million and current liabilities were $3.513 million at March 31, 2023. Total liabilities were $4.757 million, primarily operating lease liabilities; the filing reports no debt and limits the Partnership’s ability to incur indebtedness. Cash flow from operations exceeded distributions paid of $35.050 million, and cash increased during the quarter. Acquisition-related cash received, net of costs, was $0.550 million.
The Partnership paid distributions of $0.884339 per unit during Q1 2023. Separately, its declared Q1 2023 distribution of $0.989656 per unit was scheduled for payment May 11, 2023. The partnership agreement generally requires quarterly distribution of cash received, less expenses and reasonable reserves. Management expects adequate liquidity for operations and distributions, subject to market conditions.
Year-over-year changes and operating drivers
Royalty Properties oil sales volumes fell 18%, while natural gas volumes increased 16%. NPI oil and natural gas sales volumes increased 186% and 170%, respectively. Average realized sales prices declined across both asset categories: Royalty Properties oil and gas prices fell 15% and 33%, and NPI oil and gas prices fell 12% and 35%. Management cited production and suspense-release changes across regions as volume drivers; higher NPI receipts primarily drove the increase in operating cash flow.
At March 31, the NPI was in a cash surplus position, with outstanding capital commitments—primarily in the Bakken—equal to its $6.0 million cash on hand. The Partnership’s portfolio includes the 2022 acquisition of approximately 2,100 net royalty acres in Texas and New Mexico, exchanged for 816,719 common units valued at $20.4 million.
Outlook, risks and other matters
No quantitative earnings or production guidance is provided. Management says oil and gas demand and prices remained strong in Q1, while noting price volatility and uncertainty. Key risks include commodity-price and demand changes, operator production and development decisions, inflation and interest rates, geopolitical events—particularly the Russia-Ukraine conflict—and potential effects of COVID-19. The Partnership has limited operational control and limited timely access to information about production and sales.
Ordinary-course legal or administrative proceedings are not expected to have a significant effect on financial position, cash flows or results. The filing reports no material change in risk factors, no significant change in market-risk exposure, and effective disclosure controls; no material internal-control changes occurred during the quarter. Adoption of the expected-credit-loss standard had no material impact.
Important facts for investors to verify
- Whether the higher NPI volumes and receipts are sustainable, given the sharp price and volume movements by asset category.
- How commodity prices, operator activity and production trends affect royalty and NPI cash receipts and future distributions.
- The timing and amount of NPI capital commitments, including the reported $6.0 million commitment level relative to NPI cash on hand.
- The distinction between the $0.884339 per-unit distribution paid during Q1 and the $0.989656 per-unit distribution declared for payment in May.
- Potential updates to the filing’s stated geopolitical, market and broader economic uncertainties.