Dorchester Minerals, L.P. — Q3 2022 Form 10-Q
Business and period: The partnership owns mineral, royalty, overriding royalty, net profits and leasehold interests across 592 counties and parishes in 28 states. This unaudited filing covers the three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in millions except per-unit data, volumes and where noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net operating revenues | $44.1 | $24.0 | $131.9 | $63.1 |
| Net income | $34.2 | $18.0 | $102.1 | $46.3 |
| Net income per common unit | $0.88 | $0.49 | $2.64 | $1.28 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $113.4 | $47.5 |
- Revenue increased approximately 84% in Q3 and 109% for the first nine months; net income rose approximately 90% and 120%, respectively. Derived net income margins were about 77.6% for Q3 2022 and 77.4% for the nine-month period, compared with about 75.2% and 73.4% in 2021.
- Higher prices and volumes supported results. For the first nine months, royalty-property oil volumes rose 36% and natural gas volumes rose 22%; average realized prices increased 49% for oil and 83% for natural gas. NPI oil volumes rose 17%, while NPI gas volumes declined 3%.
- Cash provided by operating activities increased 139% year over year for the first nine months, primarily from higher royalty receipts, NPI receipts and lease bonuses. Cash and cash equivalents were $52.0 million at September 30, 2022, versus $28.3 million at December 31, 2021.
- Distributions paid in the first nine months totaled $91.5 million, versus $37.2 million in 2021. The filing says the Q3 2022 distribution of $1.135019 per unit would be paid November 10, 2022.
- Total assets were $195.1 million and total liabilities $6.9 million. The partnership reported no material borrowings; liabilities primarily included operating leases, with $1.7 million total lease obligation. Its partnership agreement generally restricts indebtedness, other than trade payables, to no more than $50,000.
Changes, unusual items and outlook
- Q3 operating revenue included a $7.3 million lease bonus from leasing 243 net acres in Reagan County, Texas, at $30,000 per acre and a 25% royalty. This was the principal source of the quarter’s lease-bonus revenue and is not presented as recurring guidance.
- On September 30, the partnership acquired about 2,100 net royalty acres in Texas and New Mexico for 816,719 common units valued at $20.4 million. A March acquisition added about 3,600 acres for 570,000 units valued at $14.8 million. The September acquisition also included $0.9 million in contributed cash receipts. Issuance of units increased the unit count.
- Operating costs, including production taxes, increased 50% in Q3 and 94% for the nine-month period, mainly due to higher production taxes and ad valorem taxes. Depreciation, depletion and amortization increased 46% and 76%; G&A increased 166% and 58%, respectively. G&A comparisons were affected by 2021 PPP-loan forgiveness credits and higher compensation costs in 2022.
- Management provided no quantified earnings or production guidance. It expects liquidity to be sufficient for operations and distributions, but future distributions depend on commodity markets and other factors. Management noted oil prices softened somewhat in Q3 amid inflation and rising interest rates, while energy demand and prices remained strong.
- Key risks include volatile oil and gas prices and demand, operator-controlled production and marketing, COVID-19 and variants, the Russia-Ukraine conflict and related sanctions, inflation, interest rates, supply disruptions and regulatory changes. Ordinary-course legal proceedings were not expected to have a significant financial effect. Disclosure controls were assessed as effective, with no material change in internal control reported.
Important facts for investors to verify
- How much of the elevated revenue and cash flow reflects commodity prices and the one-time $7.3 million lease bonus, and how results may change if prices weaken.
- The production, reserve and cash-flow contribution of the 2022 acquisitions, alongside dilution from units issued as consideration.
- Distribution sustainability and timing: the $1.135019 Q3 distribution was scheduled for payment after quarter-end, while $91.5 million of distributions had been paid during the first nine months.
- Whether rising operating costs, depletion expense and market volatility materially affect future cash available for distributions; the filing gives no quantified forecast.
- Potential tax withholding implications for transfers of common units on or after January 1, 2023, particularly for foreign unitholders.