Dorchester Minerals, L.P. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. Dorchester owns mineral, royalty, overriding royalty, net profits and leasehold interests across 28 states. As a royalty owner and non-operator, it has limited operational control over production and sales.
Financial highlights
Amounts below are in millions, except per-unit data and percentages; filing statements are presented in thousands.
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Operating revenue | $40.4 | $17.8 | +127% |
| Net income | $30.6 | $11.8 | +159% |
| Net income per common unit | $0.80 | $0.33 | — |
| Net cash provided by operations | $28.4 | $10.5 | +170% |
| Cash and cash equivalents, quarter-end | $33.0 | $13.3 | Compared with March 31, 2021 |
- Revenue comprised $34.9 million of royalties, $5.5 million of net profits interest (NPI) revenue and $0.1 million of lease bonus and other revenue. The reported net margin was approximately 75.8%, versus 66.3% in Q1 2021.
- Total costs and expenses were $9.8 million, up from $6.0 million. Operating costs, including production taxes, rose 120%; depletion, depreciation and amortization rose 96%; general and administrative expense fell 9%.
- At March 31, 2022, total assets were $168.0 million, total liabilities $4.7 million and partnership capital $163.3 million. Liabilities principally included operating lease obligations; the filing reports no conventional borrowing balance. The partnership agreement generally bars indebtedness above $50,000, other than trade payables, and prohibits acquisition indebtedness.
- Current assets were $58.6 million and current liabilities $3.2 million. Cash increased from $28.3 million at December 31, 2021. The filing states it expects sufficient liquidity for operations and distributions, while noting commodity-market uncertainty.
- Cash flows included $0.7 million of net cash contributed in acquisitions and $24.5 million of distributions paid. Q1 2022 distributions paid were $0.639287 per unit; a separate $0.753926-per-unit distribution for Q1 2022 was scheduled for payment May 12, 2022.
Material changes and operating drivers
- Royalty Properties natural gas and oil sales volumes increased 55% and 50%, respectively. NPI natural gas volumes rose 15%, while NPI oil volumes rose 4%.
- Average accrual-basis sales prices increased: Royalty Properties natural gas to $4.49/mcf (+97%) and oil to $80.47/bbl (+56%); NPI natural gas to $5.24/mcf (+79%) and oil to $79.88/bbl (+61%). Management attributed the increases to market conditions.
- Management said higher Royalty Properties volumes reflected new-well suspense releases and increased production in several regions, with prior-period adjustments also contributing. NPI volume changes reflected new-well releases and production increases partly offset by natural declines in certain regions.
- On March 31, 2022, the Partnership acquired mineral and royalty interests representing approximately 3,600 net royalty acres in seven states, issuing 570,000 units valued at $14.8 million. The balance sheet included $13.8 million of net proved properties from the transaction. The reported Q1 weighted-average unit count was 36.991 million; 37.555 million units were outstanding as of May 5, 2022.
Outlook, risks and other disclosures
- No quantitative earnings or production guidance was provided. Management expects liquidity to be sufficient for operations and distributions, but future distributions depend on receipts, expenses and market conditions.
- Oil and natural gas prices rose amid increased energy use and supply disruptions associated with Russia’s invasion of Ukraine. Management cautioned that the conflict, sanctions and responses could cause further commodity-price, energy-supply and financial-market volatility. COVID-19 and its variants also remain uncertainties.
- Results are exposed to oil and gas prices, production volumes, operator activity and timing of receipts. Management notes that royalty revenue estimates can be subjective because information from unaffiliated operators is not always timely; revenue checks generally arrive two to four months after production.
- The NPI was in a cash surplus position at March 31, 2022, with outstanding capital commitments—primarily in the Bakken region—equal to cash on hand of $2.0 million.
- Ordinary-course legal and administrative proceedings were not believed to have a significant effect on financial position, cash flows or operating results. Disclosure controls were judged effective, with no material change in internal control over financial reporting reported.
Key facts for investors to verify
- Whether the higher prices and production volumes persist, and how much of reported growth reflects prior-period adjustments or suspense releases.
- The timing and amounts of future distributions, including the distinction between distributions paid during Q1 and the $0.753926-per-unit Q1 distribution scheduled for May 12.
- The acquired properties’ contribution to production, revenue and future depletion, and the effect of the 570,000-unit issuance on per-unit results.
- Exposure to commodity-price swings, operator-controlled production and reporting delays, and the potential effects of the Ukraine conflict and COVID-19.
- Lease obligations: $1.811 million recorded lease liability at March 31, 2022; total undiscounted future lease payments were $2.512 million.