Dorchester Minerals, L.P. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The Partnership owns mineral, royalty, overriding royalty, net profits and leasehold interests across 26 states; it generally does not operate the underlying properties.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net operating revenues | $24.0m | $12.5m | $63.1m | $34.8m |
| Net income | $18.0m | $5.6m | $46.3m | $15.6m |
| Net income per common unit | $0.49 | $0.16 | $1.28 | $0.43 |
| Net income margin | 75.2% | 44.8% | 73.4% | 44.7% |
- For the nine months, operating cash flow was $47.5m, versus $32.0m in 2020. Cash and cash equivalents were $22.3m at September 30, 2021, up from $11.2m at December 31, 2020.
- At quarter-end, total assets were $110.3m and total liabilities $4.4m, including $2.0m of operating lease liabilities. The balance sheet reports no borrowings; the partnership agreement generally restricts indebtedness to trade payables and limits it to $50,000 in aggregate.
- Current assets were $36.6m and current liabilities $2.7m. Nine-month distributions paid were $37.2m, compared with $38.0m in 2020.
Changes and notable items
- Revenue rose 92% in Q3 and 81% in the nine-month period year over year, primarily reflecting higher oil and natural gas prices and higher net profits interest (NPI) revenue. Royalty-property prices increased substantially: Q3 average accrual-basis oil prices rose 67% and natural gas prices 181% versus 2020.
- Royalty-property sales volumes were broadly steady year over year, while NPI oil and gas volumes declined, partly because the Hugoton NPI was divested in 2020. The NPI volume declines were offset in revenue by higher commodity prices.
- Operating costs rose 40% in Q3 and 23% for the nine months, mainly due to higher production taxes. Depreciation, depletion and amortization fell 9% and 19%, respectively. General and administrative expense declined 59% in Q3 and 31% year to date.
- Lower G&A included nonrecurring credits tied to forgiveness of the Operating Partnership’s $0.9m and $0.8m Paycheck Protection Program loans in Q2 and Q3 2021, as well as the absence of 2020 Hugoton divestiture transaction costs.
- In June 2021, the Partnership acquired approximately 6,400 net royalty acres in North Dakota’s Bakken Trend for 725,000 common units valued at $12.2m. The acquisition added $11.5m of net oil and gas properties; the unit issuance was a noncash transaction.
Outlook, risks and contingencies
Management said it expects sufficient liquidity for operations and distributions, but provided no numerical earnings or production guidance. Cash generation and distributions remain exposed to volatile oil and natural gas prices, demand, COVID-19 and variants, and production changes on properties operated by others. The Partnership has limited operational control and may receive delayed or revised production and revenue information. Management reported no material changes to previously disclosed risk factors; ordinary-course legal and administrative proceedings were not believed to have a significant effect on financial results or position.
The third-quarter 2021 distribution of $0.507608 per unit was scheduled for payment on November 10, 2021. The filing also reports $1.7m of outstanding NPI capital commitments, primarily in the Bakken, equal to NPI cash on hand. Disclosure controls were judged effective, with no material quarter-to-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Whether higher commodity prices persist and how they affect royalty receipts, NPI cash flows and future distributions.
- The production and revenue contribution from the newly acquired Bakken interests, and the effects of the declining NPI volumes and Hugoton divestiture.
- The sustainability of lower G&A after the nonrecurring PPP-related credits and divestiture-cost comparison.
- Distribution amounts and payment timing, including the disclosed $0.507608 per-unit Q3 distribution.
- Potential changes in COVID-19, regulatory, commodity-price and operator-related risks, and any developments in ordinary-course proceedings.