Dorchester Minerals, L.P. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; comparative periods ended September 30, 2019. Figures below are in millions of dollars, except per-unit data and where noted. Dorchester owns mineral, royalty, overriding royalty, net profits and leasehold interests across 27 states, plus five net profits interests (NPIs) in properties operated by an affiliate.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net operating revenues | $12.5 | $19.6 | $34.8 | $59.2 |
| Net income | $5.6 | $12.9 | $15.6 | $40.4 |
| Net income per common unit | $0.16 | $0.35 | $0.43 | $1.15 |
| Operating costs, including production taxes | $1.5 | $1.4 | $4.3 | $4.8 |
| Depreciation, depletion and amortization | $3.2 | $3.6 | $9.5 | $9.9 |
| General and administrative expenses | $2.2 | $1.7 | $5.5 | $4.1 |
- Cash flow: Operating cash flow was $32.0 for the first nine months, down from $54.8 in 2019. Investing activities provided $5.5, including proceeds from property sales. Distributions paid were $38.0, and cash declined by $0.5 to $14.9.
- Liquidity and debt: September 30 cash was $14.9; current assets were $21.3 and current liabilities $2.8. Total liabilities were $4.8, primarily operating lease liabilities; the filing reports no borrowing debt. The partnership agreement generally prohibits indebtedness above $50,000, other than trade payables, subject to its terms.
- Margins: The filing does not present a specific margin measure. Net income as a share of revenue was approximately 45% for Q3 2020 and 45% for the first nine months, versus approximately 66% and 68%, respectively, in the comparable 2019 periods.
Material changes and notable items
- Revenue fell 36% in Q3 and 41% year to date. Management attributed the declines mainly to lower realized oil prices, lower NPI revenue and lower lease bonus revenue. Net income fell 56% in Q3 and 62% year to date.
- Year-to-date royalty-property oil and natural gas sales volumes declined 11% and 12%, respectively. Royalty oil prices fell 32% and royalty natural gas prices fell 24% versus 2019. Management cited operator curtailments, natural production declines and weak commodity prices; some production returned in Q3.
- G&A increased 29% in Q3 and 34% year to date, reflecting higher IT and compliance costs and nonrecurring costs for the Hugoton NPI divestiture.
- On September 30, the Partnership and General Partner affiliates closed the sale of Hugoton NPIs for gross proceeds of $5.7; $0.5 of transaction costs was recorded in G&A, and $0.2 of holdbacks was recorded in receivables. Final proceeds remain subject to customary adjustments 120 days after closing.
- The Q3 distribution of $0.325612 per common unit was scheduled for payment November 12, 2020. The Partnership distributes cash received, less expenses and reasonable reserves, so distributions can vary with revenues and costs.
Outlook, risks and contingencies
Management said it expected sufficient liquidity for operations and distributions, while noting that future distributions depend on oil and gas market conditions and other factors outside its control. COVID-19, the economic downturn, OPEC-related supply disruptions and low, volatile commodity prices had reduced revenue and created uncertainty. Management could not reliably estimate the duration or ultimate financial effect and was evaluating discretionary spending reductions. Ordinary-course legal and administrative proceedings were reported, with no expected significant effect on financial position, cash flows or results. No material changes to previously disclosed risk factors were reported; disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether oil and gas prices, operator activity and production volumes recover or continue to pressure royalty and NPI receipts.
- The timing and amount of future distributions, given the partnership’s cash-receipts-based distribution policy and the Q3 NPI deficit that resulted in no NPI cash receipts during the quarter.
- Final net proceeds and any adjustments from the Hugoton divestiture.
- Whether higher G&A spending, including IT and compliance costs, persists beyond the period.
- The impact of COVID-19, market volatility and the Minerals NPI’s reported $2.5 million of Bakken capital commitments, equal to its cash on hand.