Dorchester Minerals, L.P. — Q1 2019 Form 10-Q
Business and period. The partnership owns mineral, royalty, overriding royalty, leasehold and net profits interests tied to oil and natural gas production. This unaudited report covers the three months ended March 31, 2019, compared with Q1 2018. It held interests in 595 counties and parishes across 27 states.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Operating revenue | $19.0 million | $15.9 million |
| Operating costs and expenses | $5.1 million | $4.9 million |
| Net income | $14.0 million | $11.0 million |
| Net income per common unit | $0.42 | $0.33 |
| Cash provided by operating activities | $17.7 million | $14.5 million |
| Cash and cash equivalents at period end | $19.9 million | $15.4 million |
Revenue rose about 20% and net income about 28% year over year. Net margin was approximately 73.5%, versus 69.0% in Q1 2018. Operating costs, including production taxes, increased 23% to $1.6 million; depletion and amortization rose 5% to $2.3 million. General and administrative expense fell 27% to $1.1 million.
At March 31, 2019, total assets were $132.2 million and total liabilities were $5.0 million. The partnership reported no borrowings; its partnership agreement generally restricts indebtedness to trade payables, subject to a $50,000 limit. Cash increased $1.6 million from year-end. Cash distributions paid during the quarter totaled $17.2 million. The Q1 2019 distribution was $0.482315 per unit and was scheduled for payment May 9, 2019.
Material changes and notable items
- On March 29, the partnership acquired mineral, royalty and net profits interests from H. Huffman & Co. and The Buffalo Co. for 2.4 million common units valued at $43.8 million. The acquired interests included approximately 76,000 net acres in 172 counties across 14 states. The balance sheet included $42.9 million in net property additions; the transaction also delivered $1.2 million of cash receipts to the partnership.
- The acquisition increased units outstanding from 32.28 million to 34.68 million. Acquired properties’ 2018 production was approximately 88,000 barrels of oil and liquids and 160,000 mcf of natural gas; the filing says these interests generated approximately 88% of the acquired interests’ 2018 net operating income.
- Oil sales volumes increased: royalty-property oil volumes rose 38% and NPI oil volumes rose 60%. Natural gas volumes were nearly flat. Lower weighted average sales prices partially offset volume gains: oil prices declined 16% for royalty properties and 24% for NPIs; gas prices declined 15% and 6%, respectively.
- The partnership adopted lease accounting standard ASC 842 on January 1, 2019. It recognized an office operating-lease right-of-use asset and liability; total lease obligation at quarter-end was $2.7 million. Adoption did not affect partnership capital, income or cash flows.
Outlook, risks and contingencies
No numerical operating or financial guidance is provided. Management says results and cash flows are principally affected by oil and gas sales volumes and prices. The partnership does not anticipate hedging commodity-price exposure. It expects cash flows to cover expenses, but distributions depend on available cash after expenses. The partnership itself is not directly liable for exploration, development or production costs; costs incurred by the operating partnership can affect NPI payments. Potential Oklahoma field activity, including infill drilling, could require substantial capital and affect NPI receipts, though timing and costs are uncertain.
Management identifies commodity prices, property operations and development, economic and industry conditions, and regulatory changes (including environmental requirements) as risks. Ordinary-course legal and administrative proceedings have unpredictable outcomes, but management does not believe they will significantly affect financial position, cash flows or operating results. Disclosure controls were evaluated as effective, and no material change in internal controls was reported.
Investor verification points
- Review the acquisition agreement and subsequent reporting for the acquired assets’ production, costs, and contribution to results; the transaction closed near quarter-end.
- Confirm distribution timing and distinguish the $17.2 million paid during Q1 from the $0.482315-per-unit Q1 distribution scheduled for May 9.
- Track realized oil and gas prices, production volumes, and NPI cash surpluses or deficits, which influence revenue and distributions.
- Review the partnership’s lease obligations and any developments in ordinary-course legal proceedings.