Dorchester Minerals, L.P. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2014; filed August 7, 2014. The Partnership owns mineral, royalty, overriding royalty, net profits and leasehold interests across 25 states. Unless otherwise indicated, financial statement amounts below are in millions of dollars.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Operating revenue | $17.973 | $17.295 | $35.312 | $30.513 |
| Operating income | $12.611 | $11.884 | $24.858 | $19.532 |
| Net income | $12.669 | $12.025 | $25.566 | $19.673 |
| Net income per common unit | $0.39 | $0.38 | $0.80 | $0.62 |
| Operating costs and expenses | $5.362 | $5.411 | $10.454 | $10.981 |
| Operating cash flow | $15.992 | $13.043 | $32.282 | $27.678 |
- Q2 revenue increased 3.9% and six-month revenue increased 15.7% year over year. Six-month net income rose approximately 30%.
- At June 30, cash was $16.809 million, current assets were $28.736 million and current liabilities were $1.298 million. Total assets were $108.013 million. The Partnership reported no borrowings; its partnership agreement generally prohibits indebtedness above $50,000, other than trade payables.
- Six-month distributions paid to the general partner and unitholders totaled $30.675 million. The Q2 distribution was $0.490861 per unit and was paid July 31, 2014.
Changes and operating drivers
- Higher natural gas prices, increased oil sales volumes, and greater lease bonus income supported revenue and earnings; lower oil prices and natural gas volumes partly offset those gains.
- Royalty-property gas sales volumes fell 15.1% in Q2 and 25.6% in the first half, while oil volumes rose 38.5% and 40.4%, respectively. NPI gas volumes declined 2.4% and 12.3%; NPI oil volumes increased 21.1% and 57.6%.
- Effective January 1, 2014, the Partnership changed how it classifies plant-product volumes: products formerly converted to natural-gas-equivalent volumes are now converted to liquid-equivalent volumes. Management said this better reflects the products; comparisons with 2013 volumes are affected.
- Six-month depletion and amortization declined 20.6%, attributed to year-end 2013 upward reserve revisions and lower 2014 gas volumes. General and administrative expense rose 17.3% for the first half, primarily due to Bakken Trend and Fayetteville Shale costs.
- First-half other income included $708,000 from a settlement of a North Dakota lease dispute.
Outlook, risks and contingencies
- No specific earnings or production guidance was provided. Management expects funds to be sufficient for expenses and identifies cash flows from royalty properties and NPIs as its principal capital sources. The Partnership is not directly liable for exploration, development or production costs.
- The Minerals NPI was in a temporary $11.3 million deficit at June 30, primarily due to budgeted capital expenditures. NPI payments can be affected by underlying operating-partnership costs and drilling activity.
- Results are exposed to volatile oil and natural gas prices; the Partnership said it does not anticipate hedging. Natural reservoir declines, development activity and the timing of purchaser adjustments or released suspended funds may also affect receipts.
- Reserve estimates and the full-cost ceiling test involve significant judgment; downward reserve revisions or lower prices could result in a non-cash impairment. The Partnership was evaluating ASU 2014-09, effective for annual periods beginning after December 15, 2016, and had not determined its adoption method or impact.
- Ordinary-course legal and administrative proceedings were reported, with no matters believed to have a significant effect on financial position, cash flows or results. Disclosure controls were deemed effective, with no material internal-control changes reported for the quarter.
Important facts for investors to verify
- Whether oil and gas prices, production volumes and the 2014 plant-product classification change sustain reported revenue growth.
- The timing and effect of the Minerals NPI’s temporary deficit and operating-partnership drilling and capital spending on future NPI receipts.
- Reserve estimates, ceiling-test headroom and any subsequent impairment indicators.
- Future distributions and the cash available after operating costs and distributions.
- The outcome of ordinary-course proceedings and the eventual financial-statement impact and transition method for ASU 2014-09.