Dorchester Minerals, L.P. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. The partnership owns mineral, royalty, overriding royalty, net profits and leasehold interests across 26 states. Unless stated otherwise, dollar figures below are in millions.
Financial performance
- Q2 revenue: $21.36, up 215% from $6.80. Royalties were $16.77 and net profits interest (NPI) revenue was $4.22.
- Q2 net income: $16.51 versus $1.19; net income per common unit was $0.46 versus $0.03. Net margin was approximately 77%, compared with 18% in Q2 2020.
- First-half revenue: $39.15, up 76% from $22.27. Net income: $28.31 versus $9.95; per-unit income was $0.79 versus $0.28. Net margin was approximately 72%, compared with 45%.
- First-half operating cash flow: $28.21, up 7% from $26.41. Distributions paid were $19.58, down from $30.00 in the prior-year period. Cash increased by $9.25 to $20.48.
- Liquidity and debt: Current assets were $32.34 and current liabilities $2.16 at June 30. Total liabilities were $3.90, consisting mainly of operating lease liabilities; the filing reports no material borrowing. The partnership agreement generally limits indebtedness to $50,000, except trade payables and specified acquisition indebtedness.
- Costs: First-half operating costs were $3.17, DD&A $4.78, and G&A $2.89. The filing does not provide a separate operating-margin measure.
Material changes and unusual items
- Higher oil and natural gas prices were the primary driver of improved results. Q2 royalty-property average prices rose 142% for oil and 200% for natural gas year over year; first-half prices rose 74% and 112%, respectively. Royalty-property volumes were mixed, while NPI sales volumes declined, partly because production from the divested Hugoton interest was no longer included.
- On June 30, the partnership acquired approximately 6,400 net royalty acres in North Dakota’s Bakken Trend, issuing 725,000 common units valued at $12.2 million. The balance sheet includes $11.9 million of net oil and gas properties from the transaction.
- Q2 and first-half G&A benefited from forgiveness of the Operating Partnership’s $0.9 million Paycheck Protection Program loan, recorded as a nonrecurring credit to compensation costs. Lower costs were partly offset by higher IT project costs.
- First-half investing cash flow was $0.61, including $0.35 net cash contributed in the royalty-property acquisition and $0.26 proceeds from sale of oil and gas properties. The acquisition was primarily unit-funded; the units’ $12.2 million fair value was a noncash investing and financing activity.
- The Q2 2021 distribution of $0.480528 per unit was scheduled for payment August 12, 2021. The partnership’s agreement requires quarterly distributions of available funds after expenses and reserves.
Outlook, risks and contingencies
- Management expected sufficient liquidity for operations and distributions but provided no numerical earnings, production, or distribution guidance. Future distributions depend on cash receipts, expenses, reserves, and market conditions.
- Oil and gas prices remain volatile. COVID-19 and its variants, future restrictions, OPEC actions, and changes in energy demand could affect prices, revenue, cash flow, and distributions.
- As a royalty owner and non-operator, the partnership has limited operational control and limited timely information on production and marketing. Revenue estimates can be affected by reporting delays; royalty and NPI receipts generally arrive two to four months after production.
- The NPI was in a cash surplus position at June 30, with outstanding capital commitments—primarily in the Bakken—equal to $1.7 million.
- Ordinary-course legal and administrative proceedings were not believed to have a significant financial effect. The filing reported no material change in risk factors and no material change in internal controls; disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether stronger commodity prices and royalty-property production continue, and how those trends affect cash receipts and distributions.
- The acquired Bakken interests’ contribution to revenue and the impact of issuing 725,000 units on per-unit results.
- The durability of earnings excluding the one-time $0.9 million loan-forgiveness benefit.
- Current NPI surplus, capital commitments, and effects of the Hugoton divestiture on NPI volumes and receipts.
- The timing and amount of subsequent distributions; the stated Q2 distribution was scheduled for August 12, 2021.