Dorchester Minerals, L.P. — Q1 2015 Form 10-Q
Business and period. The partnership owns oil and natural gas mineral, royalty, overriding royalty, net profits and leasehold interests across 574 counties and parishes in 25 states. This unaudited report covers the three months ended March 31, 2015, compared with the same period in 2014. Its income depends largely on commodity prices and production from those properties.
Financial results
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Operating revenue | $8.804 million | $17.339 million | Down 49.2% |
| Operating income | $4.030 million | $12.247 million | Down 67.1% |
| Net income | $4.031 million | $12.897 million | Down 68.7% |
| Net income per common unit | $0.13 | $0.41 | Down 68.3% |
| Operating cash flow | $10.050 million | $16.290 million | Down 38.3% |
| Cash distributions paid | $15.356 million | $14.934 million | Up 2.8% |
Revenue comprised royalties of $8.281 million, net profits interests (NPIs) of $0.448 million, lease bonus of $0.047 million and other revenue of $0.028 million. Operating costs and expenses were $4.774 million, down 6.3%; general and administrative expense rose 12.2% to $1.275 million, while depreciation, depletion and amortization was $2.465 million.
At March 31, 2015, cash was $10.673 million, current assets were $18.004 million and current liabilities were $1.298 million. Total liabilities were $1.298 million, with no reported debt. Partnership capital was $85.199 million. Cash declined $5.239 million during the quarter, principally as $15.356 million of distributions exceeded operating cash flow. The distribution of $0.306553 per unit was paid May 7, 2015, compared with $0.496172 per unit for Q1 2014.
Material changes and management commentary
- Management attributed the sharp revenue and earnings decline primarily to lower oil and natural gas prices, partly offset by higher oil production. Royalty-property oil and gas sales prices fell 48.4% and 48.3%, respectively; NPI oil and gas prices fell 52.5% and 53.9%.
- Royalty-property oil and gas volumes increased 8.1% and 13.2%. NPI oil volume increased 114.6%, while NPI gas volume declined 11.5%, reflecting reservoir declines and the sale of Kansas working interests.
- Q1 2014 included $0.650 million of other income from settlement of a North Dakota lease dispute; Q1 2015 other income was $0.001 million.
- Q1 2015 NPI cash receipts included a $1.8 million natural gas liquids payment relating to 2014 production under an agreement in effect through 2015. Management said this receipt increased the quarter’s NPI indicated gas price; indicated prices may not match prices for production in the period because of timing and adjustments.
Outlook, risks and contingencies
The filing provides no formal earnings or distribution guidance. Management expects funds to be sufficient for expenses and identifies cash flow from royalty properties and NPIs as its primary capital source. The partnership agreement generally prohibits indebtedness other than trade payables above $50,000 in aggregate or acquisition indebtedness. The partnership does not expect to hedge commodity-price exposure.
Commodity prices, production levels, reservoir declines, development activity and regulatory changes could affect results and distributions. The operating partnership’s Minerals NPI had a cumulative deficit of $6.4 million at March 31, 2015, including $10.7 million of capital commitments against $4.3 million of cash on hand; the filing reports no Minerals NPI net profits income in Q1 2015 because capital expenditures exceeded net operating income. Potential infill drilling in the Guymon-Hugoton field could require significant, unpredictable capital spending and affect NPI payments. The partnership uses the full-cost method; downward reserve revisions or lower prices could trigger a non-cash ceiling-test impairment. Ordinary-course legal and administrative proceedings were not expected to have a significant financial effect. Management reported effective disclosure controls and no material quarterly change in internal controls.
Important facts for investors to verify
- Whether commodity prices and production volumes support future royalty revenue and cash distributions.
- The timing and sustainability of NPI receipts, including the one-time $1.8 million liquids payment and the Minerals NPI deficit and capital commitments.
- How the $0.306553 per-unit distribution compares with future cash generation, given that Q1 distributions paid exceeded Q1 operating cash flow.
- Reserve estimates, ceiling-test headroom and any effect of further price declines or reserve revisions.