Dorchester Minerals, L.P. — Q2 2023 Form 10-Q
Business context and period. The partnership owns mineral, royalty, overriding royalty, net profits and leasehold interests across 592 counties and parishes in 28 states. This unaudited report covers the quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Financial statement amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Operating revenue | $30.6 | $47.5 | $70.8 | $87.9 |
| Net income | $19.8 | $37.3 | $47.9 | $67.9 |
| Net income per common unit | $0.50 | $0.96 | $1.21 | $1.76 |
| Net margin, derived | 64.7% | 78.6% | 67.6% | 77.3% |
Q2 revenue fell 35% and net income fell 47% year over year; first-half revenue declined 19% and net income declined 30%. Reported costs and expenses were $10.8 million in Q2 and $22.9 million for the first half. General and administrative expense included $1.2 million of one-time professional fees related to an unsuccessful acquisition in Q2.
For the first six months, net cash provided by operating activities was $68.1 million, compared with $67.4 million in 2022. Distributions paid totaled $74.1 million versus $53.8 million, and cash declined by $5.4 million to $35.3 million. The partnership reported no material debt; its partnership agreement generally restricts indebtedness beyond trade payables to $50,000. Operating lease liabilities totaled $1.45 million.
At June 30, cash was $35.3 million, current assets were $51.4 million and current liabilities were $6.6 million. Total assets were $153.1 million and partnership capital was $145.3 million. Management said it expects sufficient liquidity for operations and distributions. The NPI was in a cash surplus position, with outstanding capital commitments, primarily in the Bakken, equal to the $6.3 million of cash on hand for the NPI.
Material changes and drivers
- Q2 royalty revenue was $23.6 million versus $37.1 million; NPI revenue was $5.8 million versus $9.0 million. For the first half, royalty revenue fell to $48.3 million from $72.0 million, while NPI revenue rose to $20.8 million from $14.5 million.
- Oil and natural gas sales prices were substantially lower than in 2022. For Q2, royalty-property average prices declined 32% for oil and 72% for natural gas; NPI prices declined 23% and 73%, respectively. First-half price declines were also significant.
- Volumes were mixed: first-half royalty oil volume declined 7%, while royalty natural gas volume rose 10%. NPI oil and natural gas volumes increased 83% and 99%, respectively, from the prior-year first half. Management attributed volume changes to production and releases of previously suspended purchaser proceeds across regions.
- Lower commodity prices reduced operating costs, including production taxes, by 28% in Q2 and 23% for the first half. Depreciation, depletion and amortization increased 12% and 30%, respectively, partly reflecting reserve estimate changes and acquisitions.
- Operating cash flow remained broadly level year over year, as higher NPI receipts offset lower royalty receipts. First-half distributions were $1.873995 per unit, compared with $1.393213 per unit in 2022.
Outlook, risks and other notable items
The partnership depends on oil and natural gas prices, production volumes and operators’ decisions, but has no operational control over its properties. Management noted that commodity prices remain volatile and cited uncertainty related to inflation, interest rates, the Russia-Ukraine conflict, OPEC+ actions and possible changes in energy demand. The filing provides no numerical earnings or production guidance.
The Q2 2023 distribution of $0.676818 per unit was scheduled to be paid August 10, 2023. Subsequent to quarter-end, on July 12, the partnership acquired approximately 900 net royalty acres in Louisiana, New Mexico and Texas in exchange for 343,750 common units valued at $11.0 million. Ordinary-course legal and administrative proceedings were disclosed; management does not believe they will significantly affect financial position, cash flows or results. The filing reported no material changes to previously disclosed risk factors and no significant change in market-risk exposure.
Important facts for investors to verify
- Whether commodity prices and production volumes support future royalty and NPI receipts, given the sharp year-over-year price declines.
- How much of future NPI cash flows will be affected by capital spending and the reported $6.3 million of outstanding NPI commitments.
- Whether distributions remain supported by operating cash flow, particularly as first-half distributions exceeded operating cash flow.
- The financial contribution of the July 2023 acreage acquisition and the effect of issuing 343,750 units on per-unit results and distributions.
- The ongoing level of G&A expense after the $1.2 million unsuccessful-acquisition expense and other increases noted by management.