Dorchester Minerals, L.P. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparison is with Q1 2020 unless otherwise noted. Dorchester owns mineral and royalty interests and a net profits interest (NPI), and generally does not operate the properties. Financial amounts below are in millions except per-unit data and where stated.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Operating revenues | $17.789 | $15.476 | +15% |
| Net income | $11.801 | $8.761 | +35% |
| Net income per common unit | $0.33 | $0.25 | +32% |
| Cash provided by operating activities | $10.509 | $17.840 | -41% |
| Distributions paid | $8.681 | $12.953 | -33% |
- Revenue comprised royalties of $14.371 million, NPI revenue of $2.975 million, and lease bonus and other revenue of $0.443 million. Total costs and expenses were $5.988 million. Net income margin was approximately 66%, compared with 57% a year earlier.
- Operating expenses, including production taxes, were $1.521 million, up 7%; depreciation, depletion and amortization was $2.298 million, down 32%; general and administrative expense was $2.169 million, up 16%.
- Cash and cash equivalents were $13.322 million at March 31, up from $11.232 million at year-end. Current assets were $23.570 million and current liabilities $1.783 million.
- Total liabilities were $3.594 million, primarily operating lease liabilities. The filing reports no material borrowing; the partnership agreement generally restricts indebtedness to no more than $50,000, apart from trade payables, and prohibits acquisition indebtedness.
- Q1 cash flow included $0.262 million of property-sale proceeds and $8.681 million of distributions; cash increased by $2.090 million. Operating cash flow fell despite higher net income, principally because NPI cash receipts were lower.
Material changes and operating drivers
- Higher oil and gas prices and increased Royalty Properties oil volumes drove revenue growth, partly offset by lower NPI revenue and lower Royalty Properties gas volumes.
- Royalty Properties oil and gas sales volumes changed by +12% and -15%, respectively. NPI oil and gas volumes fell 51% and 63%, respectively. Average accrual-basis sales prices increased for both properties and the NPI; reported increases ranged from 11% to 154%.
- The NPI volume declines reflected lower production and suspense releases and the 2020 divestiture of the Hugoton NPI. The divestiture’s $5.7 million gross proceeds were credited to the full-cost pool in 2020; $0.2 million of customary holdbacks was received in Q1 2021.
- Management attributed the increase in G&A mainly to compensation costs, partly offset by lower IT and consulting project costs; lower depletion expense reflected changes in reserve estimates.
Outlook, risks and other items
- No specific earnings or production guidance was provided. Management said it expected sufficient liquidity for operations and distributions, while cautioning that future distributions depend on market conditions and cash flows.
- Oil and gas price volatility, supply and demand, the ongoing effects of COVID-19, and OPEC actions could affect revenue, cash flow and distributions. As a non-operator, the Partnership has limited timely information and no operational control over production or marketing.
- At March 31, the NPI was in a surplus position, with Bakken capital commitments equal to its $1.4 million cash on hand. The Partnership said it is not directly liable for exploration, development or production costs.
- On April 30, 2021, the Partnership agreed to acquire overriding royalty interests in approximately 6,400 net royalty acres in North Dakota’s Bakken region for 725,000 common units; closing was expected June 30, 2021. This would increase the unit count if completed.
- Ordinary-course legal and administrative proceedings were not believed to have a significant financial effect. The filing reported no material changes to risk factors and stated that disclosure controls were effective.
Important facts for investors to verify
- Whether the expected Bakken acquisition closed on the stated terms and how unit issuance affects per-unit distributions.
- How lower NPI volumes and the Hugoton divestiture affect future NPI receipts, alongside commodity prices and production trends.
- The difference between $8.681 million of distributions recorded in Q1 and the separately disclosed $0.303441-per-unit Q1 distribution scheduled for payment May 13, 2021.
- Whether operating cash flow and cash available for distributions recover, given the year-over-year decline in operating cash flow.