Dorchester Minerals, L.P. — Q2 2020 Form 10-Q
Business and period: The partnership owns mineral, royalty, overriding royalty, leasehold and net profits interests across 592 counties and parishes in 27 states. This unaudited report covers the three and six months ended June 30, 2020; financial-statement amounts below are in millions unless noted.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net operating revenues | $6.8 | $20.6 | $22.3 | $39.6 |
| Net income | $1.2 | $13.6 | $10.0 | $27.6 |
| Net income per common unit | $0.03 | $0.38 | $0.28 | $0.80 |
| Net cash from operating activities | Not provided by quarter | Not provided by quarter | $26.4 | $35.3 |
- Revenue declined 67% in Q2 and 44% for the first six months year over year. Net income fell about 91% and 64%, respectively.
- Net income margin, calculated from reported figures, was about 17.5% in Q2 2020 versus 66.0% in Q2 2019, and 44.7% for the first half versus 69.6%.
- First-half operating cash flow decreased 25%. Cash and cash equivalents were $11.8 at June 30, 2020, down from $15.3 at year-end 2019. The six-month cash decrease was $3.6, after $30.0 of distributions.
- Total assets were $97.4, total liabilities $5.1, and partnership capital $92.3 at June 30. Liabilities included $2.3 of operating lease obligations; the filing reports no material borrowings. The partnership agreement generally prohibits indebtedness above $50,000, apart from trade payables.
Drivers and material changes
- Lower commodity prices and operator curtailments reduced both prices and volumes. Q2 royalty-property oil and natural gas prices declined 51% and 35%, respectively; royalty sales volumes fell 17% and 31%. First-half royalty oil and gas prices fell 35% and 31%, while volumes declined 17% and 20%.
- Q2 net profits interest (NPI) revenue was $0.3 versus $3.9 a year earlier. Operating costs fell 22% in Q2 and 18% for the first half, largely with lower production taxes and marketing costs. First-half G&A rose 33% to $3.2, mainly from higher IT project and public-company compliance costs in Q1.
- Quarterly distributions recorded in partnership capital were $17.0 in Q2 and $30.0 for the first half. A $0.226318-per-unit second-quarter distribution was scheduled for payment August 13, 2020.
Outlook, risks and contingencies
- Management expected sufficient liquidity for operations and distributions but warned that prolonged COVID-19 effects, weak demand, low energy prices and market volatility could reduce revenues, cash flows and future distributions. No quantified earnings or production guidance is provided.
- The Minerals NPI was in a deficit position at June 30, with $2.6 of outstanding capital commitments compared with $2.5 of cash on hand.
- A July 6, 2020 court order vacated the Army Corps easement for the Dakota Access Pipeline and called for shutdown by August 5. The appellate court issued a temporary administrative stay while considering further relief. The partnership said the litigation does not directly affect operations, but Bakken exposure means transportation, production or development disruption could materially affect royalty and NPI revenues.
- Other ordinary-course legal and administrative proceedings were not expected to have a significant effect on financial position, cash flows or operating results. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Subsequent oil and gas prices, operator activity, and whether production volumes and receipts recover from the pandemic-era decline.
- The status and ultimate effect of Dakota Access Pipeline litigation on Bakken production and transportation.
- The Minerals NPI deficit and capital commitments, and their impact on future NPI payments.
- Cash available for distributions and the timing and amount of subsequent declared distributions.