Dorchester Minerals, L.P. — Q3 2023 Form 10-Q
Business and period. The partnership owns mineral, royalty, overriding royalty, leasehold and net profits interests across 593 counties and parishes in 28 states. This unaudited report covers the three and nine months ended September 30, 2023; financial comparisons are with the corresponding 2022 periods.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $42.6 million | $44.1 million | $113.4 million | $131.9 million |
| Net income | $29.5 million | $34.2 million | $77.3 million | $102.1 million |
| Net income per common unit | $0.73 | $0.88 | $1.94 | $2.64 |
| Net cash from operating activities | Not provided for quarter | Not provided for quarter | $101.9 million | $113.4 million |
- Q3 revenue declined 3% and net income declined 14%; nine-month revenue declined 14% and net income declined 24%. Approximate net margins were 69% versus 78% in Q3 and 68% versus 77% year to date.
- Q3 revenue comprised royalties of $35.8 million, net profits interest (NPI) revenue of $6.0 million, and lease bonus and other revenue of $0.8 million. Year-to-date amounts were $84.1 million, $26.8 million, and $2.5 million, respectively.
- Q3 operating costs, including production taxes, were $3.7 million; depreciation, depletion and amortization (DD&A) was $6.6 million; general and administrative expense (G&A) was $2.8 million. Year-to-date totals were $9.2 million, $18.6 million, and $8.3 million, respectively.
- At September 30, cash was $43.5 million, total current assets were $63.1 million, and current liabilities were $7.7 million. Total liabilities were $8.8 million, consisting primarily of payables and operating lease liabilities; the filing reports no borrowings. The partnership agreement generally prohibits indebtedness above $50,000, other than trade payables.
- Nine-month operating cash flow was $101.9 million. Distributions paid were $101.2 million, compared with $91.5 million in the prior-year period. Cash increased $2.7 million to $43.5 million.
Changes, capital allocation and outlook
- Sales volumes increased, but realized prices fell substantially year over year. In Q3, royalty-property oil and gas volumes rose 48% and 24%, respectively, while average prices fell 15% and 68%. NPI oil and gas volumes rose 69% and 42%, while prices fell 20% and 70%. Similar price declines affected the nine-month comparison.
- Management attributed higher volumes mainly to production and suspense releases on new wells, particularly in the Permian Basin and Bakken; regional declines partly offset those gains. Lower commodity prices and lower lease-bonus receipts contributed to weaker year-to-date results. Q3 2022 lease-bonus revenue included an approximately $7.3 million bonus.
- DD&A rose 56% in Q3 and 38% year to date, reflecting quarterly depletion-rate adjustments, including reserve estimates and acquisitions. G&A rose 15% in Q3 and 37% year to date; the nine-month increase included $1.2 million of nonrecurring professional fees for an unsuccessful acquisition.
- During Q3, the partnership acquired about 2,184 net royalty acres through three transactions, issuing units valued at $35.8 million. The acquisitions were recorded as asset purchases. Outstanding units were 39.6 million at September 30, versus 38.4 million a year earlier.
- The announced Q3 2023 distribution was $0.845120 per unit, payable November 9, 2023. The partnership generally distributes funds received, less expenses and reserves. Management expects adequate liquidity for operations and distributions but provided no quantified earnings or distribution guidance.
- Management cited oil and gas price volatility, geopolitical and economic uncertainty, and possible effects of COVID-19 developments as risks to revenue, cash flow and future distributions. The NPI was in a cash-surplus position at September 30, with outstanding capital commitments, primarily in the Bakken, equal to $4.9 million of cash on hand.
Other matters and investor checks
- The partnership reported ordinary-course legal and administrative proceedings that it does not believe will significantly affect its financial position, cash flows or results. It reported no material risk-factor changes, effective disclosure controls, and no material changes in internal control over financial reporting.
- Verify how commodity prices and production volumes affect future receipts, particularly given the steep year-over-year gas-price declines and reliance on suspense releases.
- Assess the economics and production contribution of the 2023 unit-funded acquisitions, including the effect of additional units on per-unit results.
- Review distribution sustainability against cash flow, expenses, reserves and NPI capital commitments; distributions are not guaranteed.
- Consider the impact of the $1.2 million unsuccessful-acquisition expense and higher DD&A and G&A when evaluating normalized earnings.