Dorchester Minerals, L.P. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing. Dorchester Minerals (NASDAQ: DMLP) owns oil and natural gas mineral and royalty interests and a net profits interest (NPI); it generally does not operate its royalty properties. The partnership distributes available cash quarterly, after expenses and reserves.
Financial and operating performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Operating revenue | $170.8 million | $93.4 million | +83% |
| Net income | $130.6 million | $70.2 million | +86% |
| Net income per common unit | $3.35 | $1.94 | +73% |
| Cash from operating activities | $147.1 million | $70.3 million | +109% |
| Cash and cash equivalents at year-end | $40.8 million | $28.3 million | +$12.4 million |
- Net income was approximately 76% of revenue, compared with approximately 75% in 2021. The filing does not present this as a reported margin.
- Revenue included $133.3 million of royalties, $28.2 million from NPIs, $8.7 million of lease bonuses and $0.7 million of other revenue.
- Royalty-property oil and gas sales volumes rose 32% and 21%, respectively; NPI oil and gas volumes rose 31% and 9%. Average realized prices also increased: oil prices were up 32%–36% and natural gas prices up 43%–54%, depending on interest category.
- Production taxes and operating expenses increased 70%; depreciation, depletion and amortization increased 82%; general and administrative expenses increased 58%. Management attributed the increases primarily to higher production, prices and related taxes, and higher compensation costs. The prior-year G&A comparison also included credits from forgiveness of two PPP loans.
- Operating cash flow exceeded net income, partly reflecting noncash depletion and changes in working capital and receivables. The filing does not provide a free-cash-flow measure.
Liquidity, debt and distributions
- Total assets were $176.2 million and total liabilities were $4.7 million at year-end. Liabilities consisted principally of office lease obligations; the partnership reported no borrowings and has no credit facility. Its partnership agreement generally prohibits indebtedness above $50,000, other than trade payables.
- Current assets were $62.5 million versus current liabilities of $3.4 million. Cash was $40.8 million; receivables included $7.2 million due on the related-party NPI.
- Cash distributions paid during 2022 totaled $136.7 million, including $131.9 million to limited partners and $4.8 million to the General Partner. The fourth-quarter 2022 distribution was $0.884339 per unit and was paid February 9, 2023, so it was not a 2022 cash payment.
- The partnership reported no impairments in 2020–2022. Total proved developed producing reserves at year-end were 8.920 million barrels of oil and 39.153 billion cubic feet of natural gas, compared with 9.175 million barrels and 37.899 billion cubic feet in 2021.
Material changes and notable items
- Management attributed the stronger year mainly to higher commodity prices, increased sales volumes, continued Permian Basin drilling, suspense releases and acquired production. Operating cash flow more than doubled from 2021.
- Dorchester acquired interests in 2022 representing approximately 5,700 net royalty acres, issuing 1,386,719 common units valued at $35.2 million. The transactions covered assets in Texas, New Mexico and several other states. The acquisitions were accounted for as asset acquisitions.
- Lease bonus revenue rose to $8.7 million from $0.8 million. A Reagan County, Texas lease generated approximately $7.3 million, at $30,000 per acre with a 25% royalty.
- Year-end proved reserves increased for gas but declined for oil. The standardized measure of discounted future net cash flows rose to $419.2 million from $269.5 million; it is a prescribed reserve estimate, not an appraisal of fair value.
- Grant Thornton issued unqualified opinions on the financial statements and internal controls; it reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective.
Outlook, risks and contingencies
- No specific earnings, production, distribution or commodity-price guidance is provided. Management said it expected sufficient liquidity for operations and distributions, while emphasizing uncertainty in oil and gas markets.
- Cash available for distribution is highly exposed to volatile, unhedged oil and natural gas prices, production volumes, operator drilling decisions, production costs and lease activity. Dorchester has little control over the development or operation of most properties.
- Inflation, higher interest rates, supply constraints, regulatory and environmental changes, climate-related policy, and possible interruptions to transportation infrastructure could affect operators’ costs, drilling and production. The filing also discusses continuing uncertainty from COVID-19 and the Russia-Ukraine conflict.
- A significant portion of NPI properties is concentrated in the Bakken and Permian regions. The filing notes that future Dakota Access Pipeline developments could affect Bakken production, transportation costs and revenue.
- Other disclosed risks include title or payment suspensions, depletion and lease expirations, reserve-estimate uncertainty, operator or purchaser credit issues, uninsured losses, and possible dilution from future unit-funded acquisitions. Ordinary-course legal and administrative proceedings were not believed to have a significant financial effect.
- The General Partner controls the partnership and determines reasonable reserves and expense reimbursements, subject to partnership agreement provisions. Related-party arrangements, limited unitholder voting rights and potential conflicts of interest are also disclosed.
Important facts for investors to verify
- How much of 2022’s revenue and cash-flow growth came from higher prices versus volumes, acquired assets, lease bonuses and suspense releases—and whether those drivers persist.
- The timing and amount of future distributions, noting that distributions depend on actual cash receipts and expenses and are not guaranteed.
- The economic contribution of the 2022 acquisitions relative to the 1.39 million units issued, including the effect of dilution.
- Reserve assumptions and the sensitivity of reserve values and depletion to commodity prices, production estimates and revisions.
- Exposure to Bakken-region transportation and pipeline developments, operator decisions, and evolving environmental and methane rules.