Dorchester Minerals, L.P. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Financial statement amounts below are in millions of dollars, except per-unit data. Dorchester owns mineral, royalty, overriding royalty, leasehold and net profits interests across 590 counties and parishes in 28 states.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net operating revenue | $47.459 | $21.361 | $87.860 | $39.150 |
| Net income | $37.324 | $16.509 | $67.948 | $28.310 |
| Net income per common unit | $0.96 | $0.46 | $1.76 | $0.79 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $67.444 | $28.211 |
Revenue increased approximately 122% in Q2 and 124% in the first half; net income rose approximately 126% and 140%, respectively. Net income was about 79% of revenue in Q2 2022 versus 77% in Q2 2021, and about 77% in the first half versus 72% in the prior-year period (calculated from reported figures).
- Revenue drivers: Q2 royalty revenue was $37.140 million and net profits interest revenue was $9.013 million. First-half royalty revenue was $72.019 million and NPI revenue was $14.483 million.
- Cash and liquidity: Cash was $42.976 million at June 30, 2022, up from $28.306 million at year-end 2021. Current assets were $72.648 million against current liabilities of $4.370 million.
- Debt and obligations: The filing reports no borrowings; total liabilities were $5.822 million, including $1.738 million of operating lease liabilities. The partnership agreement generally limits indebtedness to trade payables and restricts other debt.
- Distributions: $53.777 million was paid in the first half, compared with $19.578 million in the first half of 2021. A Q2 2022 distribution of $0.969012 per unit was declared for payment August 11, 2022.
Material changes and notable items
- Oil and gas sales prices and volumes increased substantially. For Q2, royalty-property oil and gas volumes rose 41% and 9%, respectively; average prices rose 61% and 86%. NPI oil volume rose 43% and gas volume fell 15%; average NPI oil and gas prices rose 45% and 128%.
- Management attributed growth to higher commodity prices, stronger production and suspense releases in several regions. Lease bonus revenue also rose, primarily from a Permian Basin lease bonus received in Q2.
- Operating costs, including production taxes, increased 132% in Q2 and 124% in the first half, largely due to higher sales volumes, prices and ad valorem taxes. DD&A increased 92% and 93%, respectively. First-half G&A increased 24%; Q2 G&A increased 115%, partly reflecting the prior-year benefit from forgiveness of a $0.9 million PPP loan.
- On March 31, 2022, the Partnership acquired interests representing approximately 3,600 net royalty acres in seven states for 570,000 common units valued at $14.8 million.
Outlook, risks and contingencies
No quantitative earnings or production guidance is provided. Management expects liquidity to be sufficient for operations and distributions, but notes that future distributions depend on oil and gas market conditions and cash flows. Commodity-price volatility, COVID-19 and its variants, the Russia-Ukraine conflict, inflation, interest rates and potential supply disruptions are cited as uncertainties. As a royalty owner and non-operator, the Partnership has limited operational control and limited timely information about production and marketing.
The NPI was in a cash surplus position at June 30, 2022, with outstanding capital commitments—primarily in the Bakken—equal to its $4.1 million cash on hand. Ordinary-course legal and administrative proceedings were not expected to have a significant financial effect. The filing reports no material changes to previously disclosed risk factors, and management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether higher commodity prices and production levels persist, and how they affect royalty and NPI receipts.
- The timing and amount of future distributions, which are variable and tied to receipts, expenses and reserves.
- The production, reserve and cash-flow contribution from the March 2022 acquisition and the units issued for it.
- Changes in NPI capital commitments, operating costs, production taxes and depletion estimates.
- Any developments in commodity-market, geopolitical, pandemic or regulatory risks that could affect cash flows.