Dorchester Minerals, L.P. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Dorchester Minerals (NASDAQ: DMLP) is a publicly traded partnership that owns mineral and royalty interests and a net profits interest (NPI); it generally does not operate the underlying properties. The filing compares 2020 with 2019.
Financial performance and liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Operating revenue | $46.9 million | $78.8 million | Down 40% |
| Net income | $21.9 million | $52.8 million | Down 59% |
| Net income per common unit | $0.61 | $1.50 | Down 59% |
| Net cash from operating activities | $39.4 million | $66.1 million | Down 40% |
| Distributions paid to limited partners and General Partner | $49.6 million | $70.9 million | Down 30% |
| Cash and cash equivalents at year-end | $11.2 million | $15.3 million | Down $4.1 million |
Revenue comprised $37.0 million of royalties, $8.7 million of NPI revenue, $0.3 million of lease bonuses, and $0.9 million of other revenue. The filing does not provide a stated operating or net margin. Production taxes and operating expenses totaled $5.7 million, depreciation, depletion and amortization was $11.9 million, and general and administrative expense was $7.5 million.
At year-end, current assets were $18.2 million and current liabilities were $1.9 million. Total liabilities were $3.8 million, including operating lease liabilities; the Partnership reported no credit facility and expects no material debt other than ordinary-course trade payables. Its partnership agreement generally restricts indebtedness other than trade payables to $50,000. The Partnership distributed $48.2 million to limited partners during 2020 ($1.391063 per unit); a further fourth-quarter distribution of $0.242260 per unit was paid in February 2021.
Material changes versus 2019
- Oil and gas prices and volumes declined. Royalty-property oil and gas sales volumes fell 13% and 12%, respectively; average realized prices fell 30% and 11%. NPI gas volume fell 19%, while NPI oil volume was approximately flat; average NPI oil and gas prices declined 31% and 28%.
- Lease bonus revenue fell 92%, from $3.8 million to $0.3 million, reflecting lower leasing activity. Other revenue rose 80% to $0.9 million, primarily due to favorable legal settlements.
- G&A rose 23%, mainly from a $0.6 million land-information technology project, higher public-company compliance costs, and $1.0 million of divestiture transaction and severance costs, partly offset by lower bonuses.
- The Partnership divested its Hugoton NPI and related assets in September 2020; its share of proceeds was $5.0 million net of transaction costs and holdbacks. It also divested the immaterial HHC entity in October. Property-sale proceeds were credited to the full-cost pool because the divestiture was not considered a significant portion of reserves.
- Year-end proved developed producing reserves were 9.344 million barrels of oil and 33.779 billion cubic feet of gas, versus 9.638 million barrels and 45.860 billion cubic feet in 2019. The filing attributes the gas reduction in part to divestitures and lower-price-related reserve revisions.
Outlook, risks and unusual items
Management gave no specific earnings, production, price or distribution guidance. It said it expected sufficient liquidity to fund operations and distributions, while emphasizing uncertainty from COVID-19, commodity-market volatility, and potential revenue declines or cost increases. The Partnership said it was evaluating reductions in discretionary spending.
- COVID-19-related demand weakness and the 2020 oil-price shock contributed to lower prices, operator curtailments and reduced activity. Management could not reliably estimate the duration or ultimate financial impact.
- Distributions depend on commodity prices, production, lease activity and costs. As a non-operator, the Partnership has limited information and control over production and development decisions; NPI payments are also sensitive to production costs and accumulated deficits.
- Risks include depleting reserves, regional concentration in the Bakken and Permian, regulatory and environmental changes, and uncertainty around Dakota Access Pipeline operations, which could affect Bakken production and transportation.
- The Partnership received an IRS ruling allowing aggregation of specified NPIs for federal tax purposes effective January 1, 2020. It also disclosed tax-treatment uncertainties, including partnership status and potential unitholder tax consequences.
- Ordinary-course legal and administrative proceedings were not expected to have a significant financial effect. The auditor issued an unqualified opinion and reported no critical audit matters. Management reported effective disclosure controls and internal control over financial reporting.
Key facts for investors to verify
- How commodity prices, operator activity and production volumes affect future cash receipts and distributions.
- The remaining effects of the Hugoton and HHC divestitures on revenues, reserves and NPI economics, including any post-closing adjustments or holdbacks.
- Whether the 2020 distribution level is sustainable given operating cash flow of $39.4 million versus $49.6 million of distributions paid to partners.
- Reserve estimates and the assumptions behind future cash-flow values; the standardized measure fell to $136.8 million from $208.8 million in 2019 and is not necessarily fair value.
- Potential impacts of COVID-19, Bakken pipeline developments, regulation and tax treatment on cash flows and unitholder returns.