# Dorchester Minerals, L.P.: Form 10-Q for the period ended Jun 30, 2024

- Company: [Dorchester Minerals, L.P.](/companies/dmlp.md) (CIK 1172358)
- Form: 10-Q
- Filed: 2024-08-01
- Accepted by EDGAR: Aug 1, 2024, 16:10 ET
- Period: 2024-06-30
- Accession: 0001437749-24-024292
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1172358/000143774924024292/dmlp20240630_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1172358/000143774924024292/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $37.4m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $68.3m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | $23.6m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | $41.8m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | $0.57 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | $1.01 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | $57.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-06-30 | $35.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-30 | $57.4m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-30 | $176.0m | us-gaap:Assets |
| Current liabilities | at 2024-06-30 | $4.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-30 | $5.5m | us-gaap:Liabilities |

## Management's discussion and analysis

As filed, 18,093 characters.

The following discussion contains forward-looking statements. For a description of limitations inherent in forward-looking statements, see page 1 of this Quarterly Report on Form 10-Q.

### Objective

This discussion, which presents our results of operations for the three and six months ended June 30, 2024 and 2023, should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes.

### Overview

We own producing and nonproducing mineral, royalty, overriding royalty, net profits and leasehold interests. We refer to these interests as the Royalty Properties. We currently own Royalty Properties in 594 counties and parishes in 28 states.

As of June 30, 2024, we own a net profits overriding royalty interest (referred to as the Net Profits Interest, or “NPI”) in various properties owned by Dorchester Minerals Operating LP (the “Operating Partnership”), a Delaware limited partnership owned directly and indirectly by our General Partner. We receive a monthly payment from the NPI equaling 96.97% of the net profits actually realized by the Operating Partnership from these properties in the preceding month. In the event that costs, including budgeted capital expenditures, exceed revenues on a cash basis in a given month for properties subject to the Net Profits Interest, no payment is made, and any deficit is accumulated and reflected in the following month's calculation of net profit.

In the event the NPI has a deficit of cumulative revenue versus cumulative costs, the deficit will be borne solely by the Operating Partnership.

From a cash perspective, as of June 30, 2024, the NPI was in a surplus position and had outstanding capital commitments, primarily in the Bakken region, equaling cash on hand of $3.8 million.

### Commodity Price Risks

The pricing of oil and natural gas sales is primarily determined by supply and demand in the global marketplace and can fluctuate considerably. As a royalty owner and non-operator, we have extremely limited access to timely information and no operational control over the volumes of oil and natural gas produced and sold or the terms and conditions on which such volumes are marketed and sold.

Our profitability is affected by oil and natural gas market prices. Oil and natural gas market prices have fluctuated significantly in recent years in response to factors outside of our control, including the war in Ukraine, conflicts in the Middle East, fluctuations in interest rates, global supply chain disruptions and actions taken by OPEC+. It is not possible for us to predict or determine how these factors might affect oil and natural gas market prices in the future.

### Results of Operations

### Acquisitions for Common Units

On March 28, 2024, pursuant to a non-taxable contribution and exchange agreement with multiple unrelated third parties, the Partnership acquired mineral interests totaling approximately 1,485 net royalty acres located in two counties in Colorado in exchange for 505,369 common units representing limited partnership interests in the Partnership valued at $17.0 million and issued pursuant to the Partnership’s registration statement on Form S-4. Contributed cash delivered at closing and final settlement net cash received, net of capitalized transaction costs paid, of $4.4 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the six months ended June 30, 2024

On September 30, 2022, pursuant to a non-taxable contribution and exchange agreement with Excess Energy, LLC, a Texas limited liability company, the Partnership acquired mineral, royalty and overriding royalty interests totaling approximately 2,100 net royalty acres located in 12 counties across Texas and New Mexico in exchange for 816,719 common units representing limited partnership interests in the Partnership valued at $20.4 million and issued pursuant to the Partnership's registration statement on Form S-4. Final settlement net cash received, net of capitalized transaction costs paid, of $0.5 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the six months ended June 30, 2023.

### Three and Six Months Ended June 30, 2024 as compared to Three and Six Months Ended June 30, 2023

Our period-to-period changes in net income and cash flows from operating activities are principally determined by changes in oil and natural gas sales volumes and prices, and to a lesser extent, by capital expenditures deducted under the NPI calculation. Our portion of oil and natural gas sales volumes and average sales prices are shown in the following table. Oil sales volumes include volumes attributable to natural gas liquids and oil sales prices include natural gas liquids prices combined by volumetric proportions.

| Accrual basis sales volumes: | Three Months Ended June 30, 2024 | 2023 | % Change | Six Months Ended June 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Royalty Properties natural gas sales (mmcf) | 1,275 | 1,153 | 11% | 2,543 | 2,483 | 2% |
| Royalty Properties oil sales (mbbls) | 423 | 335 | 26% | 766 | 637 | 20% |
| NPI natural gas sales (mmcf) | 493 | 475 | 4% | 982 | 1,339 | (27)% |
| NPI oil sales (mbbls) | 131 | 158 | (17)% | 307 | 427 | (28)% |
| Accrual basis average sales price: |  |  |  |  |  |  |
| Royalty Properties natural gas sales ($/mcf) | $1.47 | $1.78 | (17)% | $1.54 | $2.44 | (37)% |
| Royalty Properties oil sales ($/bbl) | $70.28 | $64.44 | 9% | $68.63 | $66.36 | 3% |
| NPI natural gas sales ($/mcf) | $2.34 | $2.08 | 13% | $1.93 | $2.92 | (34)% |
| NPI oil sales ($/bbl) | $69.26 | $64.51 | 7% | $67.61 | $68.32 | (1)% |

9

Both oil and natural gas sales price changes reflected in the table above resulted from changing market conditions.

The increase in oil sales volumes attributable to our Royalty Properties from the second quarter and first six months of 2023 to the same periods of 2024 is primarily a result of higher suspense releases on new wells and increased baseline production in the Permian Basin and higher suspense releases on first time payments and increased baseline production in South Texas from wells acquired in the third quarter of 2023 and 2022. The increase in natural gas sales volumes attributable to our Royalty Properties from the second quarter of 2023 to the same period of 2024 is primarily a result of higher suspense releases on new wells and increased baseline production in the Permian Basin and Mid-Continent, increased baseline production in South Texas from wells acquired in the third quarter of 2023, and higher suspense releases on new wells in East Texas from wells acquired in the third quarter of 2022, partially offset by decreased production from legacy wells in the Fayetteville Shale and Barnett Shale. The increase in natural gas sales volumes attributable to our Royalty Properties from the first six months of 2023 to the same period of 2024 is primarily attributable to higher suspense releases on new wells and increased baseline production in the Permian Basin and Mid-Continent, increased baseline production in South Texas from wells acquired in the third quarter of 2023, and higher suspense releases on first time payments and increased baseline production in East Texas from wells acquired in the third quarter of 2022, partially offset by lower suspense releases on first time payments from acquired wells in South Texas during the first quarter of 2024 compared to the same period of 2023, primarily attributable to wells acquired in the third quarter of 2022, and decreased production from legacy wells in the Fayetteville Shale and Barnett Shale.

The decrease in oil sales volumes attributable to our NPI properties from the second quarter of 2023 to the same period of 2024 is primarily the result of decreased baseline production in the Permian Basin and lower suspense releases on new wells in the Permian Basin and Bakken region, partially offset by increased baseline production in the Bakken region. The decrease in oil sales volumes attributable to our NPI properties from the first six months of 2023 to the same period of 2024 is primarily the result of decreased baseline production and lower suspense releases on new wells in the Permian Basin, partially offset by increased baseline production and higher suspense releases on new wells in the Bakken region during the second quarter of 2024 compared to the same period of 2023. The increase in natural gas sales volumes attributable to our NPI properties from the second quarter of 2023 to the same period of 2024 is primarily the result of increased baseline production and higher suspense releases in the Mid-Continent. The decrease in natural gas sales volumes attributable to our NPI properties from the first six months of 2023 to the same period of 2024 is primarily the result of lower suspense releases on new wells in the Permian Basin, partially offset by higher suspense releases on new wells in the Mid-Continent and increased baseline production and higher suspense releases on new wells in the Bakken region during the second quarter of 2024 compared to the same period of 2023.

Operating costs, including production taxes, increased 28% from the second quarter of 2023 to the same period of 2024 and 12% from the first six months of 2023 to the same period of 2024. The increases are primarily a result of higher proportionate taxes due to higher oil and natural gas sales volumes and higher oil sales prices attributable to our Royalty Properties.

Depreciation, depletion and amortization increased 44% from the second quarter of 2023 to the same period of 2024 and 22% from the first six months of 2023 to the same period of 2024. We adjust our depletion rate each quarter for significant changes in our estimates of oil and natural gas reserves, including recent acquisitions.

General and administrative expenses decreased 6% from the second quarter of 2023 to the same period of 2024. The decrease is primarily a result of one-time, non-recurring professional services expenses of $1.2 million related to an unsuccessful acquisition in the second quarter of 2023, partially offset by higher compensation expenses, including an expanded Operating Partnership equity program designed for employee retention, and increased professional service fees in the second quarter of 2024. General and administrative expenses increased 7% from the first six months of 2023 to the same period of 2024. The increase is primarily a result of higher compensation expenses, including an expanded Operating Partnership equity program designed for employee retention, and increased legal and professional service fees, partially offset by a decrease resulting from one-time, non-recurring professional services expenses of $1.2 million related to an unsuccessful acquisition in the second quarter of 2023.

Net cash provided by operating activities decreased 16% from the first six months of 2023 to the same period of 2024. The decrease is primarily due to lower NPI payment receipts and higher general and administrative expense payments, partially offset by higher Royalty revenue receipts, net of production taxes and operating expenses.

In an effort to provide the reader with information concerning prices of oil and natural gas sales that correspond to our quarterly distributions, management calculates the average price by dividing gross revenues received by the net volumes of the corresponding product without regard to the timing of the production to which such sales may be attributable. This “indicated price” does not necessarily reflect the contract terms for such sales and may be affected by transportation costs, location differentials, and quality and gravity adjustments. While the relationship between our cash receipts and the timing of the production of oil and natural gas may be described generally, actual cash receipts may be materially impacted by purchasers’ release of suspended funds and by purchasers’ prior period adjustments.

Cash receipts attributable to our Royalty Properties during the second quarter of 2024 totaled $26.1 million. Approximately 74% of these receipts reflect oil sales during March 2024 through May 2024 and natural gas sales during February 2024 through April 2024, and approximately 26% from prior sales periods. The average indicated prices for oil and natural gas sales cash receipts attributable to the Royalty Properties during the second quarter of 2024 were $70.48/bbl and $1.53/mcf, respectively.

Cash receipts attributable to our Net Profits Interest during the second quarter of 2024 totaled $6.4 million. Approximately 69% of these receipts reflect oil and natural gas sales during February 2024 through April 2024, and approximately 31% from prior sales periods. The average indicated prices for oil and natural gas sales cash receipts attributable to the NPI properties during the second quarter of 2024 were $67.51/bbl and $2.24/mcf, respectively.

### Liquidity and Capital Resources

### Capital Resources

Our primary sources of capital, on both a short-term and long-term basis, are our cash flows from the Royalty Properties and the NPI. Our partnership agreement requires that we distribute quarterly an amount equal to all funds that we receive from Royalty Properties and NPIs (other than cash proceeds received by the Partnership from a public or private offering of securities of the Partnership) less certain expenses and reasonable reserves. Additional cash requirements include the payment of oil and natural gas production and property taxes not otherwise deducted from gross production revenues and general and administrative expenses incurred on our behalf and allocated to the Partnership in accordance with the partnership agreement. Because the distributions to our unitholders are, by definition, determined after the payment of all expenses actually paid by us, the only cash requirements that may create liquidity concerns for us are the payment of expenses. Because many of these expenses vary directly with oil and natural gas sales prices and volumes, we anticipate that sufficient funds will be available at all times for payment of these expenses. See Note 5 to the unaudited condensed consolidated financial statements included in “Item 1 – Financial Statements” of this Quarterly Report on Form 10-Q for additional information regarding cash distributions to unitholders.

### Contractual Obligations

The Partnership leases its office space at 3838 Oak Lawn Avenue, Suite 300, Dallas, Texas, through an operating lease (the “Office Lease”). The third amendment to our Office Lease was executed in April 2017 for a term of 129 months, beginning June 1, 2018 and expiring in 2029. Under the third amendment to the Office Lease, monthly rental payments range from $25,000 to $30,000. Future maturities of Office Lease liabilities representing monthly cash rental payment obligations as of June 30, 2024 are summarized as follows:

*(In Thousands)*

|  |  |
| --- | ---: |
| 2024 | $178 |
| 2025 | 362 |
| 2026 | 368 |
| 2027 | 374 |
| 2028 | 380 |
| Thereafter | 63 |
| Total lease payments | 1,725 |
| Less amount representing interest | (550) |
| Total lease obligation | $1,175 |

We are not directly liable for the payment of any exploration, development or production costs. We do not have any transactions, arrangements or other relationships that could materially affect our liquidity or the availability of capital resources. We have not guaranteed the debt of any other party, nor do we have any other arrangements or relationships with other entities that could potentially result in unconsolidated debt.

To the extent necessary to avoid unrelated business taxable income, our partnership agreement prohibits us from incurring indebtedness, excluding trade payables, in excess of $50,000 in the aggregate at any given time or which would constitute “acquisition indebtedness” (as defined in Section 514 of the Internal Revenue Code of 1986, as amended).

We currently expect to have sufficient liquidity to fund our distributions to unitholders and operations despite potential material uncertainties that may impact us as a result of the ongoing global military conflicts, including in Ukraine and the Middle East and current inflation and interest rates. We cannot predict events that may lead to future oil and natural gas price volatility. Our ability to fund future distributions to unitholders may be affected by the prevailing economic conditions in the oil and natural gas market and other financial and business factors, including the possible resurgence of COVID-19 and any ongoing variants, along with global military conflicts, including in Ukraine and the Middle East, which are beyond our control. If market conditions were to change due to declines in oil prices or uncertainty created by a resurgence of COVID-19 or any ongoing variants and our revenues were reduced significantly or our operating costs were to increase significantly, our cash flows and liquidity could be reduced. The current economic environment is volatile, and we cannot predict the ultimate long-term impact on our liquidity or cash flows from factors outside of our control, including those related to COVID-19 or ongoing global military conflicts in Ukraine and the Middle East.

### Liquidity and Working Capital

Cash and cash equivalents totaled $35.2 million at June 30, 2024 and $47.0 million at December 31, 2023.

### Critical Accounting Policies and Estimates

As of June 30, 2024, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our Annual Report for the year ended December 31, 2023.

## Market risk

As filed, 263 characters.

There have been no significant changes in our exposure to market risk during the three months ended June 30, 2024. For a discussion of our exposure to market risk, refer to Item 7A of Part I of the Partnership’s Annual Report for the year ended December 31, 2023.

## Controls and procedures

As filed, 701 characters.

### Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our principal executive officer and principal financial officer carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based on their evaluation, they have concluded that our disclosure controls and procedures were effective.

### Changes in Internal Control

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 199 characters.

There have been no material changes to the Partnership’s risk factors as disclosed under “Item 1A – Risk Factors” in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2023.

Filed Aug 1, 2024.
Source: SEC EDGAR, the filing index for accession 0001437749-24-024292. Last ingested by Listed: Nov 2, 2026, 06:08 ET. No prices; not investment advice.