Dorchester Minerals(DMLP) - 2019 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the period ended September 30, 2019, including balance sheets, income statements, cash flows, and notes on accounting policies and acquisitions Condensed Consolidated Balance Sheets Total assets increased to $124.0 million from $87.9 million by September 30, 2019, driven by oil and natural gas properties, while total liabilities rose to $6.0 million due to new lease accounting standards Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total current assets | $31,903 | $30,118 | | Total assets | $123,974 | $87,923 | | Total current liabilities | $3,770 | $486 | | Total liabilities | $6,031 | $1,276 | | Total partnership capital | $117,943 | $86,647 | Condensed Consolidated Income Statements Net income for Q3 2019 increased to $12.9 million from $9.3 million, and for the nine-month period, it rose to $40.4 million from $36.6 million, driven by higher net operating revenues Income Statement Summary (in thousands, except per unit data) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total net operating revenues | $19,569 | $13,938 | $59,200 | $50,944 | | Total costs and expenses | $6,702 | $4,659 | $18,758 | $14,338 | | Net income | $12,867 | $9,279 | $40,442 | $36,606 | | Net income per common unit | $0.35 | $0.27 | $1.15 | $1.09 | Condensed Consolidated Statements of Changes in Partnership Capital Partnership capital increased to $117.9 million by September 30, 2019, from $86.6 million, primarily due to $40.4 million net income and a $43.8 million asset acquisition, offset by $53.0 million in distributions - In the first nine months of 2019, the Partnership issued 2,400,000 common units valued at $43.8 million to acquire assets[21] - Total distributions paid to the general partner and unitholders for the first nine months of 2019 amounted to $52.97 million[21] Condensed Consolidated Statements of Cash Flows Net cash from operating activities increased to $54.8 million for the nine months ended September 30, 2019, with cash and cash equivalents rising by $3.6 million to $21.9 million Cash Flow Summary (in thousands) | Metric | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $54,756 | $46,685 | | Net cash provided by (used in) investing activities | $1,845 | $(66) | | Net cash used in financing activities | $(52,970) | $(44,743) | | Increase in cash and cash equivalents | $3,631 | $1,876 | - A significant non-cash activity was the issuance of common units valued at $43.8 million for acquisitions[24] Notes to the Condensed Consolidated Financial Statements Notes detail key accounting events, including the March 2019 acquisition of mineral and royalty interests for $43.8 million in common units, and the adoption of ASC 842, recognizing right-of-use assets and lease liabilities - On March 29, 2019, the Partnership acquired mineral and royalty interests in exchange for 2,400,000 common units valued at $43.8 million, accounted for as an asset acquisition[34] - The Partnership adopted the new lease accounting standard ASC 842 on January 1, 2019, using the modified retrospective transition method, resulting in recognizing a right-of-use asset of $1.9 million and a lease liability of $2.7 million[39][47] Quarterly Distributions Per Common Unit | Quarter | 2019 | 2018 | | :--- | :--- | :--- | | First | $0.482315 | $0.418449 | | Second | $0.515016 | $0.537264 | | Third | $0.499055 | $0.394813 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial performance drivers, including the Huffman Acquisition, commodity price fluctuations, and production volumes, highlighting increased oil and gas sales offset by lower natural gas prices, and the company's strong liquidity Results of Operations Net operating revenues increased 41% to $19.6 million in Q3 2019, driven by higher volumes and lease bonus revenue, with Royalty property oil sales volumes up 31%, despite declining average sales prices for oil and natural gas Sales Volumes and Price Changes (9 Months Ended Sep 30, 2019 vs 2018) | Metric | % Change | | :--- | :--- | | Royalty properties natural gas sales (mmcf) | +18% | | Royalty properties oil sales (mbbls) | +31% | | NPI natural gas sales (mmcf) | +5% | | NPI oil sales (mbbls) | +15% | | Royalty properties natural gas price ($/mcf) | -25% | | Royalty properties oil price ($/bbl) | -12% | | NPI natural gas price ($/mcf) | -18% | | NPI oil price ($/bbl) | -19% | - The increase in Royalty property oil sales volumes was primarily due to heightened production in the Permian Basin and Bakken regions[59] - Net income allocable to common units for Q3 2019 increased 39% year-over-year to $12.4 million, and increased 11% for the first nine months to $39.1 million[67] Liquidity and Capital Resources Primary capital sources are cash flows from NPIs and Royalty properties, with cash requirements for distributions and G&A expenses, while indebtedness is strictly limited to $50,000, and cash and cash equivalents totaled $21.9 million - The Partnership's primary capital sources are cash flows from its NPIs and Royalty properties, and it is not directly liable for exploration, development, or production costs[73][74] - The partnership agreement prohibits incurring indebtedness in excess of $50,000 in the aggregate at any given time[75] - Cash and cash equivalents increased from $18.3 million at year-end 2018 to $21.9 million at September 30, 2019[81] Quantitative and Qualitative Disclosures About Market Risk The Partnership's primary market risk is exposure to volatile oil and natural gas prices, with no financial hedging used, and no material exposure to interest rate or foreign currency exchange risks - The Partnership is subject to market risk from fluctuations in oil and natural gas prices, which have been unpredictable[83] - The company does not anticipate entering into financial hedging activities to reduce its exposure to commodity price fluctuations[83] - There is no anticipated material risk from interest rates or foreign currency exchange rates, as the Partnership does not plan to incur debt (other than trade debt) or engage in foreign transactions[84] Controls and Procedures Disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal controls over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[85] - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[86] PART II – OTHER INFORMATION Legal Proceedings The Partnership is involved in ordinary course legal and administrative proceedings, none of which are expected to significantly affect its financial position, cash flows, or operating results - The Partnership and its Operating Partnership are involved in ordinary course legal proceedings, none of which are expected to have a significant effect on financial results[89] Issuer Purchases of Equity Securities An affiliate purchased 16,416 common units at an average price of $18.18 per unit in Q3 2019 under a Rule 10b5-1 plan to fulfill equity award obligations Issuer Purchases of Equity Securities (Q3 2019) | Period | Total Units Purchased | Average Price Paid per Unit | Total Units Purchased as Part of Publicly Announced Plans | | :--- | :--- | :--- | :--- | | July 2019 | - | N/A | - | | August 2019 | 16,416 | $18.18 | 16,416 | | September 2019 | - | N/A | - | | Total | 16,416 | $18.18 | 16,416 | Exhibits This section lists all exhibits filed with the Form 10-Q, including formation documents, agreements, CEO/CFO certifications, and interactive data files (XBRL) - The report includes a list of filed exhibits, such as the Certificate of Limited Partnership, various agreements, and CEO/CFO certifications (Rules 13a-14(a) and 18 U.S.C. Sec. 1350)[93][94] - Interactive Data Files, including XBRL Instance Document and related taxonomy schemas, were also furnished with the report[94]