Dorchester Minerals, L.P. (NASDAQ:DMLP) is a Dallas-based owner of producing and non-producing oil and natural gas mineral, royalty, overriding royalty, net profits, and leasehold interests located across 28 states. As a publicly traded master limited partnership, Dorchester Minerals provides investors with exposure to a diversified portfolio of oil and gas assets, while also offering an attractive yield through its quarterly cash distributions.
Dorchester Minerals' Origins and Growth Story
Dorchester Minerals, L.P. is a publicly traded Delaware limited partnership that commenced operations on January 31, 2003. The partnership was formed through the combination of Dorchester Hugoton, Ltd., a publicly traded Texas limited partnership, and two private Texas limited partnerships, Republic Royalty Company, L.P. and Spinnaker Royalty Company, L.P. This consolidation allowed the newly formed Dorchester Minerals to leverage a larger, more diverse asset base to generate stable cash flows for its unitholders.
Since its inception, Dorchester Minerals has strategically grown its portfolio through numerous acquisitions of mineral and royalty interests. In 2022, the Partnership acquired mineral, royalty, and overriding royalty interests totaling approximately 2,100 net royalty acres located across 12 counties in Texas and New Mexico. In 2023, the partnership made several significant acquisitions, including approximately 900 net royalty acres located in 13 counties and parishes across Louisiana, New Mexico, and Texas, 568 net royalty acres in three counties in Texas, and 716 net royalty acres in three counties in Texas. These acquisitions were structured as non-taxable contribution and exchange agreements where the contributing entities received common units in the partnership in exchange for their interests.
Dorchester Minerals' Diversified Asset Base
Dorchester Minerals' assets are divided into two main categories: Royalty Properties and Net Profits Interests (NPIs). The Royalty Properties consist of producing and non-producing mineral, royalty, overriding royalty, net profits, and leasehold interests located across 594 counties and parishes in 28 states. The NPIs represent net profits overriding royalty interests burdening various properties owned by the Partnership's operating subsidiary.
As of December 31, 2024, Dorchester Minerals' total proved oil and natural gas reserves were estimated at 17.0 million barrels of oil equivalent (mmboe), of which approximately 86% were attributable to the Royalty Properties. The Partnership's diverse asset base provides exposure to a wide range of oil and gas plays, including the prolific Permian Basin, Bakken region, and various other basins across the United States.
Financial Strength and Cash Flow Generation
Dorchester Minerals has maintained a conservative capital structure throughout its history, avoiding the use of debt financing. This prudent approach has allowed the Partnership to successfully navigate challenging industry environments, such as the COVID-19 pandemic and recent volatility in commodity prices.
For the year ended December 31, 2024, Dorchester Minerals reported net income of $92.4 million, or $2.13 per common unit. The Partnership's operating cash flow for the same period was $132.6 million, while free cash flow amounted to $132.6 million. Dorchester Minerals' strong cash flow generation has enabled it to provide consistent quarterly cash distributions to its unitholders, with the most recent distribution being $0.74 per common unit.
In the most recent fiscal year (2024), Dorchester Minerals reported revenue of $161.5 million. The Royalty Properties segment accounted for $137.5 million, or approximately 85% of the Partnership's total operating revenues. The Net Profits Interest (NPI) segment generated $21.9 million, or approximately 14% of the total operating revenues. Additionally, the Partnership recorded $314,000 in lease bonus revenue, representing about 0.2% of its total operating revenues.
For the fourth quarter of 2024, Dorchester Minerals reported revenue of $39.7 million and net income of $14.2 million. Compared to the prior year quarter, revenue increased by 15% while net income decreased by 20%. This decline in net income was primarily attributed to lower NPI payments and lease bonus revenue, partially offset by higher Royalty Properties sales volumes.
Liquidity
Dorchester Minerals' conservative financial management and strong cash flow generation have resulted in a robust liquidity position. As of December 31, 2024, the Partnership reported $42.5 million in cash and cash equivalents. Dorchester Minerals maintains a strong balance sheet with minimal debt, reporting a debt-to-equity ratio of 0.003 at the end of 2024. The Partnership does not have any available credit facilities or lines of credit.
The Partnership's current ratio and quick ratio were both 15.97 as of December 31, 2024, indicating strong liquidity and the ability to meet short-term obligations. This prudent approach to capital allocation and lack of debt have provided Dorchester Minerals with financial flexibility to pursue acquisition opportunities and maintain consistent distributions to unitholders.
Navigating Industry Headwinds and Capitalizing on Opportunities
The oil and gas industry has faced significant challenges in recent years, including the COVID-19 pandemic and ongoing global conflicts, which have contributed to volatility in commodity prices. However, Dorchester Minerals has demonstrated its ability to adapt and capitalize on opportunities throughout these dynamic market conditions.
During the COVID-19 pandemic, the Partnership's diversified asset base and conservative financial management helped it weather the storm. As the industry has recovered, Dorchester Minerals has been able to take advantage of acquisition opportunities, adding high-quality mineral and royalty interests to its portfolio.
More recently, the Partnership has benefited from the strong rebound in oil and gas prices, with the majority of its revenue derived from oil and natural gas sales. Dorchester Minerals' exposure to plays like the Permian Basin and Bakken region has positioned it to capitalize on the increased drilling and development activity in these prolific basins.
Looking ahead, Dorchester Minerals remains focused on strategically managing its assets, protecting its balance sheet, and maintaining a best-in-class cost structure. The Partnership's management team is committed to identifying and executing on accretive acquisition opportunities that complement its existing portfolio, further enhancing its long-term value proposition for unitholders.
Risks and Challenges
While Dorchester Minerals' diversified asset base and conservative financial practices have served it well, the Partnership is not immune to the inherent risks of the oil and gas industry. Fluctuations in commodity prices, changes in regulatory environments, and operational challenges at the underlying properties can all impact Dorchester Minerals' financial performance and cash flow generation.
Additionally, as a non-operator, Dorchester Minerals has limited control over the development and production activities on the properties underlying its mineral and royalty interests. The Partnership relies on the operational expertise and decision-making of its lessees, which introduces an element of uncertainty into its business model.
Business Overview
Dorchester Minerals, L.P. is a publicly traded Delaware limited partnership that primarily engages in the acquisition, ownership, and administration of oil and natural gas properties. The Partnership operates in two main business segments: Royalty Properties and Net Profits Interest (NPI).
The Royalty Properties segment consists of the Partnership's producing and non-producing mineral, royalty, overriding royalty, net profits, and leasehold interests located across 594 counties and parishes in 28 states. These properties generate revenue for the Partnership through the sale of oil and natural gas production. The Partnership's net interest in production from the Royalty Properties is based on lease royalty and other third-party contractual terms, which vary from property to property. The majority of the Royalty Properties interests are perpetual in nature, but a minor portion is subject to terms and conditions that could result in the termination of the Partnership's interest upon the cessation of production.
The NPI segment represents a net profits overriding royalty interest that burdens various properties owned by the Partnership's Operating Partnership subsidiary. The Partnership receives monthly payments from the NPI, which equate to 96.97% of the net profits realized by the Operating Partnership from these properties in the preceding month. The net profits realized from the NPI properties are calculated by deducting production costs, including budgeted capital expenditures, from the gross proceeds attributable to oil and natural gas production.
Dorchester Minerals' ability to generate revenue from both the Royalty Properties and the NPI is heavily dependent on factors outside of its control, such as oil and natural gas prices, production volumes, and the operational decisions made by the working interest owners and operators of the underlying properties. Changes in these factors can have a significant impact on the Partnership's financial performance.
Conclusion
Dorchester Minerals, L.P. (NASDAQ:DMLP) has established itself as a leading owner of diversified oil and gas mineral and royalty interests, providing investors with exposure to the long-term potential of the energy sector. Through strategic acquisitions, conservative financial management, and a focus on high-quality assets, the Partnership has delivered consistent cash distributions to its unitholders while navigating industry headwinds.
Looking ahead, Dorchester Minerals' diverse portfolio, strong cash flow generation, and disciplined approach position it well to capitalize on the continued recovery and growth in the oil and gas industry. As the Partnership continues to execute on its long-term strategy, it remains an attractive investment opportunity for investors seeking exposure to the energy sector with the potential for stable, yield-oriented returns.