DORCHESTER MINERALS LP

Description of the Business

Dorchester Minerals, L.P. (the “Partnership”) is a publicly traded Delaware limited partnership that commenced operations on* January 31, 2003.Our Partnership is based in Dallas, Texas and our business may*be described as the acquisition, ownership and administration of Royalty Properties (which consists of producing and nonproducing mineral, royalty, overriding royalty, net profits, and leasehold interests located in 593 counties and parishes in 28 states (“Royalty Properties”)) and net profits overriding royalty interests (referred to as the Net Profits Interest, or “NPI”). In these Notes, the term “Partnership,” as well as the terms “us,” “our,” “we,” and “its” are sometimes used as abbreviated references to Dorchester Minerals, L.P. itself or Dorchester Minerals, L.P. and its related entities.

Basis of Presentation

The consolidated financial statements herein have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The consolidated financial statements include the accounts of Dorchester Minerals, L.P., Dorchester Minerals Oklahoma, LP, Dorchester Minerals Oklahoma GP, Inc., Maecenas Minerals LLP, Dorchester-Maecenas GP LLC, The Buffalo Co., A Limited Partnership, and DMLPTBC GP LLC. All intercompany balances and transactions have been eliminated in consolidation.

Segment Reporting

The Partnership operates in a single operating and reportable segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The Partnership’s Chief Executive Officer (“CEO”) has been determined to be the chief operating decision maker and allocates resources and assesses performance based upon financial information at the consolidated level.

Recent Events

Recent Events– In* January 2020,the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) and the significant risks to the international community and economies as the virus spread globally beyond its point of origin. In March 2020,the WHO classified COVID-19 as a pandemic, based on the rapid increase in exposure globally, and thereafter, COVID-19 continued to spread throughout the U.S. and worldwide. Multiple variants emerged in2021* and became highly transmissible, which contributed to pricing volatility during2021 to date. While in* May 2023,the WHO determined that COVID-19 is now an established and ongoing health issue whichno* longer constitutes a public health emergency of international concern, the financial results of companies in the oil and natural gas industry have been impacted materially as a result of changing market conditions. Such circumstances generally increase uncertainty in the Partnership’s accounting estimates.

We are continuing to closely monitor the overall impact and the evolution of the COVID-19 pandemic, including the ongoing spread of any variants, along with future OPEC actions and the ongoing global military conflict which arose during2022 and2023, on all aspects of our business, including how these events* mayimpact our future operations, financial results, liquidity, employees, and operators. While conditions have significantly improved with the increase in domestic vaccination programs, the reduction in global constraints and the reduced spread of COVID-19 overall, the long-term impact of COVID-19 remains uncertain as responses to COVID-19 and newly emerging variants continue to evolve. Although the WHO in May 2023determined that COVID-19 is now an established and ongoing health issue whichno* longer constitutes a public health emergency of international concern, additional actions* maybe required in response to the COVID-19 pandemic on a national, state, and local level by governmental authorities, and such actions mayfurther adversely affect general and local economic conditions if there is a resurgence in the spread of COVID-19. Furthermore, the ongoing global military conflicts could continue into2024* and could lead to significant market and other disruptions, including disruptions to the oil and gas industry, significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability and other material and adverse effects on macroeconomic conditions. We cannot predict the long-term impact of these events on our liquidity, financial position, results of operations or cash flows due to uncertainties including the severity of COVID-19 or any of the ongoing variants, and the duration and international impact of the ongoing global military conflicts. These situations remain fluid and unpredictable, and we are actively managing our response.

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Basic and Diluted Earnings Per Unit—* Per-unit information is calculated by dividing the net income applicable to holders of our Partnership’s common units by the weighted average number of units outstanding. The Partnership hasno potentially dilutive securities and, accordingly, basic and dilutive net income per unit donot* differ.

Use of Estimates— The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

General Partner— Our* general partner is Dorchester Minerals Management LP, referred to in these Notes as “our General Partner.” Our General Partner owns all of the partnership interests in Dorchester Minerals Operating LP, the Operating Partnership. See Note4* —Related Party Transactions. The General Partner is allocated 4% and 1% of our Royalty Properties’ net revenues and Net Profits Interest ("NPI") proceeds received by the Operating Partnership, respectively. The Royalty Properties consist of producing and nonproducing mineral, royalty, overriding royalty, net profits, and leasehold interests located in 593 counties and parishes in 28 states (“Royalty Properties”).

Cash and Cash Equivalents— Our* principal banking relationships are with major financial institutions. Cash balances in these accounts may,** at times, exceed federally insured limits. We havenot* experienced any losses in such cash accounts and donot believe we are exposed to any significant risk on cash and cash equivalents. Short term investments with an original maturity ofthree months or less are considered to be cash equivalents and are carried at cost, which approximates fair value.

Concentration of Credit Risks and Significant Customers— Our* Partnership, as a royalty and NPI owner, hasno* control over the volumes or method of sale of oil and natural gas produced and sold from the Royalty Properties and NPI. Royalty revenues from properties operated by Pioneer Natural Resources Company represented approximately 11%,12%, and 13% of total operating revenues for the years ended* December 31, 2023,*2022 and2021, respectively. If we were to lose a significant customer, such loss could impact revenue. The loss of any single customer is mitigated by our diversified customer base, and we donot believe that the loss of any single customer would have a long-term material adverse effect on our financial position or the results of operations.

Fair Value of Financial Instruments— The carrying amount of cash and cash equivalents, trade and other receivables, net profits interest receivable - related party, and accounts payables and other current liabilities approximates fair value because of the short maturity of those instruments. These estimated fair values* may**not* be representative of actual values of the financial instruments that could have been realized as of year-end or that will be realized in the future.

Receivables— Our* Partnership’s trade and other receivables and net profits interest receivable consist primarily of Royalty Properties payments receivable and NPI payments receivable, respectively. Most payments are receivedtwo* tothree months after production date. No reserve for current expected credit losses on accounts receivable is deemed necessary based upon our lack of historical write offs and review of current receivables.

Oil and Natural Gas Properties—* We utilize the full cost method of accounting for costs related to our oil and natural gas properties. Under this method, all such costs are capitalized and amortized on an aggregate basis over the estimated lives of the properties using the unit-of-production method. These capitalized costs are subject to a ceiling test, which limits such pooled costs to the aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10% plus the lower of cost or market value of unproved properties. For the purposes of determining the capitalized costs ceiling, our Partnership only assigned value to proved developed producing oil and natural gas reserves as of December 31, 2023*.* The full cost ceiling is evaluated at the end of each quarter and when events indicate possible impairment. There have beenno impairments for the years ended December 31, 2023,*2022 and2021 as a result of the full cost ceiling test.

The discounted present value of our proved oil and natural gas reserves is a major component of the ceiling test calculation and requires many subjective judgments. Estimates of reserves are forecasts based on engineering and geological analyses. Different reserve engineers could reach different conclusions as to estimated quantities of oil and natural gas reserves based on the same information. The passage of time provides more qualitative and quantitative information regarding reserve estimates, and revisions are made to prior estimates based on updated information. However, there can beno assurance that more significant revisions willnot be necessary in the future. Significant downward revisions could result in an impairment representing a non-cash charge to income. In addition to the impact on the calculation of the ceiling test, estimates of proved reserves are also a major component of the calculation of depletion.

While the quantities of proved reserves require substantial judgment, the associated prices of oil and natural gas reserves that are included in the discounted present value of our reserves are objectively determined. The ceiling test calculation requires use of the unweighted arithmetic average of thefirst day of the month price during the12-month period ending on the balance sheet date and costs in effect as of the last day of the accounting period, which are generally held constant for the life of the oil and natural gas properties. As a result, the present value isnot necessarily an indication of the fair value of the reserves. Oil and natural gas prices have historically been volatile, and the prevailing prices at any given time* may**not* reflect our Partnership’s or the industry’s forecast of future prices.

Gains and losses are recognized upon the disposition of oil and natural gas properties involving a significant portion (greater than 25%) of our Partnership’s reserves. Proceeds from other dispositions of oil and natural gas properties are credited to the full cost pool.

Leasehold Improvements —* *Leasehold improvements are amortized over the shorter of their estimated useful lives or the related life of the lease.

Leases—* The Partnership determines if an arrangement is a lease at inception. The Partnership leases its office space at3838* Oak Lawn Avenue, Suite300, Dallas, Texas, through an operating lease (the “Office Lease”). The operating lease is included in operating lease right-of-use (“ROU”) asset and operating lease liability in our consolidated balance sheets. Operating lease expense is included in general and administrative expenses in the consolidated income statements.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. As the Partnership’s lease doesnot provide an implicit rate of return and as the Partnership is precluded from incurring any borrowings above a nominal amount under its partnership agreement, the Partnership used a discount rate commensurate with the incremental borrowing rate of a group of peers based on information available at the application date in determining the present value of lease payments. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

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Asset Retirement Obligations— Based on the nature of our property ownership, we haveno material obligations to record.

Revenue Recognition— The pricing of oil and natural gas sales from the Royalty Properties and NPI is primarily determined by supply and demand in the marketplace and can fluctuate considerably. As a royalty owner, we haveno operational control over the volumes and method of sale of oil and natural gas produced and sold from the Royalty Properties and NPI.

Revenues from Royalty Properties and NPI are recorded under the cash receipts approach as directly received from the remitters’ statement accompanying the revenue check. Since the revenue checks are generally receivedtwo tothree months after the production month, the Partnership accrues for revenue earned butnot received by estimating production volumes and product prices. Identified differences between our accrued revenue estimates and actual revenue received historically havenot been significant.

The Partnership doesnot record revenue for unsatisfied or partially unsatisfied performance obligations. The Partnership’s right to revenues from Royalty Properties and NPI occurs at the time of production, at which point, payment is unconditional, andno remaining performance obligation exists for the Partnership. Accordingly, the Partnership’s revenue contracts for Royalty Properties and NPI donot generate contract assets or liabilities.

Revenues from lease bonus payments are recorded upon receipt. The lease bonus is separate from the lease itself and is recognized as revenue to the Partnership upon receipt of payment. The Partnership generates lease bonus revenue by leasing its mineral interests to exploration and production companies and includes proceeds from assignments of leasehold interests where the Partnership retains an interest. A lease agreement represents the Partnership’s contract with a lessee and generally transfers the rights to develop oil or natural gas, grants the Partnership a right to a specified royalty interest, and requires that drilling and completion operations commence within a specified time period. Upon signing a lease agreement,no further performance obligation exists for the Partnership, and therefore,no contract assets or contract liabilities are generated.

Income Taxes— We are treated as a partnership for income tax purposes and, as a result, our income or loss is includable in the tax returns of the individual unitholders. Depletion of oil and natural gas properties is an expense allowable to each individual partner, and the depletion expense as reported on the consolidated financial statements willnot be indicative of the depletion expense an individual partner or unitholder* may*be able to deduct for income tax purposes.

Texas imposes a franchise tax (commonly referred to as the Texas margin tax) at a rate of 0.75% on gross revenues less certain deductions, as specifically set forth in the Texas margin tax statute. The Texas margin tax applies to corporations and limited liability companies, general and limited partnerships (unless otherwise exempt), limited liability partnerships, trusts (unless otherwise exempt), business trusts, business associations, professional associations, joint stock companies, holding companies, joint ventures, and certain other business entities having limited liability protection.

Limited partnerships that receive at least90% of their gross income from designated passive sources, including royalties from mineral properties and other non-operated mineral interest income, and donot receive more than10% of their income from operating an active trade or business, are generally exempt from the Texas margin tax as “passive entities.” We believe our Partnership meets the requirements for being considered a “passive entity” for Texas margin tax purposes and, therefore, it is exempt from the Texas margin tax. If the Partnership is exempt from Texas margin tax as a passive entity, each unitholder that is considered a taxable entity under the Texas margin tax would generally be required to include its portion of Partnership revenues in its own Texas margin tax computation. The Texas Administrative Code provides that such income is sourced according to the principal place of business of the Partnership, which would be the state of Texas.

Recent Accounting Pronouncements

Recently Adopted Pronouncements

In* June 2016,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2016-13, “Financial Instruments - Credit Losses (Topic326*)” (“ASU2016-13”), which changed how entities measure credit losses for most financial assets and certain other instruments that arenot measured at fair value through net income. The standard replaced the incurred loss approach with an expected loss model for instruments measured at amortized cost. As provided by ASU2019-10, Financial Instruments - Credit Losses (Topic326), ASU2016-13 is effective for annual periods, including interim periods within those annual periods, beginning after* December 15, 2022.The Partnership adopted ASU2016*-13 using the modified retrospective approach, effective* January 1, 2023.The adoption of this update didnot* have a material impact on the Partnership’s financial position, results of operations, cash flows or disclosures.

Accounting PronouncementsNot* Yet Adopted*

In* November 2023,the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2023-07, “Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures” (“ASU2023-07”), which expands a public entity’s annual and interim disclosure requirements about their reportable segments, primarily through more detailed disclosures about significant segment expenses. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU2023-07, as well as all existing segment disclosures in ASC280 on an interim and annual basis. ASU2023-07 is effective for annual periods beginning after* December15,* 2023, and for interim periods beginning after* December15,* 2024, with early adoption permitted. We donot anticipate this update to have a material impact on the Partnership’s financial position, results of operations, or cash flows. We are currently evaluating the potential impact the adoption of ASU2023-07 will have on the Partnership's financial statement disclosures.

The Partnership considers the applicability and impact of all ASUs. There areno other recent accounting pronouncementsnot yet adopted that are expected to have a material effect on the Partnership upon adoption.

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On* September 29, 2023,pursuant to a non-taxable contribution and exchange agreement with an unrelatedthird* party, the Partnership acquired mineral and royalty interests totaling approximately 716 net royalty acres located inthree counties in Texas in exchange for 494,000 common units representing limited partnership interests in the Partnership valued at $14.4 million and issued pursuant to the Partnership’s registration statement on Form S-4. We believe that the acquisition is considered complementary to our business. The transaction was accounted for as an acquisition of assets under U.S. GAAP. Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired. Contributed cash delivered at closing and final settlement net cash received, net of capitalized transaction costs paid, of $0.9 million is included in net cash contributed in acquisitions on the consolidated statement of cash flows for the year ended* December31,* 2023. The consolidated balance sheet as of* December31,* 2023 includes $13.4 million of net proved oil and natural gas properties acquired in the transaction.

On* August 31, 2023,pursuant to a non-taxable contribution and exchange agreement with multiple unrelatedthird* parties, the Partnership acquired mineral and royalty interests totaling approximately 568 net royalty acres located inthree counties in Texas in exchange for 374,000 common units representing limited partnership interests in the Partnership valued at $10.4 million and issued pursuant to the Partnership’s registration statement on Form S-4. We believe that the acquisition is considered complementary to our business. The transaction was accounted for as an acquisition of assets under U.S. GAAP. Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired. Contributed cash delivered at closing and final settlement net cash received, net of capitalized transaction costs paid, of $0.3 million is included in net cash contributed in acquisitions on the consolidated statement of cash flows for the year ended* December31,* 2023. The consolidated balance sheet as of* December31,* 2023 includes $10.1 million of net proved oil and natural gas properties acquired in the transaction.

On* July 12, 2023,pursuant to a non-taxable contribution and exchange agreement with multiple unrelatedthird* parties, the Partnership acquired mineral and royalty interests totaling approximately 900 net royalty acres located in 13 counties and parishes across Louisiana, New Mexico, and Texas in exchange for 343,750 common units representing limited partnership interests in the Partnership valued at $11.0 million and issued pursuant to the Partnership’s registration statement on Form S-4. We believe that the acquisition is considered complementary to our business. The transaction was accounted for as an acquisition of assets under U.S. GAAP. Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired. Contributed cash delivered at closing and 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 consolidated statement of cash flows for the year ended* December31,* 2023. The consolidated balance sheet as of* December31,* 2023 includes $10.4 million of net proved oil and natural gas properties acquired in the transaction.

On* September 30, 2022,pursuant to a non-taxable contribution and exchange agreement with Excess Energy, LLC, a Texas limited liability company (“Excess”), 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. We believe that the acquisition is considered complementary to our business. The transaction was accounted for as an acquisition of assets under U.S. GAAP. Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired. Contributed cash delivered at closing, net of capitalized transaction costs paid, of $0.9 million is included in net cash contributed in acquisitions on the consolidated statement of cash flows for the year ended December31,* 2022. The consolidated balance sheet as of* December 31, 2022includes $19.0 million of net oil and natural gas properties acquired in the transaction. Net property additions for the year ended December 31, 2022includes $1.8 million of unproved properties acquired that were recorded to the oil and natural gas properties full cost pool, thereby accelerating the costs subject to depletion. 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 consolidated statement of cash flows for the year ended December31,* 2023.

On* March 31, 2022,pursuant to a non-taxable contribution and exchange agreement with multiple unrelatedthird* parties, the Partnership acquired mineral and royalty interests representing approximately 3,600 net royalty acres located in 13 counties across Colorado, Louisiana, Ohio, Oklahoma, Pennsylvania, West Virginia and Wyoming in exchange for 570,000 common units representing limited partnership interests in the Partnership valued at $14.8 million and issued pursuant to the Partnership’s registration statement on Form S-4. We believe that the acquisition is considered complementary to our business. The transaction was accounted for as an acquisition of assets under U.S. GAAP. Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired. Contributed cash delivered at closing and final settlement net cash received, net of capitalized transaction costs paid, of $0.8 million are included in net cash contributed in acquisitions on the consolidated statement of cash flows for the year ended* December 31, 2022.The consolidated balance sheet as of December 31, 2022*includes $14.0 million of net proved oil and natural gas properties acquired in the transaction.

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Our General Partner owns all of the partnership interests in the Operating Partnership. It is the employer of all personnel, owns the working interests and other properties underlying our NPI, and provides day-to-day operational and administrative services to us and the General Partner. In accordance with our partnership agreement, we reimburse the General Partner for certain allocable general and administrative costs, including rent, salaries, and employee equity and benefit plans that arenot direct expenses. These types of reimbursements are limited to 5% of distributions, plus certain costs previously paid. All such costs have been below the annual 5% limit amount, including the allowable surplus carryforward, for the years ended* December 31, 2023,*2022 and2021. Additionally, certain reimbursable direct expenses such as professional and regulatory fees, as well as certain general and administrative costs that are related to regulatory matters, arenot limited. Significant activity between the Partnership and the Operating Partnership consists of the following:

Our Partnership and the Operating Partnership are involved in legal and/or administrative proceedings arising in the ordinary course of their businesses,none of which have predictable outcomes andnone of which are believed to have any significant effect on consolidated financial position, cash flows, or operating results.

On* January 18, 2024,the Partnership announced its cash distribution for thefourth* quarter of2023 of $1.007874 per common unit, representing activity for thethree-month period ended* December 31, 2023,payable to common unitholders on record as of January 29, 2024.This distribution was paid on February 8, 2024.The partnership agreement requires the next cash distribution to be paid by May 15, 2024.*

Thethird amendment to our Office Lease was executed in* April 2017for a term of 129 months, beginning June 1, 2018and expiring in2029.* At lease commencement, the Partnership concluded the Office Lease was an operating lease. Under thethird amendment to the Office Lease, monthly rental payments range from $25,000 to $30,000 and the Partnership received lease incentives of $0.7 million.

Lease expense for the years ended* December 31, 2023,*2022 and2021 was as follows:

Supplemental cash flow information related to leases was as follows:

Supplemental balance sheet information related to leases was as follows:

Maturities of lease liabilities are as follows:

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