DORCHESTER MINERALS LP

Previous wording

The following discussion summarizes our results of operations and liquidity and capital resources for the fiscal years ended December 31, 2023 and 2022 and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes included elsewhere in this Annual Report. A discussion of results of operations and liquidity and capital resources for fiscal year 2021 has been omitted from this report but may be found at “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 23, 2023, and is incorporated by reference in this report from such prior Annual Report on Form 10-K. 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.

Current wording

The following discussion summarizes our results of operations and liquidity and capital resources for the fiscal years ended December 31, 2024 and 2023 and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes included elsewhere in this Annual Report. A discussion of results of operations and liquidity and capital resources for fiscal year 2022 has been omitted from this report but may be found at “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 22, 2024, and is incorporated by reference in this report from such prior Annual Report on Form 10-K. We intend for this discussion to provide the reader with information that will assist in understanding our consolidated financial statements, the changes in certain key items in those consolidated financial statements from period to period, and the primary factors that accounted for those changes.

Previous wording

Our results during 2023 were mainly affected by industrywide decreases in realized oil and natural gas sales prices versus 2022, partially offset by increases in Royalty Properties and NPI sales volumes from continued drilling activity in the Permian Basin and Bakken region and incremental production from 2022 and 2023 acquisitions. Significant results include the following:

Current wording

Our results during 2024 were mainly driven by increases in Royalty Properties sales volumes from continued drilling activity in the Permian Basin and Bakken region and incremental production from 2023 and 2024 acquisitions, offset by decreases in NPI sales volumes, leasing activity, and lower industrywide realized natural gas sales prices versus 2023. Significant results include the following:

Previous wording

The Partnership’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United State (“U.S. GAAP”), which requires us to make certain estimates and apply judgments that affect our financial position and results of operations as reflected in our financial statements. Actual results may differ from those estimates. The Partnership’s accounting policies are summarized in Note 2 of the Notes to Consolidated Financial Statements in “Item 8 – Financial Statements and Supplementary Data”.

Current wording

The Partnership’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United State (“U.S. GAAP”), which requires us to make certain estimates and apply judgments that affect our financial position and results of operations as reflected in our consolidated financial statements. Actual results may differ from those estimates. The Partnership’s accounting policies are summarized in Note 2 of the Notes to Consolidated Financial Statements in “Item 8 – Financial Statements and Supplementary Data”.

Previous wording

Management continually reviews our accounting policies, how they are applied, and how they are reported and disclosed in our financial statements. The following items require significant estimation or judgment:

Current wording

Management continually reviews our accounting policies, how they are applied, and how they are reported and disclosed in our consolidated financial statements. The following items require significant estimation or judgment:

Previous wording

The increase in oil sales volumes attributable to our Royalty Properties during 2023 versus 2022 is primarily a result of higher suspense releases on new wells in the Permian Basin, and Bakken region and higher suspense releases on new wells and increased production from acquired wells in South Texas, partially offset by decreased production in the Permian Basin, Bakken region, and the Rockies. The increase in natural gas sales volumes attributable to our Royalty Properties during 2023 compared to 2022 is primarily a result of higher suspense releases on new wells in the Permian Basin, East Texas, and Mid-Continent and higher suspense releases on new wells and increased production from acquired wells in South Texas, partially offset by decreased production in the Permian Basin, Mid-Continent, and Southeast, lower suspense releases on new wells in the Rockies, and natural production declines in the Barnett Shale and Fayetteville Shale.

Current wording

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

Previous wording

The increase in lease bonus revenue from 2022 to 2023 is primarily attributable to receipt of approximately $11.8 million from a lease and lease amendment transaction executed on November 6, 2023, wherein the Partnership leased 243 net acres in two tracts of land in Reagan County, Texas for $30,000 per acre and a 25% royalty and amended an existing lease on two separate tracts of land also totaling 243 net acres in Reagan County, Texas for $18,750 per acre. This is compared to receipt of approximately $7.3 million from a lease executed on September 30, 2022, wherein the Partnership leased 243 net acres in two tracts of land in Reagan County, Texas for $30,000 per acre and a 25% royalty.

Current wording

The decrease in lease bonus revenue from 2023 to 2024 is primarily attributable to receipt of $11.8 million from a lease and lease amendment transaction executed in 2023, wherein the Partnership leased 243 net acres in two tracts of land in Reagan County, Texas for $30,000 per acre and a 25% royalty and amended an existing lease on two separate tracts of land also totaling 243 net acres in Reagan County, Texas for $18,750 per acre.

Previous wording

Production taxes and operating expenses decreased a combined 5% from 2022 to 2023. The decrease is primarily a result of lower proportionate production taxes due to lower oil and natural gas sales revenue attributable to our Royalty Properties resulting from lower realized oil and natural gas sales prices, partially offset by higher oil and natural gas volumes.

Current wording

Production taxes and operating expenses increased a combined 19% from 2023 to 2024. The increase is primarily a result of higher proportionate oil production taxes due to higher oil sales revenue attributable to our Royalty Properties and higher proportionate post-production costs, such as compression, transportation, processing, and marketing, due to higher oil and natural gas sales volumes attributable to our Royalty Properties.

Previous wording

Depreciation, depletion and amortization increased 38% from 2022 to 2023. We adjust our depletion rate each quarter for significant changes in our estimates of oil and natural gas reserves, including acquisitions.

Current wording

Depreciation, depletion and amortization increased 62% from 2023 to 2024. Depletion is the amount of cost basis of oil and natural gas properties at the beginning of a period attributable to the volume of reserves extracted during such period, calculated on a units-of-production basis. Estimates of proved developed producing reserves are a major component in the calculation of depletion. We adjust our depletion rate each quarter for significant changes in our estimates of oil and natural gas reserves, including recent acquisitions and suspense releases on new wells.

Previous wording

General and administrative expenses increased 36% from 2022 to 2023. The increase is primarily attributable to higher compensation expenses due to market adjustments and an expanded Operating Partnership equity program designed for employee retention, increased professional services fees, and one-time, non-recurring professional services expenses of $1.2 million related to an unsuccessful acquisition in the first nine months of 2023.

Current wording

General and administrative expenses increased 7% from 2023 to 2024. The increase is primarily attributable to higher compensation expenses due to market adjustments, increased bonuses and an expanded Equity Incentive Program designed for employee retention, and increased legal and other professional services 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 first nine months of 2023.

Previous wording

Net cash provided by operating activities decreased 5% from 2022 to 2023. The decrease is primarily due to lower revenue receipts attributable to our Royalty Properties, net of production and operating expenses, and higher general and administrative expenses, partially offset by higher NPI payment receipts and higher lease bonus receipts.

Current wording

Net cash provided by operating activities decreased 5% from 2023 to 2024. The decrease is primarily due to lower NPI payment receipts and lower lease bonus receipts, partially offset by higher revenue receipts attributable to our Royalty Properties, net of production and operating expenses.

Previous wording

On August 31, 2023, pursuant to a non-taxable contribution and exchange agreement with multiple unrelated third parties, the Partnership acquired mineral and royalty interests totaling approximately 568 net royalty acres located in three 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 December 31, 2023.

Current wording

On August 31, 2023, pursuant to a non-taxable contribution and exchange agreement with multiple unrelated third parties, the Partnership acquired mineral and royalty interests totaling approximately 568 net royalty acres located in three 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 December 31, 2023. Final settlement net cash received, net of capitalized transaction costs paid, of $0.2 million is included in net cash contributed in acquisitions on the consolidated statement of cash flows for the year ended December 31, 2024.

Previous wording

On September 30, 2022, pursuant to a non-taxable contribution and exchange agreement with 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 December 31, 2022. Final settlement net cash received, net of capitalized transaction costs paid, of $0.5 million is included in the net cash contributed in acquisitions on the consolidated statement of cash flows for the year ended December 31, 2023.

Current wording

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. 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. 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 December 31, 2023.

Previous wording

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).

Current wording

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 Code).

Previous wording

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 spread of COVID-19 and any ongoing variants and increased oil and natural gas market volatility caused by the Russian invasion of Ukraine, the conflict between Israel and Hamas and the recent rise in inflation and interest rates. Although demand and market prices for oil and natural gas have remained strong due to the rising energy use and worldwide shortage of oil due to sanctions implemented on Russia, we cannot predict events that may lead to future 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 evolution of COVID-19 and any ongoing variants, along with the military conflict between Russia and Ukraine and the conflict between Israel and Hamas which are beyond our control. If market conditions were to change due to declines in oil prices or uncertainty created by 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. Despite recent improvements, the current economic environment is volatile, and therefore, we cannot predict the ultimate impact that COVID-19, the ongoing military conflict between Russia and Ukraine or the ongoing conflict between Israel and Hamas will have on our liquidity or cash flows.

Current wording

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 increased oil and natural gas market volatility caused by ongoing global military conflicts, global supply chain disruptions and the recent rise in inflation and interest rates. Although demand and market prices for oil and natural gas have remained strong due to the rising energy use and worldwide shortage of oil due to sanctions implemented on Russia, we cannot predict events that may lead to future 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 evolution of COVID-19 and any ongoing variants, along with the military conflict between Russia and Ukraine and the conflict between Israel and Hamas which are beyond our control. If market conditions were to change due to declines in oil prices or uncertainty created by 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. Despite recent improvements, the current economic environment is volatile, and therefore, we cannot predict the ultimate impact that COVID-19, the ongoing military conflict between Russia and Ukraine or the ongoing conflict between Israel and Hamas will have on our liquidity or cash flows.

Previous wording

Cash and cash equivalents were $47.0 million as of December 31, 2023 and $40.8 million as of December 31, 2022.

Current wording

Cash and cash equivalents were $42.5 million as of December 31, 2024 and $47.0 million as of December 31, 2023.

Previous wording

We receive monthly payments from the Operating Partnership equal to 96.97% of the net proceeds actually realized by the Operating Partnership from the properties underlying the Net Profits Interest (or “NPI”). The Operating Partnership retains the 3.03% balance of these net proceeds. Net proceeds generally reflect gross proceeds attributable to oil and natural gas production actually received during the month, less production costs actually paid during the same month, net of budgeted capital expenditures. Production costs generally reflect drilling, completion, operating and general and administrative costs and exclude depletion, amortization and other non-cash costs. The Operating Partnership made NPI payments to us totaling $38.1 million during October 2022 through September 2023, which payments reflected 96.97% of total net proceeds of $39.3 million realized from September 2022 through August 2023. Net proceeds realized by the Operating Partnership during September through November 2023 were reflected in NPI payments made during October through December 2023. These payments were included in the fourth quarter distribution paid February 8, 2024 and are excluded from this 2023 analysis.

Current wording

We receive monthly payments from the Operating Partnership equal to 96.97% of the net proceeds realized by the Operating Partnership from the properties underlying the Net Profits Interest (or “NPI”). The Operating Partnership retains the 3.03% balance of these net proceeds. Net proceeds generally reflect gross proceeds attributable to oil and natural gas production actually received during the month, less production costs actually paid during the same month, net of budgeted capital expenditures. Production costs generally reflect drilling, completion, operating and general and administrative costs and exclude depletion, amortization and other non-cash costs. The Operating Partnership made NPI payments to us totaling $23.9 million during October 2023 through September 2024, which payments reflected 96.97% of total net proceeds of $24.6 million realized from September 2023 through August 2024. Net proceeds realized by the Operating Partnership during September through November 2024 were reflected in NPI payments made during October through December 2024. These payments were included in the fourth quarter distribution paid February 13, 2024 and are excluded from this 2024 analysis.

Previous wording

Revenues from the Royalty Properties are typically paid to us with proportionate severance (production) taxes deducted and remitted by others. Additionally, we generally pay ad valorem taxes, general and administrative costs, and marketing and associated costs because royalties and lease bonuses generally do not otherwise bear operating or similar costs. After deduction of the costs described above, including cash reserves, our net cash receipts from the Royalty Properties during October 2022 through September 2023 were $97.8 million, of which $93.8 million (96%) was distributed to the limited partners and $3.9 million (4%) was distributed to the General Partner. Proceeds received by us from the Royalty Properties during October through December 2023 became part of the fourth quarter distribution paid in early 2024, which is excluded from this 2023 analysis.

Current wording

Revenues from the Royalty Properties are typically paid to us with proportionate severance (production) taxes deducted and remitted by others. Additionally, we generally pay ad valorem taxes, general and administrative costs, and marketing and associated costs because royalties and lease bonuses generally do not otherwise bear operating or similar costs. After deduction of the costs described above, including cash reserves, our net cash receipts from the Royalty Properties during October 2023 through September 2024 were $128.0 million, of which $122.9 million (96%) was distributed to the limited partners and $5.1 million (4%) was distributed to the General Partner. Proceeds received by us from the Royalty Properties during October through December 2024 became part of the fourth quarter distribution paid in early 2025, which is excluded from this 2024 analysis.

Previous wording

Cash receipts attributable to the Partnership's Royalty Properties during the 2023 fourth quarter totaled $28.3 million. Approximately 72% of these receipts reflect oil sales during September 2023 through November 2023 and natural gas sales during August 2023 through October 2023, and approximately 28% from prior sales periods. The average indicated prices for oil and natural gas sales attributable to the Royalty Properties during the 2023 fourth quarter were $71.79/bbl and $2.17/mcf, respectively.

Current wording

Cash receipts attributable to the Partnership's Royalty Properties during the 2024 fourth quarter totaled $34.9 million. Approximately 68% of these receipts reflect oil sales during September 2024 through November 2024 and natural gas sales during August 2024 through October 2024, and approximately 32% from prior sales periods. The average indicated prices for oil and natural gas sales attributable to the Royalty Properties during the 2024 fourth quarter were $64.25/bbl and $1.22/mcf, respectively.

Previous wording

Cash receipts attributable to the Partnership's NPI during the 2023 fourth quarter totaled $4.6 million. Approximately 77% of these receipts reflect oil sales and natural gas sales during August 2023 through October 2023, and approximately 23% from prior sales periods. The average indicated prices for oil and natural gas sales attributable to the NPI were $68.55/bbl and $2.17/mcf, respectively.

Current wording

Cash receipts attributable to the Partnership's NPI during the 2024 fourth quarter totaled $5.4 million. Approximately 61% of these receipts reflect oil and natural gas sales during August 2024 through October 2024, and approximately 39% from prior sales periods. The average indicated prices for oil and natural gas sales attributable to the NPI were $63.93/bbl and $1.24/mcf, respectively.

Previous wording

In accordance with our partnership agreement, we bear all general and administrative and other overhead expenses subject to certain limitations. We reimburse our General Partner for certain allocable costs, including rent, wages, salaries and employee benefit plans. This reimbursement is limited to an amount equal to the sum of 5% of our distributions plus certain costs previously paid. Through December 31, 2023, the reimbursement amounts actually paid or accrued were less than the limitation.

Current wording

In accordance with our partnership agreement, we bear all general and administrative and other overhead expenses subject to certain limitations. We reimburse our General Partner for certain allocable costs, including rent, wages, salaries and employee benefit plans that are not direct expenses. This reimbursement is limited to an amount equal to the sum of 5% of our distributions plus certain costs previously paid. For the year ended December 31, 2024, the reimbursement amounts actually paid or reserved did not exceed the limitation.