Item 2. Properties
ITEM 2. PROPERTIES
 
Facilities
 
Our corporate office is located in Dallas, Texas and consists of 11,847 square feet of leased office space.
 
Properties
 
We own two categories of properties: Royalty Properties and Net Profits Interests (“NPI”).
 
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Royalty Properties
 
We own Royalty Properties representing producing and nonproducing mineral, royalty, overriding royalty, net profit and leasehold interests in properties located in 582 counties and parishes in 26 states. Acreage amounts listed herein represent our best estimates based on information provided to us as a royalty owner. Due to the significant number of individual deeds, leases and similar instruments involved in the acquisition and development of the Royalty Properties by us or our predecessors, acreage amounts are subject to change as new information becomes available. In addition, as a royalty owner, our access to information concerning activity and operations on the Royalty Properties is limited. Most of our producing properties are subject to old leases and other contracts pursuant to which we are not entitled to well information. Some of our newer leases provide for access to technical data and other information. We may have limited access to public data in some areas through third-party subscription services. Consequently, the exact number of wells producing from or drilling on the Royalty Properties at a given point in time is not easily determinable. The primary manner by which we will become aware of activity on the Royalty Properties is the receipt of division orders or other correspondence from operators or purchasers.
 
Acreage Summary
 
The following table sets forth, as of December 31, 2021, a summary of our gross and net acres, where applicable, of mineral, royalty, overriding royalty and leasehold interests, and a compilation of the number of counties and parishes and states in which these interests are located. The majority of our net mineral acres are unleased.
 
 
 
Mineral
 
 
Royalty
 
 
Overriding
Royalty
 
 
Leasehold
 
Number of States
 
 
26
 
 
 
17
 
 
 
17
 
 
 
8
 
Number of Counties/Parishes
 
 
504
 
 
 
192
 
 
 
147
 
 
 
32
 
Gross Acres
 
 
2,793,000
 
 
 
633,000
 
 
 
279,000
 
 
 
23,000
 
Net Acres (where applicable)
 
 
454,000
 
 
 
-
 
 
 
-
 
 
 
-
 
 
Our net interest in production from royalty, overriding royalty and leasehold interests is based on lease royalty and other third-party contractual terms, which vary from property to property. Consequently, net acreage ownership in these categories is not determinable. Our net interest in production from properties in which we own a royalty or overriding royalty interest may be affected by royalty terms negotiated by the previous mineral interest owners in such tracts and their lessees. Our interest in the majority of these properties is perpetual in nature. However, a minor portion of the properties are subject to terms and conditions pursuant to which a portion of our interest may terminate upon cessation of production.
 
The following table sets forth, as of December 31, 2021, the combined summary of total gross and net acres, where applicable, of mineral, royalty, overriding royalty and leasehold interests in each of the states in which these interests are located.
 
State
 
Gross
 
 
Net
 
State
 
Gross
 
 
Net
 
Alabama
 
 
105,000
 
 
 
8,000
 
Missouri
 
< 500
 
 
< 500
 
Arkansas
 
 
49,000
 
 
 
16,000
 
Montana
 
 
366,000
 
 
 
81,000
 
Colorado
 
 
24,000
 
 
 
1,000
 
Nebraska
 
 
3,000
 
 
< 500
 
Florida
 
 
89,000
 
 
 
25,000
 
New Mexico
 
 
47,000
 
 
 
3,000
 
Georgia
 
 
4,000
 
 
 
1,000
 
New York
 
 
23,000
 
 
 
19,000
 
Idaho
 
 
17,000
 
 
 
2,000
 
North Dakota
 
 
523,000
 
 
 
82,000
 
Illinois
 
 
5,000
 
 
 
1,000
 
Oklahoma
 
 
273,000
 
 
 
19,000
 
Indiana
 
< 500
 
 
< 500
 
Oregon
 
 
6,000
 
 
 
1,000
 
Kansas
 
 
14,000
 
 
 
2,000
 
Pennsylvania
 
 
10,000
 
 
 
6,000
 
Kentucky
 
 
2,000
 
 
 
1,000
 
South Dakota
 
 
55,000
 
 
 
11,000
 
Louisiana
 
 
133,000
 
 
 
3,000
 
Texas
 
 
1,808,000
 
 
 
159,000
 
Michigan
 
 
54,000
 
 
 
3,000
 
Utah
 
 
6,000
 
 
< 500
 
Mississippi
 
 
81,000
 
 
 
9,000
 
Wyoming
 
 
29,000
 
 
 
1,000
 
 
Leasing Activity
 
We received $0.8 million during 2021 attributable to lease bonus on 15 leases or extension of existing leases and one pooling election in lands located in eight counties in four states. These leases reflected bonus payments ranging up to $2,500/acre and initial royalty terms ranging up to 25%. The following table sets forth a summary of leases and pooling elections consummated during 2021 and 2020.
 
 
2021
 
2020
 
Number
 
16
 
 
14
 
Number of States
 
4
 
 
2
 
Number of Counties/Parishes
 
8
 
 
9
 
Average Royalty(1)
19.9
%
 
21.9
%
Average Bonus, $/acre(1)
$
787
 
$
995
 
Total Lease Bonus
$
0.8 million
 
$
0.3 million
 
 
(1)
Based on net acreage weighted average.
 
Payments received for gas storage, shut-in and delay rental payments, coal royalty, surface use agreements, litigation judgments and settlement proceeds are reflected in our accompanying consolidated financial statements in other operating revenues.
 
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Net Profits Interests
 
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, a Delaware limited partnership owned directly and indirectly by our General Partner. We refer to Dorchester Minerals Operating LP as the “Operating Partnership.” We receive monthly payments 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 costs, including budgeted capital expenditures, exceed revenues on a cash basis in a given month for properties subject to a 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 an NPI has a deficit of cumulative revenue versus cumulative costs, the deficit will be borne solely by the Operating Partnership. In 2020 we obtained a ruling from the IRS permitting the aggregation of the Minerals NPI, Bradley NPI, Republic NPI, and Spinnaker NPI for federal income tax purposes effective January 1, 2020. The Bradley NPI, Republic NPI, and Spinnaker NPI were aggregated into the Minerals NPI on a prospective basis in our financial results effective October 1, 2020.
 
From a cash perspective, as of December 31, 2021, the Minerals NPI was in a surplus position and had outstanding capital commitments, primarily in the Bakken region, equaling cash on hand of $2.0 million.
 
Acreage Summary
 
The following tables set forth, as of December 31, 2021, information concerning properties owned by the Operating Partnership and subject to the NPI. Acreage amounts listed under “Leasehold” reflect gross acres leased by the Operating Partnership and the working interest share (net acres) in those properties. Acreage amounts listed under “Mineral” reflect gross acres in which the Operating Partnership owns a mineral interest and the undivided mineral interest (net acres) in those properties. The Operating Partnership's interest in these properties may be unleased, leased by others or a combination thereof. In addition to amounts listed below, the Operating Partnership owns interests limited to certain wellbores located on lands in which we own mineral, royalty or leasehold interests. The acreage amounts associated with the wellbore interests are included in Royalty Properties Acreage Summary and not in the table below.
 
 
 
Mineral
 
 
Royalty
 
 
Leasehold
 
Number of States
 
 
12
 
 
 
5
 
 
 
5
 
Number of Counties/Parishes
 
 
61
 
 
 
22
 
 
 
13
 
Gross Acres
 
 
50,000
 
 
 
-
 
 
 
14,000
 
Net Acres
 
 
6,000
 
 
 
-
 
 
 
2,000
 
 
The following table reflects the states in which the acreage amounts listed above are located.
 
 
 
Mineral/Royalty
 
 
Leasehold
 
 
Total
 
 
 
Gross
 
 
Net
 
 
Gross
 
 
Net
 
 
Gross
 
 
Net
 
Arkansas
 
 
1,000
 
 
< 500
 
 
 
8,000
 
 
 
1,000
 
 
 
9,000
 
 
 
1,000
 
North Dakota
 
 
4,000
 
 
 
1,000
 
 
< 500
 
 
< 500
 
 
 
4,000
 
 
 
1,000
 
All Others
 
 
44,000
 
 
 
4,000
 
 
 
6,000
 
 
< 500
 
 
 
50,000
 
 
 
4,000
 
 
The leasehold acreage in Arkansas listed above includes all of the acreage in the Fayetteville Shale properties in which the Operating Partnership participates as a working interest owner.
 
Productive Well Summary
 
The following table sets forth, as of December 31, 2021, the approximate combined number of producing wells on the properties subject to the NPI. Gross wells refer to wells in which a working interest is owned. Net wells are determined by multiplying gross wells by our working interest in those wells.
 
 
 
Productive Wells/Units(1)
 
 
 
Gross
 
 
Net
 
Texas
 
 
360
 
 
 
13
 
North Dakota
 
 
444
 
 
 
8
 
All others
 
 
274
 
 
 
9
 
Total
 
 
1,078
 
 
 
30
 
 
 
(1)
Defined as all wells/units for which we received production revenue during the calendar year. Large, multi-well units paid on an aggregate basis are included as one gross well.
 
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Drilling Activity
 
The following table sets forth first payments received for new wells completed on our Royalty Properties and NPI Properties during 2021. The majority of the activity was concentrated in the Permian Basin and Bakken region. Included in the table below are wells in which we own both a royalty interest and a net profits interest. Wells with such overlapping interests are counted in both categories.
 
 
 
Royalty
Properties(1)
 
 
Net Profits
Interest
 
Gross Wells
 
 
725
 
 
 
45
 
Net Wells
 
 
4
 
 
< 1
 
Number of States
 
 
8
 
 
 
2
 
Number of Counties/Parishes
 
 
51
 
 
 
6
 
 
(1)
333 gross and 2 net royalty well additions in four counties in North Dakota are attributable to the JSFM acquisition that closed on June 30, 2021.
 
We have and will continue to consider a range of transaction structures for our unleased mineral interests including leasing to third parties, working interest participation through the Operating Partnership, electing non-consent under State laws, or a combination thereof.
 
Oil and Natural Gas Reserves
 
The below table reflects the Partnership's proved developed producing reserves at December 31, 2021. The reserves are based on the reports of independent petroleum engineering consulting firm LaRoche Petroleum Consultants, Ltd. LaRoche Petroleum Consultants, Ltd. is registered with the Engineering Board of the State of Texas. The LaRoche firm has been engaged in the business of oil and natural gas property evaluation since its formation in 1979. Other than our filings with the SEC, we have not filed the estimated proved reserves with, or included them in any reports to, any federal agency. Copies of the reports prepared by LaRoche Petroleum Consultants, Ltd. are attached hereto as Exhibits 99.1 and 99.2.
 
The Partnership does not have information that would be available to a company with oil and natural gas operations because detailed information is not generally available to owners of royalty interests. The Partnership’s Chief Operating Officer (“COO”) gathers production information and provides such information to our independent petroleum engineering consulting firm who extrapolates from such information estimates of the reserves attributable to the Royalty Properties and NPI based on their expertise in the oil and natural gas fields where the Royalty Properties and NPI are situated, as well as publicly available information. Ensuring compliance with generally accepted petroleum engineering and evaluation methods and procedures is the responsibility of the COO. Our COO has a bachelor’s degree in Petroleum Engineering from the University of Alberta and has worked in the upstream oil and natural gas business in various capacities since 1996. The COO reports directly to the Chief Executive Officer (“CEO”).
 
 
 
Summary of Oil and Gas Reserves as of Fiscal Year-End
 
 
 
All Proved Developed Producing and located in the United States
 
 
 
Royalty Properties
 
 
Net Profits Interests(1)(2)
 
 
Total
 
Year
 
Oil(3)
(mbbls)
 
 
Natural Gas
(mmcf)
 
 
Oil(3)
(mbbls)
 
 
Natural Gas
(mmcf)
 
 
Oil(3)
(mbbls)
 
 
Natural Gas
(mmcf)
 
2021
 
 
7,684
 
 
 
31,364
 
 
 
1,491
 
 
 
6,535
 
 
 
9,175
 
 
 
37,899
 
2020
 
 
7,778
 
 
 
29,964
 
 
 
1,566
 
 
 
3,815
 
 
 
9,344
 
 
 
33,779
 
2019
 
 
7,799
 
 
 
30,990
 
 
 
1,839
 
 
 
14,870
 
 
 
9,638
 
 
 
45,860
 
 
(1)
Reserves reflect 96.97% of the corresponding amounts assigned to the Operating Partnership’s interests in the properties underlying the Net Profits Interests.
(2)
During 2020, the Partnership and affiliates of its General Partner closed the divestitures of our Hugoton and HHC net profits interests. The Hugoton and HHC net profits interests properties represented 408 mbbls and 9,377 mmcf of fiscal year-end 2019 reserves.
(3)
Oil reserves include volumes attributable to natural gas liquids.
 
Proved oil and natural gas reserves means those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and governmental regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. See “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations” for average sales prices.
 
Title to Properties
 
We believe we have satisfactory title to all of our assets. Record title to essentially all of our assets has undergone the appropriate filings in the jurisdictions in which such assets are located. Title to property may be subject to encumbrances. We believe that none of such encumbrances should materially detract from the value of our properties or from our interest in these properties or should materially interfere with their use in the operation of our business.
 
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