What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-04 · 129 added, 150 removed, 219 unchanged (56% of the section changed)

5 unchanged sentences

(In Thousands)

September 30,

March 31, 2022

December 31, 2021

Current assets:

4 unchanged sentences

20,226  

11,533  

Net profits interest receivable - related party

2 unchanged sentences

46,661  

Property and leasehold improvements - at cost:

Oil and natural gas properties (full cost method)

34 unchanged sentences

(In Thousands, except per unit amounts)

Three Months Ended

Nine Months Ended

September 30,

Net operating revenues:

$ 20,031  

$ 10,740  

$ 51,172  

$ 27,195  

Net profits interests

10,692  

Total net operating revenues

Three Months Ended March 31,

Operating revenues:

$ 34,879  

$ 14,371  

Net profits interest

Lease bonus and other

Total operating revenues

40,401  

3 unchanged sentences

Depreciation, depletion and amortization

General and administrative expenses

General and administrative

Total costs and expenses

1 unchanged sentence

$ 11,801  

$ 18,031  

$ 5,619  

$ 46,341  

$ 15,572  

Allocation of net income:

3 unchanged sentences

$ 11,404  

$ 44,762  

$ 15,082  

Net income per common unit (basic and diluted)

1 unchanged sentence

$ 0.33  

$ 1.28  

$ 0.43  

Weighted average basic and diluted common units outstanding

1 unchanged sentence

34,680  

34,927  

34,680  

The accompanying notes are an integral part of these condensed consolidated financial statements.

3 unchanged sentences

(In Thousands)

Three Months Ended September 30, 2020

Balance at July 1, 2020

$ 91,662  

$ 92,291  

34,680  

Distributions ( $0.226318 per Unit)

Balance at September 30, 2020

$ 89,240  

$ 89,859  

34,680  

Three Months Ended September 30, 2021

Balance at July 1, 2021

$ 104,681  

$ 105,512  

35,405  

17,400  

18,031  

Distributions ( $0.480528 per Unit)

Balance at September 30, 2021

$ 105,068  

$ 105,928  

35,405  

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Balance at January 1, 2021

4 unchanged sentences

11,801  

15,572  

Distributions ($ 0.242260 per Unit)

Balance at September 30, 2020

Balance at March 31, 2021

$ 87,030  

1 unchanged sentence

34,680  

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Balance at January 1, 2022

8 unchanged sentences

Distributions ($ 0.639287 per Unit)

Balance at September 30, 2021

Balance at March 31, 2022

$ 1,209  

1 unchanged sentence

$ 163,327  

37,555  

The accompanying notes are an integral part of these condensed consolidated financial statements.

3 unchanged sentences

(In Thousands)

Nine Months Ended

September 30,

Three Months Ended March 31,

Net cash provided by operating activities

$ 28,415  

$ 10,509  

Cash flows provided by investing activities:

Net cash contributed in acquisition of royalty properties

Net cash contributed in acquisitions of oil and natural gas properties

Proceeds from the sale of oil and natural gas properties

2 unchanged sentences

Distributions paid to General Partner and unitholders

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

28,306  

11,232  

Cash and cash equivalents at end of period

$ 32,969  

$ 13,322  

Non-cash investing and financing activities:

Fair value of common units issued for acquisition of royalty properties

Fair value of common units issued for acquisition of oil and natural gas properties

$ 14,792  

The accompanying notes are an integral part of these condensed consolidated financial statements.

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The unaudited condensed consolidated financial statements include the accounts of the Partnership and its wholly-owned subsidiaries 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.

The accompanying unaudited condensed consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles in the United States ("U.S.

GAAP") and pursuant to the rules and regulations of the U.S.

The accompanying unaudited condensed consolidated financial statements of the Partnership have been prepared in accordance with generally accepted accounting principles in the United States (“U.S.

GAAP”) and pursuant to the rules and regulations of the U.S.

Securities and Exchange Commission (“SEC”).

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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.

For example, estimates of uncollected revenues and unpaid expenses from Royalty Properties (which are interests in oil and natural gas leases that give the Partnership the right to receive a portion of the production from the leased acreage, without bearing the costs of such production) and net profits overriding royalty interests (referred to as the Net Profits Interest, or “NPI”) operated by non-affiliated entities are particularly subjective due to our inability to gain accurate and timely information.

Therefore, actual results could differ from those estimates.

For example, estimates of uncollected revenues and unpaid expenses from Royalty Properties (which consist of producing and nonproducing mineral, royalty, overriding royalty, net profits, and leasehold interests located in 590 counties and parishes in 28 states (“Royalty Properties”)) and net profits overriding royalty interests (referred to as the Net Profits Interest, or “NPI”) operated by non-affiliated entities are particularly subjective due to our inability to gain accurate and timely information.

Actual results could differ from those estimates.

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 spreads globally beyond its point of origin.

) 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.

In addition, actions taken by OPEC members and other exporting nations on the supply and demand in global oil and natural gas markets resulted in significant negative pricing pressure in the first half of 2020, followed by a recovery in pricing and an increase in demand in the second half of 2020 and into 2021.

However, the COVID- 19 Delta variant emerged in March 2021 and became highly transmissible in July 2021, which contributed to additional pricing volatility during 2021 to date.

Multiple variants emerged in 2021 and became highly transmissible, which contributed to pricing volatility during 2021 to date.

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.

Although demand and market prices for oil and natural gas have recently increased, due to the rising energy use and the improvement in U.S.

economic activity, we cannot predict events that may lead to future price volatility and the near term energy outlook remains subject to heightened levels of uncertainty.

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 on all aspects of our business, including how these events may impact our future operations, financial results, liquidity, employees, and operators.

Additional actions may be required in response to the COVID- 19 pandemic on a national, state, and local level by governmental authorities, and such actions may further adversely affect general and local economic conditions, particularly if the mid- 2021 resurgence and spread of the COVID- 19 pandemic continues.

In February 2022, Russian military forces invaded Ukraine, and sustained conflict and disruption in the region is likely.

Although the length, impact and outcome of the ongoing military conflict in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources along with instability in financial markets.

As a result of the invasion, various economic and trade sanctions have been implemented by countries and private market participants on Russia which have resulted in a lower worldwide supply of oil and natural gas, contributing to a sharp increase in market prices for these commodities.

Despite this increase in market prices for oil and natural gas, such sanctions, and other measures, as well as the existing and potential further responses from Russia or other countries to such sanctions, supply chain disruptions, tensions and military actions, could adversely affect the global economy and financial markets and could adversely affect our business, financial condition and results of operations.

Although demand and market prices for oil and natural gas have recently increased, due in part to the ongoing Russian invasion of Ukraine along with rising energy use, we cannot predict events that may lead to future price volatility and the near-term energy outlook remains subject to heightened levels of uncertainty.

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 Russian invasion of Ukraine on all aspects of our business, including how these events may impact our future operations, financial results, liquidity, employees, and operators.

Additional actions may be required in response to the COVID- 19 pandemic on a national, state, and local level by governmental authorities, and such actions may further adversely affect general and local economic conditions, particularly if the 2021 resurgence and spread of the COVID- 19 pandemic continues.

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 effect the virus will have on the demand for oil and natural gas.

1 unchanged sentence

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 have extremely limited involvement and no 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 the NPI are recorded under the cash receipts approach as directly received from the remitters’

10 unchanged sentences

Upon signing a lease agreement, no further performance obligation exists for the Partnership, and therefore, no contract assets or contract liabilities are generated.

Acquisition of Royalty Properties

On June 30, 2021, pursuant to a contribution and exchange agreement with JSFM, LLC, a Wyoming limited liability company (“JSFM”), the Partnership acquired overriding royalty interests in the Bakken Trend totaling approximately 6,400 net royalty acres located in Dunn, McKenzie, McLean and Mountrail Counties, North Dakota in exchange for 725,000 common units representing limited partnership interests in the Partnership valued at $ 12.2 million and issued pursuant to the Partnership’s registration statement on Form S- 4.

Acquisitions for Units

On March 31, 2022, pursuant to a non-taxable contribution and exchange agreement with multiple unrelated third 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 complimentary to our business.

1 unchanged sentence

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.

At closing, in addition to conveying mineral and royalty interests to the Partnership, the contributors delivered funds to the Partnership in an amount equal to their cash receipts during the period from January 1, 2022 through March 31, 2022 of $ 0.7 million.

The contributed cash, net of capitalized transaction costs paid, of $ 0.7 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the three months ended March 31, 2022.

The condensed consolidated balance sheet as of March 31, 2022 includes $ 13.8 million of net proved oil and natural gas properties acquired in the transaction.

On December 31, 2021, pursuant to a non-taxable contribution and exchange agreement with Gemini 5 Thirty, LP, a Texas limited partnership (“Gemini”), the Partnership acquired mineral and royalty interests representing approximately 4,600 net royalty acres located in 27 counties across New Mexico, Oklahoma, Texas and Wyoming in exchange for 1,580,000 common units representing limited partnership interests in the Partnership valued at $ 31.3 million and issued pursuant to the Partnership's registration statement on Form S- 4.

We believe that the acquisition is considered complimentary to our business.

The transaction was accounted for as an acquisition of assets under U.S.

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.

At closing, in addition to conveying mineral and royalty interests to the Partnership, Gemini delivered funds to the Partnership in an amount equal to their cash receipts during the period from October 1, 2021 through December 31, 2021 of $ 1.9 million.

The condensed consolidated balance sheet as of December 31, 2021 includes $ 29.3 million of net proved oil and natural gas properties acquired in the transaction.

During the three months ended March 31, 2022, the Partnership received final settlement net cash receipts from the transaction of $ 0.4 million.

The final settlement net cash receipts, net of capitalized transaction costs of $ 0.3 million, are included in the net cash contributed in acquisition on the condensed consolidated statement of cash flows for the three months ended March 31, 2022.

On June 30, 2021, pursuant to a non-taxable contribution and exchange agreement with JSFM, LLC, a Wyoming limited liability company (“JSFM”), the Partnership acquired overriding royalty interests in the Bakken Trend totaling approximately 6,400 net royalty acres located in Dunn, McKenzie, McLean and Mountrail Counties, North Dakota in exchange for 725,000 common units representing limited partnership interests in the Partnership valued at $ 12.2 million and issued pursuant to the Partnership’s registration statement on Form S- 4.

We believe that the acquisition is considered complimentary to our business.

The transaction was accounted for as an acquisition of assets under U.S.

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.

At closing, in addition to conveying overriding royalty interests to the Partnership, JSFM delivered funds to the Partnership in an amount equal to their cash receipts during the period from April 1, 2021 through June 30, 2021 of $ 0.4 million.

During the three months ended September 30, 2021, the Partnership had final settlement net cash receipts from the transaction of $ 0.3 million.

The contributed cash and final settlement net cash receipts, net of capitalized transaction costs of $ 0.1 million, are included in the net cash contributed in acquisition on the condensed consolidated statement of cash flows for the nine months ended September 30, 2021.

The condensed consolidated balance sheet as of September 30, 2021 includes $ 11.5 million of net oil and natural gas properties acquired in the transaction.

Net Profits Interest Divestiture

On September 30, 2020, the Partnership and affiliates of its General Partner closed the divestiture of our Hugoton net profits interest located in Texas County, Oklahoma and Stevens County, Kansas to a third party.

In accordance with the full cost method of accounting, as the divestiture did not represent a significant portion of the Partnership’s reserves, gross divestiture proceeds of $ 5.7 million were credited to the oil and natural gas properties full cost pool as of December 31, 2020.

Transaction costs of $ 0.5 million are included in general and administrative expenses on the condensed consolidated income statements for the three and nine month periods ended September 30, 2020.

Final net proceeds from the sale were subject to customary holdbacks and post-closing adjustments.

The condensed consolidated balance sheet as of December 31, 2021 includes $ 11.5 million of net oil and natural gas properties acquired in the transaction.

Commitments and Contingencies

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Distributions to Holders of Common Units

The distribution for the third quarter of 2021 will be paid on 35,404,774 common units.

The distribution for the third quarter of 2020 was paid on 34,679,774 common units.

The third quarter 2021 distribution of $ 0.507608 per common unit will be paid on November 10, 2021.

Our partnership agreement requires the fourth quarter cash distribution to be paid by February 14, 2022.

The distribution for the first quarter of 2022 will be paid on 37,554,774 common units.

The distribution for the first quarter of 2021 was paid on 34,679,774 common units.

The first quarter 2022 distribution of $ 0.753926 per common unit will be paid on May 12, 2022.

Our partnership agreement requires the second quarter cash distribution to be paid by August 14, 2022.

MANAGEMENT ’

2 unchanged sentences

For a description of limitations inherent in forward-looking statements, see page 1 of this Quarterly Report on Form 10-Q.

This discussion, which presents our results of operations for the three months ended March 31, 2022 and March 31, 2021, should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes.

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.

We own producing and nonproducing mineral, royalty, overriding royalty, net profits and leasehold interests.

1 unchanged sentence

We currently own Royalty Properties in 590 counties and parishes in 28 states.

As of September 30, 2021, 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 (the “Operating Partnership”), a Delaware limited partnership owned directly and indirectly by our General Partner.

As of March 31, 2022, 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 (the “Operating Partnership”), a Delaware limited partnership owned directly and indirectly by our General Partner.

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 that costs, including budgeted capital expenditures, exceed revenues on a cash basis in a given month for properties subject to the Net Profits Interest, no payment is made, and any deficit is accumulated and reflected in the following month's calculation of net profit.

The NPI has previously had cumulative revenue that exceeded cumulative costs, such excess constituting net proceeds on which NPI payments were determined.

In the event the NPI has a deficit of cumulative revenue versus cumulative costs, the deficit will be borne solely by the Operating Partnership.

From a cash perspective, as of September 30, 2021, the NPI was in a surplus position and had outstanding capital commitments, primarily in the Bakken region, equaling cash on hand of $1.7 million.

From a cash perspective, as of March 31, 2022, the NPI was in a surplus position and had outstanding capital commitments, primarily in the Bakken region, equaling cash on hand of $2.0 million.

Commodity Price Risks

The pricing of oil and natural gas sales is primarily determined by supply and demand in the global marketplace and can fluctuate considerably.

As a royalty owner and non-operator, we have extremely limited access to timely information and involvement and no operational control over the volumes of oil and natural gas produced and sold and the terms and conditions on which such volumes are marketed and sold.

As a royalty owner and non-operator, we have extremely limited access to timely information and involvement and no operational control over the volumes of oil and natural gas produced and sold or the terms and conditions on which such volumes are marketed and sold.

Our profitability is affected by oil and natural gas market prices.

Oil and natural gas market prices have fluctuated significantly in recent years in response to changes in the supply and demand for oil and natural gas in the market, along with domestic and international political and economic conditions.

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 spreads 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.

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In addition, in early March 2020, oil prices dropped sharply and continued to decline, briefly reaching negative levels, as a result of multiple factors affecting the supply and demand in global oil and natural gas markets, including (i) actions taken by OPEC members and other exporting nations impacting commodity price and production levels and (ii) a significant decrease in demand due to the COVID-19 pandemic.

Additionally, the Delta variant emerged in March 2021 and became highly transmissible in July 2021, which contributed to additional pricing and demand volatility during 2021 to date.

Additionally, multiple variants emerged in 2021 and became highly transmissible, which contributed to additional pricing and demand volatility during 2021 to date.

However, certain restrictions on conducting business that were implemented in response to the COVID-19 pandemic have been lifted as improved treatments and vaccinations became available for COVID-19 since late 2020.

As a result, oil and natural gas market prices have improved in response to the increase in demand.

Commodity prices have historically been volatile and we cannot predict events which may lead to future fluctuations in these prices.

However, additional actions may be required in response to the COVID-19 pandemic on a national, state and local level by governmental authorities, and such actions may further adversely affect general and local economic conditions (including further closures of businesses), particularly if the mid-2021 resurgence and spread of the COVID-19 pandemic continues.

Furthermore, in February 2022, Russian military forces invaded Ukraine leading to various trade and economic sanctions being implemented by countries and private market participants on Russia which have resulted in a global supply shortage of oil and natural gas.

As a result of the lifting of certain restrictions put in place in response to COVID-19 and the global supply shortage of oil and natural gas caused by the Russian invasion of Ukraine, in addition to other changing market conditions, oil and natural gas market prices have sharply increased.

However, commodity prices have historically been volatile, and we cannot predict events which may lead to future fluctuations in these prices.

Additional actions may be required in response to the COVID-19 pandemic on a national, state and local level by governmental authorities, and such actions may further adversely affect general and local economic conditions (including further closures of businesses), particularly if the 2021 resurgence and spread of the COVID-19 pandemic continues.

The COVID-19 pandemic continues to be dynamic and evolving, and its ultimate duration and effects remain uncertain.

Similarly, the length, impact and outcome of the ongoing military conflict between Russia and Ukraine is highly unpredictable and could lead to significant market disruptions and increased volatility in oil and natural gas prices and supply of energy resources along with instability in the global commodity and financial markets.

Results of Operations

Acquisition of Royalty Properties

On June 30, 2021, pursuant to a contribution and exchange agreement with JSFM, LLC, a Wyoming limited liability company (“JSFM”), the Partnership acquired overriding royalty interests in the Bakken Trend totaling approximately 6,400 net royalty acres located in Dunn, McKenzie, McLean and Mountrail Counties, North Dakota in exchange for 725,000 common units representing limited partnership interests in the Partnership issued pursuant to the Partnership's registration statement on Form S-4.

After the issuance, 29,275,000 units remain available for issuance under the Partnership's available registration statements.

Acquisition for Units

On March 31, 2022, pursuant to a non-taxable contribution and exchange agreement with multiple unrelated third 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 complimentary to our business.

The transaction was accounted for as an acquisition of assets under U.S.

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.

The contributed cash, net of capitalized transaction costs paid, of $0.7 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the three months ended March 31, 2022.

On December 31, 2021, pursuant to a non-taxable contribution and exchange agreement with Gemini 5 Thirty, LP, a Texas limited partnership (“Gemini”), the Partnership acquired mineral and royalty interests representing approximately 4,600 net royalty acres located in 27 counties across New Mexico, Oklahoma, Texas and Wyoming in exchange for 1,580,000 common units representing limited partnership interests in the Partnership valued at $31.3 million and issued pursuant to the Partnership's registration statement on Form S-4.

We believe that the acquisition is considered complimentary to our business.

The transaction was accounted for as an acquisition of assets under U.S.

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.

During the three months ended March 31, 2022, the Partnership received final settlement net cash receipts from the transaction of $0.4 million.

The final settlement net cash receipts, net of capitalized transaction costs of $0.3 million, are included in the net cash contributed in acquisition on the condensed consolidated statement of cash flows for the three months ended March 31, 2022.

On June 30, 2021, pursuant to a non-taxable contribution and exchange agreement with JSFM, LLC, a Wyoming limited liability company (“JSFM”), the Partnership acquired overriding royalty interests in the Bakken Trend totaling approximately 6,400 net royalty acres located in Dunn, McKenzie, McLean and Mountrail Counties, North Dakota in exchange for 725,000 common units representing limited partnership interests in the Partnership valued at $12.2 million and issued pursuant to the Partnership’s registration statement on Form S-4.

We believe that the acquisition is considered complimentary to our business.

The transaction was accounted for as an acquisition of assets under U.S.

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.

During the three months ended September 30, 2021, the Partnership had final settlement net cash receipts from the transaction of $0.3 million.

The contributed cash and final settlement net cash receipts, net of capitalized transaction costs of $0.1 million, are included in the net cash contributed in acquisition on the condensed consolidated statement of cash flows for the nine months ended September 30, 2021.

Net Profits Interest Divestiture

In accordance with the full cost method of accounting, as the divestiture did not represent a significant portion of the Partnership’s reserves, gross divestiture proceeds of $5.7 million were credited to the oil and natural gas properties full cost pool as of December 31, 2020.

Transaction costs of $0.5 million are included in general and administrative expenses on the condensed consolidated income statements for the three and nine month periods ended September 30, 2020.

Final net proceeds from the sale were subject to customary holdbacks and post-closing adjustments.

Customary holdbacks of $0.2 million were paid to the Partnership and are included in proceeds from the sale of oil and natural gas properties on the condensed consolidated statement of cash flows for the nine months ended September 30, 2021.

Three and Nine Months Ended September 30, 2021 as compared to Three and Nine Months Ended September 30,  

Three Months Ended March 31, 2022 as compared to Three Months Ended March 31, 2021

Our period-to-period changes in net income and cash flows from operating activities are principally determined by changes in oil and natural gas sales volumes and prices, and to a lesser extent, by capital expenditures deducted under the NPI calculation.

Our portion of oil and natural gas sales volumes and average sales prices are shown in the following table.

Oil sales volumes include volumes attributable to natural gas liquids and oil sales prices include natural gas liquids prices combined by volumetric proportions.

Three Months Ended

Nine Months Ended

September 30,

Accrual basis sales volumes:

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Both oil and natural gas sales price changes reflected in the table above resulted from changing market conditions.

Oil sales volumes attributable to our Royalty Properties remained consistent from the third quarter of 2020 versus the same period of 2021.

This is primarily a result of increased Permian Basin production due to higher suspense releases on new wells in the second quarter of 2021 compared to the same period of 2020, offset by lower suspense releases on new wells in the Rockies in the third quarter of 2021 compared to the same period of 2020 and natural production declines in the Bakken region, Rockies, and Mid-Continent.

Oil sales volumes attributable to our Royalty Properties remained consistent from the first nine months of 2020 to the same period of 2021.

This is primarily a result of increased Permian Basin production due to higher suspense releases on new wells and prior period adjustments, partially offset by lower suspense releases on new wells in the Bakken region and Rockies and natural production declines in the Bakken region and Mid-Continent.

Natural gas sales volumes attributable to our Royalty Properties remained consistent from the third quarter of 2020 versus the same period of 2021.

This is primarily a result of increased Permian Basin and Bakken region production and higher suspense releases on new wells in the Permian Basin and Mid-Continent in the second quarter of 2021 compared to the same period of 2020, offset by lower suspense releases on new wells in the Southeast in the second quarter of 2021 compared to the same period of 2020 and natural production declines in the Rockies and South Texas.

Natural gas sales volumes attributable to our Royalty Properties remained consistent from the first nine months of 2020 to the same period of 2021.

This is primarily a result of higher suspense releases on new wells in the Permian Basin and increased production in the Permian Basin and Barnett Shale being largely offset by lower suspense releases on new wells in the Rockies and decreased production in other areas of Texas.

The decrease in oil sales attributable to our NPI properties from the third quarter of 2020 to the same period of 2021 is primarily a result of decreased production in the Permian Basin and natural production declines in the Bakken region and Mid-Continent.

The decrease in oil sales volumes attributable to our NPI properties from the first nine months of 2020 to the same period of 2021 is primarily a result of lower suspense releases for new wells in the Bakken region and Permian Basin and decreased production across all regions after the 2020 curtailments were restored.

The decrease in natural gas sales volumes attributable to our NPI properties from the third quarter and first nine months of 2020 to the same periods of 2021 is primarily the result of the absence of production from the Hugoton Field in the third quarter and first nine months of 2021 due to the Hugoton NPI divestiture in the third quarter of 2020 and decreased production in Mid-Continent, partially offset by increased production in the Bakken region and increased Fayetteville Shale production due to higher prior period adjustments in the second quarter of 2021.

Operating revenues increased 92% from $12.5 million during the third quarter of 2020 to $24.0 million during the same period of 2021.

The increase is primarily a result of higher Royalty Properties oil sales volumes, higher Royalty Properties oil and natural gas sales prices, and higher NPI revenues.

Operating revenues also increased 81% from $34.8 million during the first nine months of 2020 to $63.1 million during the same period of 2021.

The increase is primarily a result of higher Royalty Properties oil and natural gas sales volumes and sales prices and higher NPI revenues.

Operating costs, including production taxes, increased 40% from $1.5 million during the third quarter of 2020 to $2.1 million during the same period of 2021.

The increase is primarily a result of higher production taxes due to higher oil sales volumes and higher oil and natural gas sales prices.

Operating costs, including production taxes, increased 23% from $4.3 million during the first nine months of 2020 to $5.3 million during the same period of 2021.

The increase is primarily a result of higher production taxes due to higher natural gas and oil sales volumes and higher oil and natural gas sales prices, partially offset by lower ad valorem taxes.

Depreciation, depletion and amortization decreased 9% from $3.2 million during the third quarter of 2020 to $2.9 million during the same period of 2021.

Depreciation, depletion and amortization also decreased 19% from $9.5 million during the first nine months of 2020 to $7.7 million during the same period of 2021.

We adjust our depletion rate each quarter for significant changes in our estimates of oil and natural gas reserves, including acquisitions and divestitures.

General and administrative expenses decreased 59% from $2.2 million during the third quarter of 2020 to $0.9 million during the same period of 2021.

The decrease is primarily a result of non-recurring Hugoton NPI divestiture transaction costs in the third quarter of 2020 and lower compensation expenses due to the forgiveness of the Operating Partnership’s $0.8 million Paycheck Protection Program loan in the third quarter of 2021, which was applied as a non-recurring credit of compensation costs previously reimbursed between the Partnership and the Operating Partnership, partially offset by higher information technology software costs for the third quarter of 2021 compared to the same period of 2020.

General and administrative expenses decreased 31% from $5.5 million during the first nine months of 2020 to $3.8 million during the same period of 2021.

The decrease is primarily a result of lower compensation expenses due to the forgiveness of the Operating Partnership’s $0.9 million and $0.8 million Paycheck Protection Program loans in the second and third quarter of 2021, respectively, which were applied as non-recurring credits of compensation costs previously reimbursed between the Partnership and the Operating Partnership, and non-recurring Hugoton NPI divestiture transaction costs in the third quarter of 2020, partially offset by higher information technology software and public company compliance and insurance costs for the first nine months of 2021 compared to the same period of 2020.

Net cash provided by operating activities increased 48% from $32.0 million during the first nine months of 2020 to $47.5 million during the same period of 2021.

The increase is primarily a result of higher Royalties revenue receipts, net of operating costs, including production taxes, for the first nine months of 2021 compared to the same period of 2020, partially offset by lower NPI payment receipts for the first nine months of 2021 compared to the same period of 2020.

The increase in oil sales volumes attributable to our Royalty Properties from the first three months of 2021 to the same period of 2022 is primarily a result of higher suspense releases on new wells in the Permian Basin, South Texas, and Rockies, increased production in the Permian Basin and Bakken region, and increased production in the Rockies due to higher prior period adjustments in the first quarter of 2022.

The increase in natural gas sales volumes attributable to our Royalty Properties from the first quarter of 2021 to the same period of 2022 is primarily a result of higher suspense releases on new wells in the Permian Basin, Southeast, Rockies, and South Texas, increased production in the Permian Basin and Mid-Continent, and increased production in the Rockies due to higher prior period adjustments in the first quarter of 2022.

Oil sales attributable to our NPI properties remained consistent from the first quarter of 2021 to the same period of 2022.

This is primarily a result of higher suspense releases on new wells in the Permian Basin and Bakken region and increased production in the Permian Basin, offset by natural production declines in the Bakken region and Mid-Continent.

The increase in natural gas sales volumes attributable to our NPI properties from the first quarter of 2021 to the same period of 2022 is primarily the result of higher suspense releases on new wells and increased production in the Permian Basin, partially offset by natural production declines in the Bakken region.

Operating costs, including production taxes, increased 120% from the first quarter of 2021 to the same period of 2022.

The increase is primarily a result of higher proportionate production taxes due to higher oil and natural gas sales volumes prices and higher ad valorem taxes.

Depreciation, depletion and amortization increased 96% from the first three months of 2021 to the same period of 2022.We adjust our depletion rate each quarter for significant changes in our estimates of oil and natural gas reserves, including recent acquisitions.

General and administrative expenses decreased 9% from the first three months of 2021 to the same period of 2022.

The decrease is primarily a result of lower compensation expenses.

Net cash provided by operating activities increased 170% from the first three months of 2021 to the same period of 2022.

The increase is primarily a result of higher Royalties revenue receipts, net of operating costs, including production taxes, and higher NPI payment receipts for the first three months of 2022 compared to the same period of 2021.

In an effort to provide the reader with information concerning prices of oil and natural gas sales that correspond to our quarterly distributions, management calculates the average price by dividing gross revenues received by the net volumes of the corresponding product without regard to the timing of the production to which such sales may be attributable.

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prior period adjustments.

Cash receipts attributable to our Royalty Properties during the third quarter of 2021 totaled $17.3 million.

Approximately 77% of these receipts reflect oil sales during June 2021 through August 2021 and natural gas sales during May 2021 through July 2021, and approximately 23% from prior sales periods.

The average indicated prices for oil and natural gas sales cash receipts attributable to the Royalty Properties during the third quarter of 2021 were $59.96/bbl and $3.03/mcf, respectively.

Cash receipts attributable to our Net Profits Interests during the third quarter of 2021 totaled $3.3 million.

Approximately 77% of these receipts reflect oil and natural gas sales during May 2021 through July 2021, and approximately 23% from prior sales periods.

The average indicated prices for oil and natural gas sales cash receipts attributable to the NPI properties during the third quarter of 2021 were $59.42/bbl and $3.26/mcf, respectively.

Cash receipts attributable to our Royalty Properties during the first quarter of 2022 totaled $24.7 million.

Approximately 75% of these receipts reflect oil sales during December 2021 through February 2022 and natural gas sales during November 2021 through January 2022, and approximately 25% from prior sales periods.

The average indicated prices for oil and natural gas sales cash receipts attributable to the Royalty Properties during the first quarter of 2022 were $70.51/bbl and $4.59/mcf, respectively.

Cash receipts attributable to our Net Profits Interest during the first quarter of 2022 totaled $6.9 million.

Approximately 65% of these receipts reflect oil and natural gas sales during November 2021 through January 2022, and approximately 35% from prior sales periods.

The average indicated prices for oil and natural gas sales cash receipts attributable to the NPI properties during the first quarter of 2022 were $66.92/bbl and $5.36/mcf, respectively.

Liquidity and Capital Resources

Capital Resources

Our primary sources of capital, on both a short-term and long-term basis, are our cash flows from the NPI and the Royalty Properties.

Our partnership agreement requires that we distribute quarterly an amount equal to all funds that we receive from NPIs and the Royalty Properties (other than cash proceeds received by the Partnership from a public or private offering of securities of the Partnership) less certain expenses and reasonable reserves.

Our primary sources of capital, on both a short-term and long-term basis, are our cash flows from the Royalty Properties and the NPI.

Our partnership agreement requires that we distribute quarterly an amount equal to all funds that we receive from Royalty Properties and NPIs (other than cash proceeds received by the Partnership from a public or private offering of securities of the Partnership) less certain expenses and reasonable reserves.

Additional cash requirements include the payment of oil and natural gas production and property taxes not otherwise deducted from gross production revenues and general and administrative expenses incurred on our behalf and allocated to the Partnership in accordance with the partnership agreement.

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of this Quarterly Report on Form 10-Q for additional information regarding cash distributions to unitholders.

Contractual Obligations

The Partnership leases its office space at 3838 Oak Lawn Avenue, Suite 300, Dallas, Texas, through an operating lease (the “Office Lease”).

The third amendment to our Office Lease was executed in April 2017 for a term of 129 months, beginning June 1, 2018 and expiring in 2029.

Under the third amendment to the Office Lease, monthly rental payments range from $25,000 to $30,000.

Future maturities of Office Lease liabilities representing monthly cash rental payment obligations as of March 31, 2022 are summarized as follows:

Total lease payments

Less amount representing interest

Total lease obligation

We are not directly liable for the payment of any exploration, development or production costs.

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(as defined in Section 514 of the Internal Revenue Code of 1986, as amended).

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 continued oil and natural gas market volatility.

Although demand and market prices for oil and natural gas have recently increased due to the rising energy use and the improvements in the U.S.

economic activity, 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, 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 on our liquidity or cash flows.

Although demand and market prices for oil and natural gas have recently increased 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.

Liquidity and Working Capital

Cash and cash equivalents totaled $22.3 million at September 30, 2021 and $11.2 million at December 31, 2020.

Critical Accounting Policies

As of September 30, 2021, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our 2020 Annual Report on Form 10-K.

Cash and cash equivalents totaled $33.0 million at March 31, 2022 and $28.3 million at December 31, 2021.

Critical Accounting Policies and Estimates

As of March 31, 2022, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our 2021 Annual Report on Form 10-K.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements