DORCHESTER MINERALS, L.P. 10-Q

ITEM 1. FINANCIAL STATEMENTS   See attached financial statements on the following pages.   1 Table of Contents     DORCHESTER MINERALS, L.P. (A Delaware Limited Partnership)     CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) (Unaudited)       June 30, 2022     December 31, 2021                     ASSETS                 Current assets:                 Cash and cash equivalents   $ 42,976     $ 28,306   Trade and other receivables     20,341       11,533   Net profits interest receivable - related party     9,331       6,822   Total current assets     72,648       46,661                     Oil and natural gas properties (full cost method)     453,799       440,052   Accumulated full cost depletion     ( 350,926 )     ( 341,733 ) Total     102,873       98,319                     Leasehold improvements     989       989   Accumulated amortization     ( 376 )     ( 330 ) Total     613       659                     Operating lease right-of-use asset     1,061       1,168   Total assets   $ 177,195     $ 146,807                     LIABILITIES AND PARTNERSHIP CAPITAL                                   Current liabilities:                 Accounts payable and other current liabilities   $ 4,084     $ 2,512   Operating lease liability     286       291   Total current liabilities     4,370       2,803                     Operating lease liability     1,452       1,594   Total liabilities     5,822       4,397                     Commitments and contingencies (Note 4)                                       Partnership capital:                 General Partner     1,497       982   Unitholders     169,876       141,428   Total partnership capital     171,373       142,410   Total liabilities and partnership capital   $ 177,195     $ 146,807     The accompanying notes are an integral part of these condensed consolidated financial statements.   2 Table of Contents     DORCHESTER MINERALS, L.P. (A Delaware Limited Partnership)     CONDENSED CONSOLIDATED INCOME STATEMENTS (In Thousands, except per unit amounts) (Unaudited)       Three Months Ended     Six Months Ended       June 30,     June 30,       2022     2021     2022     2021                                     Net operating revenues:                                 Royalties   $ 37,140     $ 16,770     $ 72,019     $ 31,141   Net profits interests     9,013       4,224       14,483       7,199   Lease bonus     1,253       7       1,253       444   Other     53       360       105       366                                     Total net operating revenues     47,459       21,361       87,860       39,150                                     Costs and expenses:                                 Operating, including production taxes     3,807       1,644       7,075       3,165   Depreciation, depletion and amortization     4,773       2,484       9,239       4,782   General and administrative expenses     1,555       724       3,598       2,893                                     Total costs and expenses     10,135       4,852       19,912       10,840                                     Net income   $ 37,324     $ 16,509     $ 67,948     $ 28,310                                     Allocation of net income:                                 General partner   $ 1,253     $ 551     $ 2,335     $ 948   Unitholders   $ 36,071     $ 15,958     $ 65,613     $ 27,362   Net income per common unit (basic and diluted)   $ 0.96     $ 0.46     $ 1.76     $ 0.79   Weighted average basic and diluted common units outstanding     37,555       34,688       37,275       34,684     The accompanying notes are an integral part of these condensed consolidated financial statements.   3 Table of Contents     DORCHESTER MINERALS, L.P. (A Delaware Limited Partnership)     CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL (In Thousands) (Unaudited)       General Partner     Unitholders     Total     Unitholder Units   Three Months Ended June 30, 2021                                 Balance at April 1, 2021   $ 654     $ 87,030     $ 87,684       34,680   Net income     551       15,958       16,509           Acquisition of assets for units     -       12,216       12,216       725   Distributions ($ 0.303441 per Unit)     ( 374 )     ( 10,523 )     ( 10,897 )         Balance at June 30, 2021   $ 831     $ 104,681     $ 105,512       35,405     Three Months Ended June 30, 2022                                 Balance at April 1, 2022   $ 1,209     $ 162,118     $ 163,327       37,555   Net income     1,253       36,071       37,324           Distributions ($ 0.753926 per Unit)     ( 965 )     ( 28,313 )     ( 29,278 )         Balance at June 30, 2022   $ 1,497     $ 169,876     $ 171,373       37,555           General Partner     Unitholders     Total     Unitholder Units   Six Months Ended June 30, 2021                                 Balance at January 1, 2021   $ 536     $ 84,028     $ 84,564       34,680   Net income     948       27,362       28,310           Acquisition of assets for units     -       12,216       12,216       725   Distributions ($ 0.545701 per Unit)     ( 653 )     ( 18,925 )     ( 19,578 )         Balance at June 30, 2021   $ 831     $ 104,681     $ 105,512       35,405     Six Months Ended June 30, 2022                                 Balance at January 1, 2022   $ 982     $ 141,428     $ 142,410       36,985   Net income     2,335       65,613       67,948           Acquisition of assets for units     -       14,792       14,792       570   Distributions ($ 1.393213 per Unit)     ( 1,820 )     ( 51,957 )     ( 53,777 )         Balance at June 30, 2022   $ 1,497     $ 169,876     $ 171,373       37,555     The accompanying notes are an integral part of these condensed consolidated financial statements.   4 Table of Contents     DORCHESTER MINERALS, L.P. (A Delaware Limited Partnership)     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)       Six Months Ended June 30,       2022     2021                     Net cash provided by operating activities   $ 67,444     $ 28,211                     Cash flows provided by investing activities:                 Net cash contributed in acquisitions of oil and natural gas properties     1,003       352   Proceeds from the sale of oil and natural gas properties     -       262   Total cash flows provided by investing activities     1,003       614                     Cash flows used in financing activities:                 Distributions paid to General Partner and unitholders     ( 53,777 )     ( 19,578 )                   Increase in cash and cash equivalents     14,670       9,247   Cash and cash equivalents at beginning of period     28,306       11,232                     Cash and cash equivalents at end of period   $ 42,976     $ 20,479                                       Non-cash investing and financing activities:                 Fair value of common units issued for acquisition of oil and natural gas properties   $ 14,792     $ 12,216     The accompanying notes are an integral part of these condensed consolidated financial statements.   5 Table of Contents     DORCHESTER MINERALS, L.P. (A Delaware Limited Partnership)     NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)     1. Business and Basis of Presentation   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 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 590 counties and parishes in 28 states (“Royalty Properties”)) and net profits overriding royalty interests (referred to as the Net Profits Interest, or “NPI”).   Basis of Presentation   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”). The unaudited condensed consolidated financial statements do not include all of the disclosures required for complete annual financial statements prepared in conformity with U.S. GAAP. Therefore, the accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Partnership’s 2021 Annual Report on Form 10 -K. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring adjustments unless indicated otherwise) that are, in the opinion of management, necessary for the fair presentation of our financial position and operating results for the interim period. Interim period results are not necessarily indicative of the results for the calendar year. For more information regarding limitations on the forward-looking statements contained herein, see page 1 of this Quarterly Report on Form 10 -Q. Per unit information is calculated by dividing the income or loss applicable to holders of the Partnership’s common units by the weighted average number of units outstanding. The Partnership has no potentially dilutive securities and, consequently, basic and diluted income per unit do not differ.   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. All significant intercompany balances and transactions have been eliminated in consolidation.   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 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.   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 the global economic recovery has recently softened due to higher inflation and rising interest rates, demand and market prices for oil and natural gas remain strong, due in part to the ongoing Russian invasion of Ukraine along with rising energy use. However, 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. While there has been a recent reduction in global constraints, 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 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. These situations remain fluid and unpredictable, and we are actively managing our response.   6 Table of Contents   2. Summary of Significant Accounting Policies   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. The Partnership evaluates these estimates on an ongoing basis, using historical experience, consultation with experts and other methods the Partnership considers reasonable in each circumstance. Any effects on the Partnership’s business, financial position, or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Although the Partnership believes these estimates are reasonable, actual results could differ from those estimates.   Recent Accounting Pronouncements   The Partnership considers the applicability and impact of all ASUs. There are no recent accounting pronouncements not yet adopted that are expected to have a material effect on the Partnership upon adoption.     3. 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 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 during the three months ended June 30, 2022, net of capitalized transaction costs paid, of $0.9 million are included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the six months ended June 30, 2022. The condensed consolidated balance sheet as of June 30, 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 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. 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. Final settlement net cash received during the six months ended June 30, 2022, net of capitalized transaction costs, of $0.1 million are included in the net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the six months ended June 30, 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 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, of $ 0.4 million is included in the net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the six months ended June 30, 2021. 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.     4. Commitments and Contingencies   The Partnership and Dorchester Minerals Operating LP, a Delaware limited partnership owned directly and indirectly by our General Partner, are involved in legal and/or administrative proceedings arising in the ordinary course of their businesses, none of which have predictable outcomes, and none of which are believed to have any significant effect on our consolidated financial position, cash flows, or operating results.     5. Distributions to Holders of Common Units   The distribution for the second quarter of 2022 will be paid on 37,554,774 common units. The second quarter 2022 distribution of $ 0.969012 per common unit will be paid on August 11, 2022. The distribution for the second quarter of 2021 was paid on 35,404,774 common units. Our partnership agreement requires the third quarter cash distribution to be paid by November 14, 2022.   7 Table of Contents   ITEM 2. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The following discussion contains forward-looking statements. For a description of limitations inherent in forward-looking statements, see page 1 of this Quarterly Report on Form 10-Q.   Objective   This discussion, which presents our results of operations for the three and six months ended June 30, 2022 and June 30, 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.   Overview   We own producing and nonproducing mineral, royalty, overriding royalty, net profits and leasehold interests. We refer to these interests as the Royalty Properties. We currently own Royalty Properties in 590 counties and parishes in 28 states.   As of June 30, 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.   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 June 30, 2022, the NPI was in a surplus position and had outstanding capital commitments, primarily in the Bakken region, equaling cash on hand of $4.1 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 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 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, 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, 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.   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 shown sharp increases. While global economic recovery has recently softened due to higher inflation and rising interest rates, demand and market prices for oil and natural gas remain strong. 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 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.   8 Table of Contents   Results of Operations   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 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 during the three months ended June 30, 2022, net of capitalized transaction costs paid, of $0.9 million are included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the six months ended June 30, 2022.   On December 31, 2021, pursuant to a non-taxable contribution and exchange agreement with 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 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. 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. Final settlement net cash received during the six months ended June 30, 2022, net of capitalized transaction costs, of $0.1 million are included in the net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the six months ended June 30, 2022.   On June 30, 2021, pursuant to a non-taxable contribution and exchange agreement with 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 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, of $0.4 million is included in the net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the six months ended June 30, 2021.   Three and Six Months Ended June 30, 2022 as compared to Three and Six Months Ended June 30,   2021   Our period-to-period changes in net income and cash flows from operating activities are principally determined by changes in oil and natural gas sales volumes and prices, and to a lesser extent, by capital expenditures deducted under the NPI calculation. Our portion of oil and natural gas sales volumes and average sales prices are shown in the following table. Oil sales volumes include volumes attributable to natural gas liquids and oil sales prices include natural gas liquids prices combined by volumetric proportions.       Three Months Ended             Six Months Ended               June 30,             June 30,           Accrual basis sales volumes:   2022     2021     % Change     2022     2021     % Change   Royalty properties natural gas sales (mmcf)     1,105       1,014       9 %     2,252       1,754       28 % Royalty properties oil sales (mbbls)     318       225       41 %     687       471       46 % NPI natural gas sales (mmcf)     353       415       (15 %)     673       693       (3 %) NPI oil sales (mbbls)     139       97       43 %     233       187       25 %                                                   Accrual basis average sales price:                                                 Royalty properties natural gas sales ($/mcf)   $ 6.46     $ 3.48       86 %   $ 5.46     $ 2.97       84 % Royalty properties oil sales ($/bbl)   $ 94.52     $ 58.88       61 %   $ 86.96     $ 55.01       58 % NPI natural gas sales ($/mcf)   $ 7.67     $ 3.37       128 %   $ 6.51     $ 3.19       104 % NPI oil sales ($/bbl)   $ 84.24     $ 58.08       45 %   $ 82.48     $ 53.96       53 %   9 Table of Contents   Both oil and natural gas sales price changes reflected in the table above resulted from changing market conditions.   The increase in oil sales volumes attributable to our Royalty Properties from the second quarter of 2021 to the same period of 2022 is primarily a result of increased production in the Permian Basin, Rockies, and Bakken region and higher suspense releases on new wells in the Permian Basin. The increase in oil sales volumes attributable to our Royalty Properties from the first six months of 2021 to the same period of 2022 is primarily a result of increased production in the Permian Basin, Rockies, and Bakken region and higher suspense releases on new wells in the Permian Basin and Rockies. The increase in natural gas sales volumes attributable to our Royalty Properties from the second quarter of 2021 to the same period of 2022 is primarily a result of increased production in the Permian Basin, Rockies, Mid-Continent, and East Texas and higher suspense releases on new wells in the Permian Basin, partially offset by natural production declines in the Barnett Shale, Fayetteville Shale, and Bakken region. The increase in natural gas sales volumes attributable to our Royalty Properties from the first six months of 2021 to the same period of 2022 is primarily a result of increased production in the Permian Basin, Rockies, Mid-Continent, and Southeast and higher suspense releases on new wells in the Permian Basin, Rockies, and Southeast, partially offset by natural production declines in the Barnett Shale.   The increase in oil sales volumes attributable to our NPI properties from the second quarter of 2021 to the same period of 2022 is primarily a result of increased production in the Permian Basin and higher suspense releases on new wells in the Permian Basin and Bakken region. The increase in oil sales volumes attributable to our NPI properties from the first six months of 2021 to the same period of 2022 is primarily a result of increased production in the Permian Basin and higher suspense releases on new wells in the Permian Basin and Bakken region, partially offset by natural production declines in the Bakken region. The decrease in natural gas sales volumes attributable to our NPI properties from the second quarter of 2021 to the same period of 2022 is primarily a result of a decrease in production in the Permian Basin, natural production declines in the Bakken region, and decreased Fayetteville Shale production due to higher prior period adjustments in the second quarter of 2021, partially offset by higher suspense releases on new wells in the second quarter of 2022. Natural gas sales volumes attributable to our NPI properties remained consistent from the first six months of 2021 to the same period of 2022. This is primarily a result of increased production in the Permian Basin and higher suspense releases on new wells in the Permian Basin, offset by natural production declines in the Bakken region and decreased Fayetteville Shale production due to higher prior period adjustments in the second quarter of 2021.   Lease bonus revenue increased 182% from the first six months of 2021 to the same period of 2022. This increase and the second quarter of 2022 lease bonus revenue is primarily attributable to receipt of a bonus from a lease consummated in the Permian Basin in the second quarter of 2022.   Operating costs, including production taxes, increased 132% from the second quarter of 2021 to the same period of 2022 and 124% from the first six months of 2021 to the same period of 2022. The increases are primarily a result of higher proportionate production taxes due to higher Royalty Properties oil and natural gas sales volumes and higher sales prices and ad valorem taxes.   Depreciation, depletion and amortization increased 92% from the second quarter of 2021 to the same period of 2022 and 93% from the first six 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 increased 115% from the second quarter of 2021 to the same period of 2022 and 24% from the first six months of 2021 to the same period of 2022. The increases are primarily a result of higher compensation expenses due to the forgiveness of the Operating Partnership’s $0.9 million Paycheck Protection Program loan in the second 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 lower information technology project costs in the second quarter and first six months of 2022 when compared to the same periods of 2021.   Net cash provided by operating activities increased 139% from the first six 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.   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. This “indicated price” does not necessarily reflect the contract terms for such sales and may be affected by transportation costs, location differentials, and quality and gravity adjustments. While the relationship between our cash receipts and the timing of the production of oil and natural gas may be described generally, actual cash receipts may be materially impacted by purchasers’ release of suspended funds and by purchasers’ prior period adjustments.   Cash receipts attributable to our Royalty Properties during the second quarter of 2022 totaled $33.9 million. Approximately 74% of these receipts reflect oil sales during March 2022 through May 2022 and natural gas sales during February 2022 through April 2022, and approximately 26% from prior sales periods. The average indicated prices for oil and natural gas sales cash receipts attributable to the Royalty Properties during the second quarter of 2022 were $89.14/bbl and $4.59/mcf, respectively.   Cash receipts attributable to our Net Profits Interest during the second quarter of 2022 totaled $5.1 million. Approximately 68% of these receipts reflect oil and natural gas sales during February 2022 through April 2022, and approximately 32% from prior sales periods. The average indicated prices for oil and natural gas sales cash receipts attributable to the NPI properties during the second quarter of 2022 were $81.42/bbl and $5.31/mcf, respectively.   10 Table of Contents   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 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. Because the distributions to our unitholders are, by definition, determined after the payment of all expenses actually paid by us, the only cash requirements that may create liquidity concerns for us are the payment of expenses. Because many of these expenses vary directly with oil and natural gas sales prices and volumes, we anticipate that sufficient funds will be available at all times for payment of these expenses. See Note 5 to the unaudited Condensed Consolidated Financial Statements included in “Item 1 – Financial Statements” 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 June 30, 2022 are summarized as follows:       In Thousands   2022   $ 173   2023     350   2024     356   2025     362   2026     368   Thereafter     817   Total lease payments     2,426   Less amount representing interest     (688 ) Total lease obligation   $ 1,738     We are not directly liable for the payment of any exploration, development or production costs. We do not have any transactions, arrangements or other relationships that could materially affect our liquidity or the availability of capital resources. We have not guaranteed the debt of any other party, nor do we have any other arrangements or relationships with other entities that could potentially result in unconsolidated debt.   Pursuant to the terms of the partnership agreement, we cannot incur indebtedness, other than trade payables, (i) in excess of $50,000 in the aggregate at any given time or (ii) which would constitute “acquisition indebtedness” (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 increased oil and natural gas market volatility caused by the Russian invasion of Ukraine 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 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 or the ongoing military conflict between Russia and Ukraine will have on our liquidity or cash flows.   Liquidity and Working Capital   Cash and cash equivalents totaled $43.0 million at June 30, 2022 and $28.3 million at December 31, 2021.   Critical Accounting Policies and Estimates   As of June 30, 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.   11 Table of Contents   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   Not applicable.