What changed in this filing

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Item 1. Business

2023-02-23 compared with 2022-02-24 · 38 added, 25 removed, 95 unchanged (40% of the section changed)

16 unchanged sentences

Our General Partner and the Operating Partnership are Delaware limited partnerships, and the general partners of their general partners are Delaware limited liability companies.

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.

This divestiture to a third party included operated working interests and related properties, our field office and our gathering system and related assets.

The Partnership’s share of proceeds from the transaction was $5.2 million, net of transaction costs.

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 issued pursuant to the Partnership's registration statement on Form S-4.

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 issued pursuant to the Partnership's registration statement on Form S-4.

Our business may be described as the acquisition, ownership and administration of Royalty Properties and NPI.

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 issued pursuant to the Partnership's registration statement on Form S-4.

On September 30, 2022, pursuant to a non-taxable contribution and exchange agreement with Excess Energy, LLC, a Texas limited liability company (“Excess”), the Partnership acquired mineral, royalty and overriding royalty interests totaling approximately 2,100 net royalty acres located in 12 counties across Texas and New Mexico in exchange for 816,719 common units representing limited partnership interests in the Partnership issued pursuant to the Partnership's registration statement on Form S-4.

Our primary business objective is to provide an attractive yield to our unitholders by focusing on strategically managing our assets and protecting our balance sheet, while maintaining a best-in-class cost structure.

We intend to accomplish this objective by executing the following strategies:

Capitalize on the development of the properties underlying our mineral interests.

Production from our mineral interests could increase as operators continue to drill, complete and develop our acreage.

We expect to benefit from continued operator development and believe the new production will help offset other mature property production declines.

Seek to acquire from time to time, accretive mineral or other interests in producing oil and natural gas properties that meet our acquisition criteria.

Since our formation, we have acquired, and may have additional opportunities from time to time in the future to acquire, mineral, royalty, or net profits interests in producing or non-producing oil and natural gas properties.

We prefer to issue equity as consideration in contribution and exchange transactions.

Maintain a conservative capital structure.

Since our formation, we have maintained a conservative capital structure that has allowed us to opportunistically purchase accretive mineral and royalty interests.

Our partnership agreement prohibits leverage which aids in our ability to successfully operate in challenging business and commodity price environments.

We are currently focused on the acquisition, ownership, and administration of Royalty Properties and NPI.

The NPI represents a net profits overriding royalty interest burdening various properties owned by the Operating Partnership.

21 unchanged sentences

Legislation affecting the oil and natural gas industry is under constant review for amendment or expansion, which frequently increases the regulatory burden on affected members of the industry.

Exploration and production operations are subject to various types of regulation at the federal, state and local levels.

These laws and regulations have the potential to impact production on our properties, which could materially adversely affect our business and our prospects.

Numerous federal, state and local governmental agencies issue regulations that carry substantial administrative, civil, and criminal penalties and may result in injunctive obligations for non-compliance.

Such regulation includes:

9 unchanged sentences

specific state and federal income tax provisions.

The strict, joint, and several liability nature of such laws and regulations could impose liability on our operators regardless of fault.

Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, hydrocarbons, or other waste products into the environment.

The long-term trend in environmental regulation has been towards more stringent regulations, and any changes that impact our operators and result in more stringent and costly pollution control could materially adversely affect our business and prospects.

Oil and natural gas operations are also subject to various conservation laws and regulations.

7 unchanged sentences

If we were to lose a significant customer, such loss could impact revenue.

The loss of any single customer is mitigated by our diversified customer base and individually insignificant properties, and we do not believe that the loss of any single customer would have a long-term material adverse effect on our financial position or the results of operations.

Royalty revenues from properties operated by Pioneer Natural Resources Company represented approximately 12% of total operating revenues for the year ended December 31, 2022.

Customer and 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 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.

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.

As a result, in addition to other changing market conditions, 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 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.

The energy industry in which we compete is subject to intense competition among many companies, both larger and smaller than we are, many of which have financial and other resources greater than we have.

The oil and natural gas industry is intensely competitive, and we compete with other companies that have greater resources.

Many of these companies not only explore for and produce oil and natural gas, but also carry on midstream and refining operations and market petroleum and other products on a regional, national, or worldwide basis.

These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit.

Our larger or more integrated competitors may be able to absorb the burden of existing, and any changes to, federal, state, and local laws and regulations more easily than we can, which would adversely affect our competitive position.

Our ability to acquire additional mineral, royalty, overriding royalty, net profits and similar interests in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment mainly by issuing equity.

In addition, because we have fewer financial and human resources than many companies in our industry, we may be at a disadvantage in bidding for these and other oil and natural gas properties.

Further, oil and natural gas compete with other forms of energy available to customers, primarily based on price.

Changes in the availability or price of oil and natural gas or other forms of energy, as well as business conditions, conservation, legislation, regulations, and the ability to convert to alternate fuels and other forms of energy may affect the demand for oil and natural gas.

Business Opportunities Agreement

29 unchanged sentences

While we believe that we are reasonably insured against these risks, the occurrence of an uninsured loss could have a material adverse effect on our financial condition or results of operations.

Human Capital Resources

As of February 23, 2023, the Operating Partnership had 26 full-time employees in our Dallas, Texas corporate office.

Due to the ongoing COVID-19 pandemic, we have a rotational work from home program in place.

The health and safety of our employees is a high priority.

We have added safety measures and protocols in our office to enhance employee and visitor protection against COVID-19.

Our workforce is our most important asset, and we structure compensation and benefit programs to attract and retain high quality colleagues while providing a flexible hybrid work environment.

Our compensation and benefit programs include but are not limited to cash and equity bonuses, a SEP IRA pension plan, insurance plans, and long-term incentives.

We support employees in continual training and professional skill development.

We offer annual training on compliance, safety, and leadership.

Diversity and Inclusion

We are committed to and value hiring employees with varied personal and professional backgrounds, perspectives and experiences, promoting a culture of diversity and inclusion.

The diversity of our employees is a tremendous asset, and we are firmly committed to providing equal opportunity in all aspects of employment and will not tolerate acts of discrimination or harassment.

We are committed to employing and advancing in employment all persons without regard to their race, color, sex, religion, national origin, citizenship, age, gender identity, sexual orientation, marital status, genetic information, veteran status, disability, or other protected categories.

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-K

Item 1. Business