What changed in this filing

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Item 1. Financial Statements

2023-05-04 compared with 2022-11-03 · 80 added, 182 removed, 238 unchanged (52% of the section changed)

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(In Thousands)

September 30,

Current assets

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Three Months Ended

Nine Months Ended

September 30,

Net operating revenues:

$ 33,530  

$ 20,031  

$ 105,549  

$ 51,172  

Net profits interests

17,478  

10,692  

Total net operating revenues

44,057  

23,969  

131,917  

63,119  

Operating revenues

Net profits interest

Lease bonus and other

Total operating revenues

Costs and expenses

Operating, including production taxes

10,259  

Depreciation, depletion and amortization

13,486  

General and administrative expenses

General and administrative

Total costs and expenses

29,768  

16,778  

$ 34,201  

$ 18,031  

$ 102,149  

$ 46,341  

Allocation of net income

General partner

$ 1,288  

$ 3,623  

$ 1,579  

$ 32,913  

$ 17,400  

$ 98,526  

$ 44,762  

Net income per common unit (basic and diluted)

$ 0.88  

$ 0.49  

$ 2.64  

$ 1.28  

Weighted average basic and diluted common units outstanding

37,564  

35,405  

37,372  

34,927  

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

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(In Thousands)

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  

Three Months Ended September 30, 2022

Balance at July 1, 2022

$ 1,497  

$ 169,876  

$ 171,373  

37,555  

32,913  

34,201  

Acquisition of assets for units

20,402  

Distributions ( $0.969012 per Unit)

Balance at September 30, 2022

$ 1,428  

$ 186,800  

$ 188,228  

38,372  

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Balance at January 1, 2022

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Distributions ($ 0.639287 per Unit)

Balance at September 30, 2021

$ 105,068  

Balance at March 31, 2022

$ 1,209  

$ 162,118  

Nine Months Ended September 30, 2022

Balance at January 1, 2022

$ 163,327  

37,555  

Three Months Ended March 31, 2023

Balance at January 1, 2023

$ 170,842  

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38,372  

Acquisitions of assets for units

27,310  

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Distributions ($ 0.884339 per Unit)

Balance at September 30, 2022

$ 1,428  

Balance at March 31, 2023

$ 164,219  

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(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

Net cash provided by operating activities

$ 113,382  

$ 47,461  

Cash flows provided by investing activities:

Net cash contributed in acquisitions of oil and natural gas properties

Proceeds from the sale of oil and natural gas properties

Total cash flows provided by investing activities

Cash flows used in financing activities:

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Increase in cash and cash equivalents

23,682  

11,093  

Cash and cash equivalents at beginning of period

28,306  

11,232  

Cash and cash equivalents at end of period

$ 51,988  

$ 22,325  

Non-cash investing and financing activities:

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

$ 35,194  

$ 12,216  

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

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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 in the first half of 2022.

However, during the third quarter of 2022, oil prices slightly softened due partly to slowing economic growth resulting from higher inflation and rising interest rates.

Despite this slowing of the global economic recovery, 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.

Although the length, impact and outcome of the ongoing military conflict in Ukraine continues to be 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.

During the first quarter of 2023, with the exception of a decline of oil prices in March in reaction to the U.S.

regional bank instability, oil prices remained generally in line with those seen in the later portion of 2022.

Despite this slowing of the global economic recovery, 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, the sanctions imposed against Russia, 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.

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 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.

We remain unable to 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 conditions have significantly improved with the increase in domestic vaccination programs, a reduction in global constraints and the reduced spread of COVID- 19 overall, the long term impact of COVID- 19 remains uncertain as responses to COVID- 19 and newly emerging variants continue to evolve.

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 there is a resurgence in the spread of the COVID- 19.

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. 

Summary of Significant Accounting Policies

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Recent Accounting Pronouncements

Recently Adopted Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2016 - 13, “Financial Instruments - Credit Losses (Topic 326 )”

(“ASU 2016 - 13”

), which changed how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The standard replaced the incurred loss approach with an expected loss model for instruments measured at amortized cost.

As provided by ASU 2019 - 10, Financial Instruments - Credit Losses (Topic 326 ), ASU 2016 - 13 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2022.

The Partnership adopted ASU 2016 - 13 using the modified retrospective approach, effective January 1, 2023.

The adoption of this update did not have a material impact on the Partnership’s financial position, results of operations, cash flows or disclosures.

Accounting Pronouncements Not Yet Adopted

The Partnership considers the applicability and impact of all ASUs.

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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, royalty and overriding royalty interests to the Partnership, Excess delivered funds to the Partnership in an amount equal to their cash receipts during the period from July 1, 2022 through September 30, 2022 of $ 0.9 million.

The contributed cash is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2022.

The condensed consolidated balance sheet as of September 30, 2022 includes $ 19.1 million of net oil and natural gas properties acquired in the transaction.

Net property additions for the nine months ended September 30, 2022 includes $ 1.8 million of unproved properties acquired that were recorded to the oil and natural gas properties full cost pool, thereby accelerating the costs subject to depletion.

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.

Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired.

Contributed cash delivered at closing and final settlement net cash received, net of capitalized transaction costs paid, of $ 0.8 million are included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2022.

The condensed consolidated balance sheet as of September 30, 2022 includes $ 14.0 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.

Final settlement net cash received, net of capitalized transaction costs paid, of $ 0.5 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the three months ended March 31, 2023.

The condensed consolidated balance sheet as of December 31, 2022 includes $ 19.0 million of net oil and natural gas properties acquired in the transaction.

Net property additions for the year ended December 31, 2022 includes $ 1.8 million of unproved properties acquired that were recorded to the oil and natural gas properties full cost pool, thereby accelerating the costs subject to depletion. 

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

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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.

Contributed cash delivered at closing, 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 December 31, 2022 includes $ 14.0 million of net proved oil and natural gas properties acquired in the transaction.

Final settlement net cash received, 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 nine months ended September 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.

Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired.

Contributed cash delivered at closing and final settlement net cash received, net of capitalized transaction costs paid, of $ 0.6 million are included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 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.

Commitments and Contingencies

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Distributions to Holders of Common Units

The distribution for the third quarter of 2022 will be paid on 38,371,493 common units.

The third quarter 2022 distribution of $ 1.135019 per common unit will be paid on November 10, 2022.

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

Our partnership agreement requires the fourth quarter 2022 distribution to be paid by February 14, 2023.

The distribution for the first quarter of 2023 will be paid on 38,371,493 common units.

The first quarter 2023 distribution of $ 0.989656 per common unit will be paid on May 11, 2023.

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

Our partnership agreement requires the second quarter 2023 distribution to be paid by August 14, 2023.

MANAGEMENT ’

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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 and nine months ended September 30, 2022 and September 30, 2021, should be read in conjunction with our Condensed Consolidated Financial Statements and the accompanying notes.

This discussion, which presents our results of operations for the three months ended March 31, 2023 and March 31, 2022, 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.

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We currently own Royalty Properties in 592 counties and parishes in 28 states.

As of September 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.

As of March 31, 2023, 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.

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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, 2022, the NPI was in a surplus position and had outstanding capital commitments, primarily in the Bakken region, equaling cash on hand of $5.6 million.

From a cash perspective, as of March 31, 2023, the NPI was in a surplus position and had outstanding capital commitments, primarily in the Bakken region, equaling cash on hand of $6.0 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 or 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 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.

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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.

However, conditions have significantly improved since 2022 with the increase in domestic vaccination programs, a reduction in global constraints and a reduced spread of COVID-19 overall.

Nevertheless, the long term impact of COVID-19 remains uncertain as responses to COVID-19 and newly emerging variants continue to evolve. 

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 sharply increased during the first half of 2022.

While oil prices have slightly softened in the third quarter of 2022, due partly to slowing economic growth resulting from 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.

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 sharply increased during the first half of 2022 followed by a slight softening in oil prices during the second half of 2022 due to higher inflation and rising interest rates.

During the first quarter of 2023, with the exception of a decline of oil prices in March in reaction to the U.S.

regional bank instability, oil prices remained generally in line with those seen in the later portion of 2022.

Despite this slowing of the global economic recovery, 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, 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.

The ultimate duration and effect of COVID-19 remain uncertain.

Results of Operations

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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 is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2022.

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.

Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired.

Contributed cash delivered at closing and final settlement net cash received, net of capitalized transaction costs paid, of $0.8 million are included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 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.

Final settlement net cash received, net of capitalized transaction costs paid, of $0.5 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the three months ended March 31, 2023. 

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.

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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.

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.

Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired.

Contributed cash delivered at closing and final settlement net cash received, net of capitalized transaction costs paid, of $0.6 million are included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2021.

Three and Nine Months Ended September 30, 2022 as compared to Three and Nine Months Ended September 30,  

Contributed cash delivered at closing, 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.

Three Months Ended March 31, 2023 as compared to Three Months Ended March 31,  

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.

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Three Months Ended

Nine Months Ended

September 30,

Accrual basis sales volumes:

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NPI oil sales (mbbls)

Accrual basis average sales price:

Accrual basis average sales prices:

Royalty Properties natural gas sales ($/mcf)

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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 third quarter of 2021 to the same period of 2022 is primarily a result of increased production in the Permian Basin, Rockies, and South Texas and higher suspense releases on new wells in the Rockies and South Texas, partially offset by lower suspense releases on new wells in the Permian Basin and Bakken region.

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

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

The increase in natural gas sales volumes attributable to our Royalty Properties from the first nine months of 2021 to the same period of 2022 is primarily a result of increased production in the Permian Basin and Mid-Continent and higher suspense releases on new wells in the Permian Basin, Rockies, Southeast and South Texas, partially offset by natural production declines in the Barnett Shale.

Oil sales volumes attributable to our NPI properties remained consistent from the third quarter 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 Bakken region, offset by natural declines in the Bakken region and lower suspense releases on new wells in the Permian Basin.

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

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

The decrease in natural gas sales volumes attributable to our NPI properties from the first nine months of 2021 to the same period of 2022 is primarily a result of 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 increased production and higher suspense releases on new wells in the Permian Basin.

Lease bonus revenue for the third quarter and first nine months of 2022 is primarily attributable to receipt of a bonus of approximately $7.3 million from a lease executed on September 30, 2022, wherein the Partnership leased 243 net acres in two tracts of land in Reagan County, Texas for $30,000 per acre and a 25% royalty.

Operating costs, including production taxes, increased 50% from the third quarter of 2021 to the same period of 2022 and 94% from the first nine 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 sales prices and higher ad valorem taxes.

Depreciation, depletion and amortization increased 46% from the third quarter of 2021 to the same period of 2022 and 76% from the first nine months of 2021 to the same period of 2022.

The decrease in oil sales volumes attributable to our Royalty Properties from the first quarter of 2022 to the same period of 2023 is primarily a result of lower suspense releases on new wells in the Permian Basin and Rockies and decreased production in the Permian Basin, Bakken region, and Rockies, partially offset by higher suspense releases on new wells in the Bakken region.

The increase in natural gas sales volumes attributable to our Royalty Properties from the first quarter of 2022 to the same period of 2023 is primarily a result of higher suspense releases on new wells in South Texas, East Texas, and Mid-Continent, partially offset by lower suspense releases on new wells in the Southeast and decreased production in the Bakken region.

The increase in oil and natural gas sales volumes attributable to our NPI properties from the first quarter of 2022 to the same period of 2023 is primarily a result of higher suspense releases on new wells and increased production in the Permian Basin, partially offset by lower suspense releases on new wells and natural production declines in the Bakken region. 

Operating costs, including production taxes, decreased 17% from the first quarter of 2022 to the same period of 2023.

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

Depreciation, depletion and amortization increased 49% from the first quarter of 2022 to the same period of 2023.

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 166% from the third quarter of 2021 to the same period of 2022 primarily as a result of higher compensation expenses due to market adjustments and 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.

General and administrative expenses increased 58% from the first nine months of 2021 to the same period of 2022 primarily as a result of higher compensation expenses due to market adjustments and 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, partially offset by lower information technology project costs in the first nine months of 2022 when compared to the same period of 2021.

Net cash provided by operating activities increased 139% from the first nine months of 2021 to the same period of 2022.

The increase is primarily a result of higher royalty revenue receipts, net of operating costs, including production taxes, higher NPI payment receipts, and higher lease bonus receipts.

General and administrative expenses increased 34% from the first quarter of 2022 to the same period of 2023.

The increase is primarily a result of higher compensation expenses due to market adjustments and increased professional service fees.

Net cash provided by operating activities increased 36% from the first quarter of 2022 to the same period of 2023.

The increase is primarily a result of 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.

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prior period adjustments.

Cash receipts attributable to our Royalty Properties during the third quarter of 2022 totaled $35.0 million.

Approximately 79% of these receipts reflect oil sales during June 2022 through August 2022 and natural gas sales during May 2022 through July 2022, and approximately 21% 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 2022 were $91.49/bbl and $6.55/mcf, respectively.

Cash receipts attributable to our Net Profits Interest during the third quarter of 2022 totaled $6.4 million.

Approximately 66% of these receipts reflect oil and natural gas sales during May 2022 through July 2022, and approximately 34% 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 2022 were $87.87/bbl and $6.40/mcf, respectively.

Cash receipts attributable to our Royalty Properties during the first quarter of 2023 totaled $24.6 million.

Approximately 76% of these receipts reflect oil sales during December 2022 through February 2023 and natural gas sales during November 2022 through January 2023, and approximately 24% 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 2023 were $68.92/bbl and $4.77/mcf, respectively.

Cash receipts attributable to our Net Profits Interest during the first quarter of 2023 totaled $17.5 million.

Approximately 31% of these receipts reflect oil and natural gas sales during November 2022 through January 2023, and approximately 69% 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 2023 were $74.29/bbl and $4.51/mcf, respectively.

Liquidity and Capital Resources

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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 September 30, 2022 are summarized as follows:

Future maturities of Office Lease liabilities representing monthly cash rental payment obligations as of March 31, 2023 are summarized as follows:

Total lease payments

8 unchanged sentences

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.

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 the significant improvement in conditions since the beginning of the COVID-19 pandemic, 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 $52.0 million at September 30, 2022 and $28.3 million at December 31, 2021.

Cash and cash equivalents totaled $45.0 million at March 31, 2023 and $40.8 million at December 31, 2022.

Critical Accounting Policies and Estimates

As of September 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.

As of March 31, 2023, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our 2022 Annual Report on Form 10-K.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

There have been no significant changes in our exposure to market risk during the three months ended March 31, 2023.

For a discussion of our exposure to market risk, refer to Item 7A of Part I of the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2022 

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