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)       March 31, 2023     December 31, 2022                     ASSETS                 Current assets                 Cash and cash equivalents   $ 44,999     $ 40,754   Trade and other receivables     12,562       14,543   Net profits interest receivable - related party     4,611       7,170   Total current assets     62,172       62,467                     Oil and natural gas properties (full cost method)     473,012       472,974   Accumulated full cost depletion     ( 367,342 )     ( 360,724 ) Total     105,670       112,250                     Leasehold improvements     989       989   Accumulated amortization     ( 445 )     ( 422 ) Total     544       567                     Operating lease right-of-use asset     909       959   Total assets   $ 169,295     $ 176,243                     LIABILITIES AND PARTNERSHIP CAPITAL                 Current liabilities                 Accounts payable and other current liabilities   $ 3,234     $ 3,131   Operating lease liability     279       281   Total current liabilities     3,513       3,412                     Operating lease liability     1,244       1,313   Total liabilities     4,757       4,725                     Commitments and contingencies (Note 4)                                   Partnership capital                 General Partner     319       676   Unitholders     164,219       170,842   Total partnership capital     164,538       171,518   Total liabilities and partnership capital   $ 169,295     $ 176,243     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 March 31,       2023     2022   Operating revenues                 Royalties   $ 24,684     $ 34,879   Net profits interest     14,947       5,470   Lease bonus and other     536       52   Total operating revenues     40,167       40,401                     Costs and expenses                 Operating, including production taxes     2,718       3,268   Depreciation, depletion and amortization     6,641       4,466   General and administrative     2,738       2,043   Total costs and expenses     12,097       9,777                     Net income   $ 28,070     $ 30,624                     Allocation of net income                 General partner   $ 760     $ 1,082   Unitholders   $ 27,310     $ 29,542   Net income per common unit (basic and diluted)   $ 0.71     $ 0.80   Weighted average basic and diluted common units outstanding     38,372       36,991     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 March 31, 2022                                 Balance at January 1, 2022   $ 982     $ 141,428     $ 142,410       36,985   Net income     1,082       29,542       30,624           Acquisition of assets for units     -       14,792       14,792       570   Distributions ($ 0.639287 per Unit)     ( 855 )     ( 23,644 )     ( 24,499 )         Balance at March 31, 2022   $ 1,209     $ 162,118     $ 163,327       37,555                                     Three Months Ended March 31, 2023                                 Balance at January 1, 2023   $ 676     $ 170,842     $ 171,518       38,372   Net income     760       27,310       28,070           Distributions ($ 0.884339 per Unit)     ( 1,117 )     ( 33,933 )     ( 35,050 )         Balance at March 31, 2023   $ 319     $ 164,219     $ 164,538       38,372     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)       Three Months Ended March 31,       2023     2022                     Net cash provided by operating activities   $ 38,745     $ 28,415                     Cash flows provided by investing activities:                 Net cash contributed in acquisitions of oil and natural gas properties     550       747                     Cash flows used in financing activities:                 Distributions paid to General Partner and unitholders     ( 35,050 )     ( 24,499 )                   Increase in cash and cash equivalents     4,245       4,663   Cash and cash equivalents at beginning of period     40,754       28,306                     Cash and cash equivalents at end of period   $ 44,999     $ 32,969                                       Non-cash investing and financing activities:                 Fair value of common units issued for acquisitions of oil and natural gas properties   $ -     $ 14,792     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 592 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 2022 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 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. 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 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, 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 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.    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   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. 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 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 valued at $ 20.4 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. 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.    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, 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.     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 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.   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 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.   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 592 counties and parishes in 28 states.   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. 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 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 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, 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 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 there is a resurgence in the spread of COVID-19. The ultimate duration and effect of COVID-19 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   Acquisitions for Units   On September 30, 2022, pursuant to a non-taxable contribution and exchange agreement with 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 valued at $20.4 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. 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. 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 paid, of $0.7 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the three months ended March 31, 2022.   Three Months Ended March 31, 2023 as compared to Three Months Ended March 31,   2022   Our period-to-period changes in net income and cash flows from operating activities are principally determined by changes in oil and natural gas sales volumes and prices, and to a lesser extent, by capital expenditures deducted under the NPI calculation. Our portion of oil and natural gas sales volumes and average sales prices are shown in the following table. Oil sales volumes include volumes attributable to natural gas liquids and oil sales prices include natural gas liquids prices combined by volumetric proportions.       Three Months Ended               March 31,           Accrual basis sales volumes:   2023     2022     % Change   Royalty Properties natural gas sales (mmcf)     1,330       1,147       16 % Royalty Properties oil sales (mbbls)     302       369       (18 %) NPI natural gas sales (mmcf)     864       320       170 % NPI oil sales (mbbls)     269       94       186 %                           Accrual basis average sales prices:                         Royalty Properties natural gas sales ($/mcf)   $ 3.01     $ 4.49       (33 %) Royalty Properties oil sales ($/bbl)   $ 68.48     $ 80.47       (15 %) NPI natural gas sales ($/mcf)   $ 3.39     $ 5.24       (35 %) NPI oil sales ($/bbl)   $ 70.56     $ 79.88       (12 %)   9 Table of Contents   Both oil and natural gas sales price changes reflected in the table above resulted from changing market conditions.   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 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. 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 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.   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 March 31, 2023 are summarized as follows:       In Thousands   2023   $ 263   2024     356   2025     362   2026     368   2027     374   Thereafter     443   Total lease payments     2,166   Less amount representing interest     (643 ) Total lease obligation   $ 1,523     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 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 $45.0 million at March 31, 2023 and $40.8 million at December 31, 2022.   Critical Accounting Policies and Estimates   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.   11 Table of Contents   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   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