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) September 30, December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 56,468 $ 47,025 Trade and other receivables 21,823 14,407 Net profits interest receivable - related party 7,659 8,275 Total current assets 85,950 69,707 Oil and natural gas properties (full cost method) 727,863 507,057 Accumulated full cost depletion ( 411,497 ) ( 386,939 ) Total 316,366 120,118 Leasehold improvements 989 989 Accumulated amortization ( 583 ) ( 514 ) Total 406 475 Operating lease right-of-use asset 630 765 Total assets $ 403,352 $ 191,065 LIABILITIES AND PARTNERSHIP CAPITAL Current liabilities: Accounts payable and other current liabilities $ 5,782 $ 4,195 Operating lease liability 265 272 Total current liabilities 6,047 4,467 Operating lease liability 842 1,041 Total liabilities 6,889 5,508 Commitments and contingencies (Note 4) Partnership capital: General Partner ( 766 ) 113 Unitholders ( 47,340 and 39,583 common units issued and outstanding as of September 30, 2024 and December 31, 2023, respectively) 397,229 185,444 Total partnership capital 396,463 185,557 Total liabilities and partnership capital $ 403,352 $ 191,065 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 Nine Months Ended September 30, September 30, 2024 2023 2024 2023 Operating revenues: Royalties $ 45,147 $ 35,790 $ 101,660 $ 84,087 Net profits interest 7,777 6,033 18,619 26,810 Lease bonus and other 548 771 1,532 2,483 Total operating revenues 53,472 42,594 121,811 113,380 Costs and expenses: Operating, including production taxes 4,135 3,714 10,273 9,186 Depreciation, depletion and amortization 10,041 6,619 24,627 18,597 General and administrative 2,883 2,798 8,703 8,260 Total costs and expenses 17,059 13,131 43,603 36,043 Net income $ 36,413 $ 29,463 $ 78,208 $ 77,337 Allocation of net income: General Partner $ 1,273 $ 1,029 $ 2,704 $ 2,445 Unitholders $ 35,140 $ 28,434 $ 75,504 $ 74,892 Net income per common unit (basic and diluted) $ 0.87 $ 0.73 $ 1.89 $ 1.94 Weighted average basic and diluted common units outstanding 40,167 38,792 39,954 38,514 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 September 30, 2023 Balance at July 1, 2023 $ ( 60 ) $ 145,392 $ 145,332 38,372 Net income 1,029 28,434 29,463 Acquisitions of oil and natural gas properties for common units - 35,777 35,777 1,211 Distributions ($ 0.676818 per common unit) ( 931 ) ( 26,203 ) ( 27,134 ) Balance at September 30, 2023 $ 38 $ 183,400 $ 183,438 39,583 Three Months Ended September 30, 2024 Balance at July 1, 2024 $ ( 1,065 ) $ 171,611 $ 170,546 40,088 Net income 1,273 35,140 36,413 Acquisitions of oil and natural gas properties for common units - 218,622 218,622 7,252 Distributions ($ 0.702058 per common unit) ( 974 ) ( 28,144 ) ( 29,118 ) Balance at September 30, 2024 $ ( 766 ) $ 397,229 $ 396,463 47,340 General Partner Unitholders Total Unitholder Units Nine Months Ended September 30, 2023 Balance at January 1, 2023 $ 676 $ 170,842 $ 171,518 38,372 Net income 2,445 74,892 77,337 Acquisitions of oil and natural gas properties for common units - 35,777 35,777 1,211 Distributions ($ 2.550813 per common unit) ( 3,083 ) ( 98,111 ) ( 101,194 ) Balance at September 30, 2023 $ 38 $ 183,400 $ 183,438 39,583 Nine Months Ended September 30, 2024 Balance at January 1, 2024 $ 113 $ 185,444 $ 185,557 39,583 Net income 2,704 75,504 78,208 Acquisitions of oil and natural gas properties for common units - 235,663 235,663 7,757 Distributions ($ 2.491769 per common unit) ( 3,583 ) ( 99,382 ) ( 102,965 ) Balance at September 30, 2024 $ ( 766 ) $ 397,229 $ 396,463 47,340 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) Nine Months Ended September 30, 2024 2023 Net cash provided by operating activities $ 101,107 $ 101,926 Cash flows provided by investing activities: Net cash contributed in acquisitions of oil and natural gas properties 11,301 2,006 Cash flows used in financing activities: Distributions paid to General Partner and unitholders ( 102,965 ) ( 101,194 ) Increase in cash and cash equivalents 9,443 2,738 Cash and cash equivalents at beginning of period 47,025 40,754 Cash and cash equivalents at end of period $ 56,468 $ 43,492 Non-cash investing and financing activities: Fair value of common units issued for acquisitions of oil and natural gas properties $ 235,663 $ 35,777 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 consist of producing and nonproducing mineral, royalty, overriding royalty, net profits, and leasehold interests located in 594 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 Annual Report. 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, DMLPTBC GP LLC, and DMLP Terra Firma LLC. All significant intercompany balances and transactions have been eliminated in consolidation. Segment Reporting The Partnership operates in a single operating and reportable segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The Partnership’s Chief Executive Officer (“CEO”) has been determined to be the chief operating decision maker and allocates resources and assesses performance based upon financial information at the consolidated level. 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 In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023 - 07, “Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures” (“ASU 2023 - 07” ), which expands a public entity’s annual and interim disclosure requirements about their reportable segments, primarily through more detailed disclosures about significant segment expenses. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023 - 07, as well as all existing segment disclosures in ASC 280 on an interim and annual basis. ASU 2023 - 07 is effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024, with early adoption permitted. Management is currently evaluating ASU 2023 - 07 to determine its impact on the Partnership's disclosures. We do not anticipate this update to have a material impact on the Partnership’s financial position, results of operations, or cash flows. The Partnership considers the applicability and impact of all ASUs. There are no other recent accounting pronouncements not yet adopted that are expected to have a material effect on the Partnership upon adoption. 6 Table of Contents 3. Acquisitions for Common Units On September 30, 2024, pursuant to a non-taxable contribution and exchange agreement with West Texas Minerals LLC, a Delaware limited liability company, Carrollton Mineral Partners, LP, a Texas limited partnership, Carrollton Mineral Partners Fund II, LP, a Texas limited partnership, Carrollton Mineral Partners III, LP, a Texas limited partnership, Carrollton Mineral Partners III-B, LP, a Texas limited partnership, Carrollton Mineral Partners IV, LP, a Texas limited partnership, CMP Permian, LP, a Texas limited partnership, CMP Glasscock, LP, a Texas limited partnership, and Carrollton Royalty, LP, a Texas limited partnership (collectively, the “Contributors”), the Partnership acquired mineral, royalty, and overriding royalty interests in producing and non-producing oil and natural gas properties representing approximately 14,225 net mineral acres located in 14 counties across New Mexico and Texas in exchange for 6,721,144 common units representing limited partnership interests in the Partnership valued at $ 202.6 million and issued pursuant to the Partnership’s registration statements on Form S- 4. We believe that the acquisition is considered complementary to our business. The transaction was accounted for as an acquisition of assets under U.S. GAAP. Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired. At closing, in addition to conveying mineral, royalty and overriding royalty interests to the Partnership, the Contributors delivered funds to the Partnership in an amount equal to their cash receipts during the period from July 1, 2024 through September 25, 2024 of $ 5.9 million. This contributed cash generally reflects receipts from the two months ended August 31, 2024. The contributed cash, net of capitalized transaction costs paid, of $ 5.8 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2024. The condensed consolidated balance sheet as of September 30, 2024 includes $ 193.9 million of net proved oil and natural gas properties acquired in the transaction. On September 30, 2024, pursuant to a non-taxable contribution and exchange agreement with an unrelated third party, the Partnership acquired mineral interests totaling approximately 1,204 net royalty acres located in Weld County, Colorado in exchange for 530,000 common units representing limited partnership interests in the Partnership valued at $ 16.0 million and issued pursuant to the Partnership’s registration statement on Form S- 4. We believe that the acquisition is considered complementary to our business. The transaction was accounted for as an acquisition of assets under U.S. GAAP. Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired. At closing, in addition to conveying mineral interests to the Partnership, the contributors delivered funds to the Partnership in an amount equal to their cash receipts during the period from July 1, 2024 through September 25, 2024 of $ 0.9 million. This contributed cash generally reflects receipts from the two months ended August 31, 2024. The contributed cash, net of capitalized transaction costs paid, of $ 0.9 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2024. The condensed consolidated balance sheet as of September 30, 2024 includes $ 14.6 million of net proved oil and natural gas properties acquired in the transaction. On March 28, 2024, pursuant to a non-taxable contribution and exchange agreement with multiple unrelated third parties, the Partnership acquired mineral interests totaling approximately 1,485 net royalty acres located in two counties in Colorado in exchange for 505,369 common units representing limited partnership interests in the Partnership valued at $ 17.0 million and issued pursuant to the Partnership’s registration statement on Form S- 4. We believe that the acquisition is considered complementary to our business. The transaction was accounted for as an acquisition of assets under U.S. GAAP. Accordingly, the cost of the acquisition was allocated on a relative fair value basis and transaction costs were capitalized as a component of the cost of the assets acquired. Contributed cash delivered at closing and final settlement net cash received, net of capitalized transaction costs paid, of $ 4.4 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2024. The condensed consolidated balance sheet as of September 30, 2024 includes $ 12.4 million of net proved oil and natural gas properties acquired in the transaction. On September 29, 2023, pursuant to a non-taxable contribution and exchange agreement with an unrelated third party, the Partnership acquired mineral and royalty interests totaling approximately 716 net royalty acres located in three counties in Texas in exchange for 494,000 common units representing limited partnership interests in the Partnership valued at $ 14.4 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. Contributed cash delivered at closing, net of capitalized transaction costs paid, of $ 0.8 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2023. The condensed consolidated balance sheet as of December 31, 2023 includes $ 13.4 million of net proved oil and natural gas properties acquired in the transaction. On August 31, 2023, pursuant to a non-taxable contribution and exchange agreement with multiple unrelated third parties, the Partnership acquired mineral and royalty interests totaling approximately 568 net royalty acres located in three counties in Texas in exchange for 374,000 common units representing limited partnership interests in the Partnership valued at $ 10.4 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. Contributed cash delivered at closing, net of capitalized transaction costs paid, of $ 0.2 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2023. The condensed consolidated balance sheet as of December 31, 2023 includes $ 10.1 million of net proved oil and natural gas properties acquired in the transaction. Final settlement net cash received, net of capitalized transaction costs paid, of $ 0.2 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2024. On July 12, 2023, pursuant to a non-taxable contribution and exchange agreement with multiple unrelated third parties, the Partnership acquired mineral and royalty interests totaling approximately 900 net royalty acres located in 13 counties and parishes across Louisiana, New Mexico, and Texas in exchange for 343,750 common units representing limited partnership interests in the Partnership valued at $ 11.0 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 $ 0.5 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2023. The condensed consolidated balance sheet as of December 31, 2023 includes $ 10.4 million of net proved oil and natural gas properties acquired in the transaction. 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 nine months ended September 30, 2023. 7 Table of Contents 4. Commitments and Contingencies Our 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 consolidated financial position, cash flows, or operating results. 5. Distributions to Holders of Common Units On October 17, 2024, the Partnership announced its cash distribution for the third quarter of 2024 of $ 0.995785 per common unit, representing activity for the three -month period ended September 30, 2024, payable to common unitholders of record as of October 28, 2024. This distribution will be paid on November 7, 2024. The partnership agreement requires the next cash distribution to be paid by February 14, 2025. 8 Table of Contents ITEM 2. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains forward-looking statements. For a description of limitations inherent in forward-looking statements, see page 1 of this Quarterly Report on Form 10-Q. Objective This discussion, which presents our results of operations for the three and nine months ended September 30, 2024 and 2023, should be read in conjunction with our unaudited 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 594 counties and parishes in 28 states. As of September 30, 2024, 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 a monthly payment 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 September 30, 2024, the NPI was in a surplus position and had outstanding capital commitments, primarily in the Bakken region, equaling cash on hand of $3.3 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 factors outside of our control, including the war in Ukraine, conflicts in the Middle East, fluctuations in interest rates, global supply chain disruptions and actions taken by OPEC+. It is not possible for us to predict or determine how these factors might affect oil and natural gas market prices in the future. 9 Table of Contents Results of Operations Acquisitions for Common Units On September 30, 2024, pursuant to a non-taxable contribution and exchange agreement with West Texas Minerals LLC, a Delaware limited liability company, Carrollton Mineral Partners, LP, a Texas limited partnership, Carrollton Mineral Partners Fund II, LP, a Texas limited partnership, Carrollton Mineral Partners III, LP, a Texas limited partnership, Carrollton Mineral Partners III-B, LP, a Texas limited partnership, Carrollton Mineral Partners IV, LP, a Texas limited partnership, CMP Permian, LP, a Texas limited partnership, CMP Glasscock, LP, a Texas limited partnership, and Carrollton Royalty, LP, a Texas limited partnership (collectively, the “Contributors”), the Partnership acquired mineral, royalty, and overriding royalty interests in producing and non-producing oil and natural gas properties representing approximately 14,225 net mineral acres located in 14 counties across New Mexico and Texas in exchange for 6,721,144 common units representing limited partnership interests in the Partnership valued at $202.6 million and issued pursuant to the Partnership’s registration statements on Form S-4. At closing, in addition to conveying mineral, royalty and overriding royalty interests to the Partnership, the Contributors delivered funds to the Partnership in an amount equal to their cash receipts during the period from July 1, 2024 through September 25, 2024 of $5.9 million. This contributed cash generally reflects receipts from the two months ended August 31, 2024. The contributed cash, net of capitalized transaction costs paid, of $5.8 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2024. On September 30, 2024, pursuant to a non-taxable contribution and exchange agreement with an unrelated third party, the Partnership acquired mineral interests totaling approximately 1,204 net royalty acres located in Weld County, Colorado in exchange for 530,000 common units representing limited partnership interests in the Partnership valued at $16.0 million and issued pursuant to the Partnership’s registration statement on Form S-4. At closing, in addition to conveying mineral interests to the Partnership, the contributors delivered funds to the Partnership in an amount equal to their cash receipts during the period from July 1, 2024 through September 25, 2024 of $0.9 million. This contributed cash generally reflects receipts from the two months ended August 31, 2024. The contributed cash, net of capitalized transaction costs paid, of $0.9 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2024. On March 28, 2024, pursuant to a non-taxable contribution and exchange agreement with multiple unrelated third parties, the Partnership acquired mineral interests totaling approximately 1,485 net royalty acres located in two counties in Colorado in exchange for 505,369 common units representing limited partnership interests in the Partnership valued at $17.0 million and issued pursuant to the Partnership’s registration statement on Form S-4. Contributed cash delivered at closing and final settlement net cash received, net of capitalized transaction costs paid, of $4.4 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2024. On September 29, 2023, pursuant to a non-taxable contribution and exchange agreement with an unrelated third party, the Partnership acquired mineral and royalty interests totaling approximately 716 net royalty acres located in three counties in Texas in exchange for 494,000 common units representing limited partnership interests in the Partnership valued at $14.4 million and issued pursuant to the Partnership’s registration statement on Form S-4. Contributed cash delivered at closing, net of capitalized transaction costs paid, of $0.8 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2023. On August 31, 2023, pursuant to a non-taxable contribution and exchange agreement with multiple unrelated third parties, the Partnership acquired mineral and royalty interests totaling approximately 568 net royalty acres located in three counties in Texas in exchange for 374,000 common units representing limited partnership interests in the Partnership valued at $10.4 million and issued pursuant to the Partnership’s registration statement on Form S-4. Contributed cash delivered at closing, net of capitalized transaction costs paid, of $0.2 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2023. Final settlement net cash received, net of capitalized transaction costs paid, of $0.2 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2024. On July 12, 2023, pursuant to a non-taxable contribution and exchange agreement with multiple unrelated third parties, the Partnership acquired mineral and royalty interests totaling approximately 900 net royalty acres located in 13 counties and parishes across Louisiana, New Mexico, and Texas in exchange for 343,750 common units representing limited partnership interests in the Partnership valued at $11.0 million and issued pursuant to the Partnership’s registration statement on Form S-4. Contributed cash delivered at closing, 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 nine months ended September 30, 2023. On September 30, 2022, pursuant to a non-taxable contribution and exchange agreement with Excess Energy, LLC, a Texas limited liability company, 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. Final settlement net cash received, net of capitalized transaction costs paid, of $0.5 million is included in net cash contributed in acquisitions on the condensed consolidated statement of cash flows for the nine months ended September 30, 2023. Three and Nine Months Ended September 30, 2024 as compared to Three and Nine Months Ended September 30, 2023 Our period-to-period changes in net income and cash flows from operating activities are principally determined by changes in oil and natural gas sales volumes and prices, and to a lesser extent, by capital expenditures deducted under the NPI calculation. Our portion of oil and natural gas sales volumes and average sales prices are shown in the following table. Oil sales volumes include volumes attributable to natural gas liquids and oil sales prices include natural gas liquids prices combined by volumetric proportions. Three Months Ended Nine Months Ended September 30, September 30, Accrual basis sales volumes: 2024 2023 % Change 2024 2023 % Change Royalty Properties natural gas sales (mmcf) 1,569 1,344 17 % 4,112 3,827 7 % Royalty Properties oil sales (mbbls) 642 477 35 % 1,408 1,114 26 % NPI natural gas sales (mmcf) 642 412 56 % 1,624 1,751 (7 )% NPI oil sales (mbbls) 198 135 47 % 505 562 (10 )% Accrual basis average sales price: Royalty Properties natural gas sales ($/mcf) $ 0.96 $ 2.23 (57 )% $ 1.32 $ 2.37 (44 )% Royalty Properties oil sales ($/bbl) $ 68.04 $ 68.66 (1 )% $ 68.36 $ 67.34 2 % NPI natural gas sales ($/mcf) $ 0.91 $ 1.92 (53 )% $ 1.53 $ 2.69 (43 )% NPI oil sales ($/bbl) $ 62.51 $ 66.29 (6 )% $ 65.61 $ 67.83 (3 )% 10 Table of Contents Both oil and natural gas sales price changes reflected in the table above resulted from changing market conditions. The increase in oil sales volumes attributable to our Royalty Properties from the third quarter and first nine months of 2023 to the same periods of 2024 is primarily a result of higher suspense releases on new wells and increased baseline production in the Permian Basin and Bakken region, increased baseline production in South Texas from wells acquired in the third quarter of 2023 and 2022, and higher suspense releases on first time payments and increased baseline production in the Rockies from wells acquired in the first quarter of 2024 and 2022. The increase in natural gas sales volumes attributable to our Royalty Properties from the third quarter of 2023 to the same period of 2024 is primarily a result of higher suspense releases on new wells and increased baseline production in the Permian Basin and Mid-Continent and higher suspense releases on first time payments and increased baseline production in the Rockies from wells acquired in the first quarter of 2024 and 2022, partially offset by decreased baseline production and lower suspense releases from first time payments on acquired wells in South Texas. The increase in natural gas sales volumes attributable to our Royalty Properties from the first nine months of 2023 to the same period of 2024 is primarily attributable to higher suspense releases on new wells and increased baseline production in the Permian Basin and Mid-Continent, higher suspense releases on first time payments and increased baseline production in East Texas from wells acquired in the third quarter of 2022, and higher suspense releases from first time payments in the Rockies from wells acquired in the first quarter of 2024, partially offset by decreased baseline production and lower suspense releases from first time payments on acquired wells in South Texas and decreased production from legacy wells in the Fayetteville Shale, Barnett Shale, and Southeast. The increase in oil sales volumes attributable to our NPI properties from the third quarter of 2023 to the same period of 2024 is primarily the result of increased baseline production in the Permian Basin and Bakken region and higher suspense releases on new wells in the Bakken region, partially offset by lower suspense releases on new wells in the Permian Basin. The decrease in oil sales volumes attributable to our NPI properties from the first nine months of 2023 to the same period of 2024 is primarily the result of lower suspense releases on new wells in the Permian Basin, partially offset by increased baseline production in the Permian Basin and Bakken region and higher suspense releases on new wells in the Bakken region. The increase in natural gas sales volumes attributable to our NPI properties from the third quarter of 2023 to the same period of 2024 is primarily the result of increased baseline production in the Permian Basin, Bakken region, and Mid-Continent. The decrease in natural gas sales volumes attributable to our NPI properties from the first nine months of 2023 to the same period of 2024 is primarily the result of lower suspense releases on new wells in the Permian Basin, partially offset by higher suspense releases on new wells in the Bakken region and Mid-Continent and increased baseline production the Permian Basin, Bakken region, and Mid-Continent during the second and third quarters of 2024 compared to the same periods of 2023. Operating costs, including production taxes, increased 11% from the third quarter of 2023 to the same period of 2024 and 12% from the first nine months of 2023 to the same period of 2024. The increases are primarily a result of higher proportionate operating expenses and oil production taxes due to higher oil and natural gas sales volumes and higher oil sales revenue, partially offset by lower proportionate natural gas production taxes due to lower natural gas sales revenue driven by lower natural gas sales prices and lower ad valorem taxes. Depreciation, depletion and amortization increased 52% from the third quarter of 2023 to the same period of 2024 and 32% from the first nine months of 2023 to the same period of 2024. Depletion is the amount of cost basis of oil and natural gas properties at the beginning of a period attributable to the volume of reserves extracted during such period, calculated on a units-of-production basis. Estimates of proved developed producing reserves are a major component in the calculation of depletion. We adjust our depletion rate each quarter for significant changes in our estimates of oil and natural gas reserves, including recent acquisitions and suspense releases on new wells. General and administrative expenses increased 3% from the third quarter of 2023 to the same period of 2024 and 5% from the first nine months of 2023 to the same period of 2024. The increases are primarily a result of higher compensation expenses, including an expanded Operating Partnership equity program designed for employee retention, and increased professional service fees, partially offset by a decrease resulting from one-time, non-recurring professional services expenses of $1.2 million related to an unsuccessful acquisition in the first nine months of 2023. Net cash provided by operating activities remained consistent from the first nine months of 2023 to the same period of 2024 primarily due to higher Royalties revenue receipts, net of production taxes and operating expenses, partially offset by lower NPI payment receipts and higher general and administrative expenses. 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 third quarter of 2024 totaled $40.2 million. Approximately 54% of these receipts reflect oil sales during June 2024 through August 2024 and natural gas sales during May 2024 through July 2024, and approximately 46% 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 2024 were $69.91/bbl and $1.08/mcf, respectively. Cash receipts attributable to contributed cash from the two acquisitions closed September 30, 2024, totaled approximately $6.8 million. This generally reflects receipts from the two months ended August 31, 2024. Cash receipts attributable to our NPI during the third quarter of 2024 totaled $6.0 million. Approximately 70% of these receipts reflect oil and natural gas sales during May 2024 through July 2024, and approximately 30% 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 2024 were $65.51/bbl and $1.27/mcf, respectively. 11 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 September 30, 2024 are summarized as follows: (In Thousands) 2024 $ 89 2025 362 2026 368 2027 374 2028 380 Thereafter 63 Total lease payments 1,636 Less amount representing interest (529 ) Total lease obligation $ 1,107 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. To the extent necessary to avoid unrelated business taxable income, our partnership agreement prohibits us from incurring indebtedness, excluding trade payables, in excess of $50,000 in the aggregate at any given time or 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 ongoing global military conflicts, including in Ukraine and the Middle East and current inflation and interest rates. We cannot predict events that may lead to future oil and natural gas 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 possible resurgence of COVID-19 and any ongoing variants, along with global military conflicts, including in Ukraine and the Middle East, which are beyond our control. If market conditions were to change due to declines in oil prices or uncertainty created by a resurgence of 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. The current economic environment is volatile, and we cannot predict the ultimate long-term impact on our liquidity or cash flows from factors outside of our control, including those related to COVID-19 or ongoing global military conflicts in Ukraine and the Middle East. Liquidity and Working Capital Cash and cash equivalents totaled $56.5 million at September 30, 2024 and $47.0 million at December 31, 2023. Critical Accounting Policies and Estimates As of September 30, 2024, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our Annual Report for the year ended December 31, 2023. 12 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 September 30, 2024. For a discussion of our exposure to market risk, refer to Item 7A of Part I of the Partnership’s Annual Report for the year ended December 31, 2023.