Oddball Stocks Newsletter Excerpt - Dorchester Minerals, L.P. (Issue 38)

This is an excerpt from our Company Updates in Oddball Stocks Newsletter Issue 38 (January 2022): 

Dorchester Minearals is a publicly-traded limited partnership that owns producing and non-producing mineral, royalty, overriding royalty, net profits, and leasehold interests in in crude oil and natural gas acreage in multiple basins nationwide.

Dorchester Minerals (DMLP) was mentioned by a participant at the February 2019 Oddball Meetup, in Catahoula's Issue 26 guest piece, “A Report from the Pasture,” his Issue 28 guest piece “Oil and Gas Royalties: Searching for Buried Treasure in the Digital Age,” in our General Commentary about “Value vs Growth” in Issue 35, and in our feature in Issue 37: “Value in 'Dying' Industries.”

While any individual oil and gas well or field depletes over time, Dorchester's production has grown thanks to an ability to make good acquisitions. Sellers of non-operating mineral interests can trade their illiquid landholdings in a non-taxable exchange for partnership interests of Dorchester that are better diversified geographically, more liquid, and which have the potential to grow.

At the end of 2020, when hydrocarbon prices (and therefore estimates of reserves) were lower, Dorchester had 35 million units outstanding and had proved, developed, producing reserves of 9 million barrels of oil and 34 million mcf of natural gas, giving each unit of Dorchester a proportional interest of about a quarter of a barrel of oil and one thousand cubic feet of natural gas. And that was just the resources that were currently developed and producing; there are sure to be plenty of undeveloped hydrocarbons remaining in their 3.7 million gross acres of property.

Something interesting is that oil prices at the end of 2004 were about the same - $50 per barrel – as they were at the end of 2020. Dorchester had fewer units outstanding then (28 million) but had much lower reserves of oil: only 4 million barrels. This means that even though Dorchester has been producing and selling oil for the past 18 years, and issuing new limited partnership units to make acquisitions, its reserves of oil per unit have grown from 0.14 barrels to 0.26 – nearly doubling. Over a 16 year period, oil reserves per unit grew at 4% annually instead of declining, thanks to acquisitions.

Although Dorchester Minerals has not released its annual report for 2021, they did announce that the fourth quarter 2021 cash distribution will be $0.64 per unit. On an annualized basis, this is $2.56 per unit, which is an 11% yield on the current price of $23.50 per unit.

No comments:

Post a Comment