Units of buy-recommended Dorchester Minerals (NASDAQ:DMLP) offer 6% a year income from rising cash flow as the partnership helps fill growing demand for energy. The partnership also benefits as energy supply is restricted by chronically unstable political conditions in the Mideast, and by chronically destructive energy policy in the U.S.
Rising energy price boosted cash flow beyond our expectations of three months ago for DMLP as disclosed in Form 10-K filed with the Securities and Exchange Commission last night. Volume per unit increased compared to the fourth quarter and year 2009 as new drilling by others at little cost to the partnership contributed volumes that more than offset decline from existing wells. The rate of increase tapered slightly in the fourth quarter. Royalty properties increased their share of volume to 60% and Minerals Net Profits Interests (NPI) to 11%. Rapidly growing Minerals NPI volume, up 76% in 2010, generates cash flow that will likely continue to be reinvested for at least the next five years, as explained in the 10-K. DMLP royalty and NPI lands are strategically located in active drilling plays including the Fayetteville Shale of Arkansas, the Bakken Shale of North Dakota and the Granite Wash in the Texas Panhandle among others.
Valuation is attractive as DMLP’s McDep Ratio of 0.91 is the lowest in its group of high quality, mostly debt-free Top Line Cash Payers. Meanwhile, seeing no early resolution of the curtailment of Libyan oil supply among other global and U.S. political issues, we are mindful that energy and the stock market did well under similar circumstances in 1979-1980 until the U.S. presidential elections in November at the end of those two years.
Originally published on February 25, 2011