DORCHESTER MINERALS, L.P. (DMLP) stock intrinsic value fair value estimate & owner earnings analysis

Dorchester Minerals owns mineral, royalty and net profits interests under oil and gas wells in 594 counties and parishes across 28 states. The most important areas are the Permian Basin of West Texas and New Mexico, the Bakken in North Dakota, and the Rockies. It drills nothing and spends essentially no capital: operators such as ExxonMobil, Chevron and Diamondback drill the wells, and Dorchester collects a share of the sales. It is a limited partnership. Its agreement bars it from borrowing more than $50,000, so it has no debt, and it pays out essentially all of its cash every quarter. The only way it grows is by issuing new units in exchange for more mineral acreage. What the unitholder actually receives. The general partner takes a fixed 4% of the partnership's net cash from royalties and 1% of its net profits interest payments. Across the whole structure, that came to about 4% of the cash generated in the twelve months to September 2025, or $5.5 million. The share is fixed and cannot rise, because there are no incentive distribution rights. Separately, the partnership reimburses the general partner's operating company for staff, rent and overhead. That was $11.1 million in 2025, plus $2.2 million of other administrative costs, for a total of $13.3 million, or about 8.7% of revenue. That total is up 19% since 2023, partly because of a larger employee unit-award program. The partnership agreement caps routine overhead reimbursement at 5% of distributions, but professional and regulatory costs sit outside the cap. Employee unit awards are bought in the open market with cash rather than newly issued, so they cost cash but do not dilute holders. Our per-unit figures below are after all of these costs and after the general partner's share. An earlier version of this analysis did not remove the general partner's share, which overstated what a unitholder earns by about 3.5%. The asset is wasting, and that is the central question. At the end of 2025, proved reserves from wells already drilled equaled roughly four years of production. The government-mandated value of those reserves (10% discount rate, $55 oil) was $278 million, or about $5.75 per unit. Nearly everything above that depends on two things. The first is operators continuing to drill new wells on Dorchester's acreage. The second is Dorchester continuing to swap new units for more minerals. Both have a long, visible record. Over 2016-2025, new drilling added reserves equal to about 83% of what was produced. Unit-for-acreage deals were done in 2019, 2021, 2022 (twice), 2023, 2024, 2025 and July 2026. Units outstanding rose from 30.7 million to 49.1 million over that decade, yet oil production per unit rose from about 30 to 55 barrels per thousand units. The recent deals added more proved reserves per unit than the existing holders already owned. The trend is weakening, though. New drilling replaced only about 65% of production over 2021-2025, and only about 46% in 2025. That year, production was flat even with a full year of the large 2024 acquisition. Earnings level. Owner earnings are operating cash flow with working-capital swings removed. Here they equal net income plus depletion, less the general partner's share, because depletion is the only material non-cash charge and capital spending is essentially nil. On that basis, earnings per unit ranged from $0.93 (2016) and $0.94 (2020) to $3.84 (2022). Because per-unit volumes have changed so much, a simple ten-year median ($2.05) would understate the business as it is today. Instead we start from 2025's $2.50. That year's average oil price (about $65) sits almost exactly on the 2016-2025 median, so it is a fair mid-cycle year at today's per-unit volumes. Per-unit earnings fell 20% in 2025. That drop came mostly from oil prices (down about 16%) and a full year of the 2024 unit issuance, not from a collapse in the properties. 2026 so far. First-half 2026 revenue was up 52%, and the second-quarter distribution was $1.27 per unit, the largest in years. Three things drove this. Oil prices rose sharply on the conflict involving Iran and shipping through the Strait of Hormuz: Dorchester's realized royalty oil price was $76 in the second quarter against $57 a year earlier. The partnership received a one-time $15.5 million legal settlement covering production from 2021-2025 on Midland County leasehold. And there was a wave of catch-up payments on newly completed wells. None of these is a new run rate, so none sets the earnings level here. The filing does report higher underlying production from existing Permian, Bakken and Rockies wells, and that supports holding per-unit volumes steady rather than declining in the near term. Base case (about $33 per unit). Mid-cycle owner earnings of $2.50 per unit hold flat for ten years. Continued drilling on the existing acreage, plus roughly one unit-for-acreage deal a year, keeps per-unit volumes level, as it has for the past decade. After year ten, earnings fade by 3% a year. That reflects the falling share of production being replaced by new wells as the best Permian locations are used up, with acquisitions only partly offsetting it. No price recovery or oil-price rise is assumed. Bear case (about $22 per unit). A price collapse like 2016 or 2020, both of which the partnership has lived through, cuts earnings to about $1.40 and then $1.60 per unit for two years. Recovery reaches only $2.10, not $2.50. This reflects new-well replacement staying at 2025's weak level, rising overhead, and a slowdown by a major operator: in 2025, properties operated by ExxonMobil and Chevron produced about 15% and 10% of total revenue. Earnings then decline 2% a year for the rest of the decade and 6% a year after that as acquisitions stall. Because the partnership cannot borrow, a downturn cuts distributions but does not threaten the business. Bull case (about $50 per unit). The higher 2026 baseline volumes prove durable, giving $2.85 per unit at mid-cycle prices. The decade-long rise in production per unit continues at about 2% a year through year ten, then fades only 1% a year. What the shares appear to be worth. About $22 in the bear case, $33 in the base case and $50 in the bull case. This is a cyclical commodity business whose existing wells deplete within a few years, so the margin-of-safety price is set with a wide margin, near $21. At that price, mid-cycle earnings would be about a 12% yield and the bear case implies roughly recovering that price. What would make this wrong. On the downside: new drilling on the acreage falling further below replacement, or the partnership issuing units for acreage on poor terms. On the upside: the 2026 volume gains proving to be a durable step-up rather than catch-up payments. Operating cash flow ran well above or below net income plus depletion in 2020 and 2021. We traced both gaps entirely to swings in receivables as prices crashed and recovered, so they do not affect the earnings figures above. Change from our earlier estimate. We previously put the base case near $50, and we now estimate about $33, for four reasons. We now subtract the general partner's fixed share of cash. The strong early-2026 results turned out to rest largely on a conflict-driven oil-price spike and a one-time legal settlement, rather than on newly acquired acreage ramping up. We no longer treat earnings as lasting indefinitely at a plateau, because proved reserves from existing wells cover only about four years of production. And we have corrected the description of the property base to 594 counties and parishes in 28 states.