February 6, 2003; Dorchester Minerals, L.P. Plans Growth at Moderate Fees, No Debt

During the 1980s, unitholders of Dorchester Hugoton realized gains as the partnership’s natural gas production belatedly was freed from price controls.  During the 1990s unitholders continued to receive an attractive income stream though capital gain was muted compared to the previous decade.  Now the character of the partnership has changed again with a new general partner and a combination with royalty properties that were previously privately held.  The new partnership may grow by offering liquidity and tax-free exchange, we think, to other owners of privately held production. 

There can be an awkward period for new combinations until a record can be established regarding the combined performance of the previously separate entities.  For DMLP the latest pro forma results are for the period ended June 30, 2002.  From that dated base we have projected results for the Next Twelve Months ended December 31, 2003.  It looks like the partnership may distribute almost 10% of its value in cash to unitholders (see Table S-2). 

A relatively high McDep Ratio keeps us from recommending the stock for new purchase.  Yet we like the quality characteristics of conservative financing and moderate fees, for a partnership.  Investors may reckon that if the market accords high McDep Ratios to high debt, high fee partnerships shouldn’t DMLP be worth just as much?  Quality stands out.  We wish the new partnership well.

February 6, 2003 (posted Feb 9); Meter Reader: Low Fee, Low Debt Stands Out