Royalty Stream No. 3: Dorchester Minerals (Nasdaq: DMLP) If you go to its website www.dmlp.net, the header says Vanilla1. That really says it all. The site is nothing more than proxy materials and a link to Dorchester's vitals at Nasdaq. But flashy marketing is beside the point. It's the assets that matter most…and these are great assets. Dorchester was founded in 2003 through the combination of Dorchester Hugoton, a public oil and gas company, with two private companies: Republic Royalty Co. and Spinnaker Royalty Co. The resulting company owns both net profits interest and royalty properties. The royalty properties consist of producing and nonproducing properties in 574 counties and parishes in 25 states. Mineral Net Profits Interest Royalty Overriding Royalty Leasehold Number of States 25 17 17 8 Gross Acres 2,308,263 617,081 208,755 37,338 Dorchester's proven reserves are 60 million MCF of natural gas and 3.2 million barrels of oil. The company has a $825 million market value, no debt, and pays 7.1% dividend. The company earned $663,000 in 2009 in "lease bonuses". That's the initial price an oil company pays per acre just to get access to the mineral right. That's in addition to the royalty interest if anything of value is discovered. Every discovery adds more oil and gas to Dorchester's proven reserves. That's an important distinction. Unlike our other royalty companies, Dorchester gets paid whether those acres produce oil and gas or not. That only represents about 1.5% of 2009 revenue… but it is an additional source of revenue. Because Dorchester has such a large and varied array of property, it has many operators. Those notable companies are Comstock Oil and Gas, Chesapeake Energy, Continental Resources, Hess Corporation, Marathon Oil, EOG Resources, and Cimarex Energy. Dorchester had 353 new wells drilled on its properties in 2009, with another 10 near completion at the end of the year. These wells are in some of the best new oil and gas plays in the U.S. About 166 of those wells are in the Fayetteville Shale of Arkansas. Dorchester owns 11,464 net acres in this tremendous unconventional natural gas shale play. Another 60 wells were drilled on Dorchester's 7,600 net acres in the Bakken Shale in North Dakota. In addition, the trust owns 22,000 acres in New York and Pennsylvania that may contain Marcellus shale. Year Revenue Average Gas Price Dividends Per Share Dividend Yield 2007 $65 million $6.11 $1.97 9.5% 2008 $90 million $8.28 $2.80 8.6% 2009 $44 million $3.48 $1.50 9.6% 2010* $43 million $4.67 $1.56 6.5% *results through August 2010 Reserve Information Oil Gas 12/30/2006 46,000 barrels 0.5 million MCF 12/30/2007 34,000 barrels 1.4 million MCF 12/30/2008 65,000 barrels 2.0 million MCF 12/30/2009 66,000 barrels 3.2 million MCF In 2009, San Juan produced 0.6 MCF of natural gas and 21,000 barrels of oil. At that rate, the trust will be around another five years. However, as you can see in the table above, the trust's reserves actually grew over the last four years! That trend should continue, thanks to its high quality acreage positions. This trust should continue to grow for several more years as more of its acres are exploited. Unlike the other trusts we discuss here, Dorchester pays its shareholders quarterly, rather than monthly.