The following discussion contains forward-looking statements. For a description of limitations inherent in forward-looking statements, see page 1 of this Quarterly Report on Form 10-Q.

Overview

We own producing and nonproducing mineral, royalty, overriding royalty, net profits and leasehold interests. We refer to these interests as the Royalty Properties. We currently own Royalty Properties in 581 counties and parishes in 26 states.

As of March 31,June 30, 2021, we own a net profits overriding royalty interest (referred to as the Net Profits Interest, or “NPI”) in various properties owned by Dorchester Minerals Operating LP (the “Operating Partnership”), a Delaware limited partnership owned directly and indirectly by our General Partner. We receive monthly payments from the NPI equaling 96.97% of the net profits actually realized by the Operating Partnership from these properties in the preceding month. In the event that costs, including budgeted capital expenditures, exceed revenues on a cash basis in a given month for properties subject to athe Net Profits Interest, no payment is made, and any deficit is accumulated and reflected in the following month's calculation of net profit.

The NPI has previously had cumulative revenue that exceeded cumulative costs, such excess constituting net proceeds on which NPI payments were determined. In the event the NPI has a deficit of cumulative revenue versus cumulative costs, the deficit will be borne solely by the Operating Partnership.

From a cash perspective, as of March 31,June 30, 2021, the NPI was in a surplus position and had outstanding capital commitments, primarily in the Bakken region, equaling cash on hand of $1.4$1.7 million.

Commodity Price Risks

The pricing of oil and natural gas sales is primarily determined by supply and demand in the marketplace and can fluctuate considerably. As a royalty owner and non-operator, we have extremely limited access to timely information and involvement and no operational control over the volumes of oil and natural gas produced and sold and the terms and conditions on which such volumes are marketed and sold.

Our profitability is affected by oil and natural gas market prices. Oil and natural gas market prices have fluctuated significantly in recent years in response to changes in the supply and demand for oil and natural gas in the market, along with domestic and international political and economic conditions.

In January 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) and the significant risks to the international community and economies as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified COVID-19 as a pandemic, based on the rapid increase in exposure globally, and thereafter, COVID-19 continued to spread throughout the U.S. and worldwide. In addition, after the Organization of the Petroleum Exporting Countries (“OPEC”) and a group of oil producing nations led by Russia failed in early March 2020, to agree on oil production cuts, Saudi Arabia announced that it would cut oil prices dropped sharply and increase production, leadingcontinued to decline, briefly reaching negative levels, as a sharp further declineresult of multiple factors affecting the supply and demand in global oil and natural gas prices. Whilemarkets, including (i) actions taken by OPEC Russiamembers and other oil producing countries reached an agreement in April 2020 to reduceexporting nations impacting commodity price and production levels and U.S. production continues to decline into 2021,(ii) a significant recovery is not expected until global supply matches current lower levels ofdecrease in demand caused by a number of factors, including the uncertainty around the extent and timing of an economic recovery due to the continued COVID-19 pandemic. The effects of COVID-19 and concerns regarding its domestic and global spread could continueHowever, certain restrictions on conducting business that were implemented in response to negatively impact the domestic and international supply and demand for oil and natural gas and sustain continued price volatility.

The COVID-19 pandemic have been lifted as improved treatments and vaccinations became available for COVID-19 since late 2020. As a result, oil and natural gas market volatilityprices have resultedimproved in significant volatilityresponse to the increase in oildemand. Commodity prices overhave historically been volatile and we cannot predict events which may lead to future fluctuations in these prices. However, additional actions may be required in response to the past yearCOVID-19 pandemic on a national, state and significant disruptionlocal level by governmental authorities, and uncertainty insuch actions may further adversely affect general and local economic conditions (including further closures of businesses), particularly if the oilresurgence of the COVID-19 pandemic continues. The COVID-19 pandemic continues to be dynamic and natural gas market.evolving, and its ultimate duration and effects remain uncertain.

Results of Operations

Acquisition of Royalty Properties

On June 30, 2021, pursuant to a contribution and exchange agreement with JSFM, LLC, a Wyoming limited liability company (“JSFM”), the Partnership acquired overriding royalty interests in the Bakken Trend totaling approximately 6,400 net royalty acres located in Dunn, McKenzie, McLean and Mountrail Counties, North Dakota in exchange for 725,000 common units representing limited partnership interests in the Partnership issued pursuant to the Partnership's registration statement on Form S-4. After the issuance, 29,275,000 units remain available for issuance under the Partnership's available registration statements. At closing, in addition to conveying overriding royalty interests to the Partnership, JSFM delivered funds to the Partnership in an amount equal to their cash receipts during the period from April 1, 2021 through June 30, 2021 of $0.4 million. This contributed cash, net of capitalized transaction costs of $0.1 million, is included in net cash contributed in acquisition on the condensed consolidated statement of cash flows for the six months ended June 30, 2021.

Net Profits Interest Divestiture

On September 30, 2020, the Partnership and affiliates of its General Partner closed the divestiture of our Hugoton net profits interest located in Texas County, Oklahoma and Stevens County, Kansas to a third party. In accordance with the full cost method of accounting, as the divestiture did not represent a significant portion of the Partnership’s reserves, gross divestiture proceeds of $5.7 million were credited to the oil and natural gas properties full cost pool as of December 31, 2020. Final net proceeds from the sale were subject to customary holdbacks and post-closing adjustments. Customary holdbacks of $0.2 million were paid to the Partnership and are included in proceeds from the sale of oil and natural gas properties on the condensed consolidated statement of cash flows for the threesix months ended March 31,June 30, 2021.

Three and Six Months Ended March 31,June 30, 2021 as compared to Three and Six Months Ended March 31,June 30, 2020

Our period-to-period changes in net income and cash flows from operating activities are principally determined by changes in oil and natural gas sales volumes and prices, and to a lesser extent, by capital expenditures deducted under the NPI calculation. Our portion of oil and natural gas sales volumes and average sales prices are shown in the following table.

Both oil and natural gas sales price changes reflected in the table above resulted from changing market conditions.

Oil sales volumes attributable to our Royalty Properties remained consistent from the second quarter of 2020 versus the same period of 2021. This is primarily the result of lower suspense releases on new wells in the Bakken region and Rockies in the second quarter of 2021 compared to the same period of 2020 and natural production declines in the Bakken region and Mid-Continent, offset by increased Permian Basin production due to higher suspense releases on new wells in the second quarter of 2021 compared to the same period of 2020. The increase in oil sales volumes attributable to our Royalty Properties from the first threesix months of 2020 to the same period of 2021 is primarily a result of increased Permian Basin production due to higher suspense releases on new wells and prior period adjustments, partially offset by lower suspense releases on new wells in the Bakken region and Rockies and natural production declines in the Permian BasinBakken region and Mid-Continent. The decreaseincrease in natural gas sales volumes attributable to our Royalty Properties from the first three monthssecond quarter of 2020 to the same period of 2021 is primarily a result of decreased Mid-Continenthigher suspense releases on new wells in the Permian Basin and South Texas production, partially offset by increased production in the Bakken regionPermian Basin and Barnett Shale, partially offset by lower suspense releases on new wells in the Rockies and decreased production in East Texas. Natural gas sales volumes attributable to our Royalty Properties remained relatively consistent from the first six months of 2020 to the same period of 2021. This is primarily the result of higher prior period adjustmentssuspense releases on new wells in the Permian Basin and increased production in the first quarterPermian Basin and Barnett Shale being largely offset by lower suspense releases on new wells in the Rockies and decreased production in other areas of 2021.Texas.

The decrease in oil sales attributable to our NPI properties from the second quarter of 2020 to the same period of 2021 is primarily a result of lower suspense releases for new wells in the Bakken region, decreased production in the Permian Basin, and natural production declines. The decrease in oil sales volumes attributable to our NPI properties from the first threesix months of 2020 to the same period of 2021 is primarily a result of lower suspense releases for new wells in the Bakken region and Permian Basin and decreased production across all regions after 2020 curtailments were restored. The decrease in natural gas sales volumes attributable to our NPI properties from the second quarter and first three monthssix month of 2020 to the same periodperiods of 2021 is primarily the result of the absence of production from the Hugoton Field in the second quarter and first quartersix months of 2021 due to the Hugoton NPI divestiture in the third quarter of 2020, lower suspense releases on new wellspartially offset by increased production in the Bakken region and Permian Basin, and decreasedincreased Fayetteville Shale production in the Mid-Continent.due to higher prior period adjustments.

Operating revenues increased 15%215% from $15.5$6.8 million during the first three monthssecond quarter of 2020 to $17.8$21.4 million during the same period of 2021. The increase is primarily a result of higher realized prices onRoyalty Properties natural gas sales volumes, higher Royalty Properties oil and natural gas sales prices, and higher Royalty Properties oil sales volumes, partially offset by lower NPI revenues. Operating revenues and lower Royalty Properties natural gas sales volumes.

Operating costs, including production taxes,also increased 7%76% from $1.4$22.3 million during the first threesix months of 2020 to $1.5$39.2 million during the same period of 2021. The increase is primarily a result of higher Royalty Properties oil and natural gas sales volumes and sales prices.

Operating costs, including production taxes, increased 14% from $1.4 million during the second quarter of 2020 to $1.6 million during the same period of 2021. Operating costs, including production taxes, also increased 14% from $2.8 million during the first six months of 2020 to $3.2 million during the same period of 2021. The increases are primarily a result of higher production taxes due to higher oilnatural gas sales volumes and higher oil and natural gas sales prices, partially offset by lower natural gas sales volumes.ad valorem taxes.

Depreciation, depletion and amortization decreased 32%14% from $3.4$2.9 million during the second quarter of 2020 to $2.5 million during the same period of 2021. Depreciation, depletion and amortization also decreased 24% from $6.3 million during the first threesix months of 2020 to $2.3$4.8 million during the same period of 2021. We adjust our depletion rate each quarter for significant changes in our estimates of oil and natural gas reserves, including acquisitions and divestitures.

General and administrative expenses increased 16%decreased 46% from $1.9$1.3 million during the second quarter of 2020 to $0.7 million during the same period of 2021. General and administrative expenses also decreased 9% from $3.2 million during the first threesix months of 2020 to $2.2$2.9 million during the same period of 2021. The decreases are primarily a result of lower compensation expenses due to the forgiveness of the Operating Partnership’s $0.9 million Paycheck Protection Program loan in the second quarter of 2021, which was applied as a non-recurring credit of compensation costs previously reimbursed between the Partnership and the Operating Partnership. The lower compensation costs for the second quarter and first six months of 2021 were partially offset by higher information technology project costs when compared to the same periods of 2020.

Net cash provided by operating activities increased 7% from $26.4 million during the first six months of 2020 to $28.2 million during the same period of 2021. The increase is primarily a result of higher compensation expenses, partially offset by lower information technology and consulting project costs.

Net cash provided byRoyalties revenue receipts, net of operating activities decreased 41% from $17.8 million duringcosts, for the first threesix months of 20202021 compared to $10.5 million during the same period of 2021. The decrease is primarily a result of2020, partially offset by lower NPI payment receipts for the first threesix months of 2021 compared to the same period of 2020.

In an effort to provide the reader with information concerning prices of oil and natural gas sales that correspond to our quarterly distributions, management calculates the average price by dividing gross revenues received by the net volumes of the corresponding product without regard to the timing of the production to which such sales may be attributable. This “indicated price” does not necessarily reflect the contract terms for such sales and may be affected by transportation costs, location differentials, and quality and gravity adjustments. While the relationship between our cash receipts and the timing of the production of oil and natural gas may be described generally, actual cash receipts may be materially impacted by purchasers’ release of suspended funds and by purchasers’ prior period adjustments.

Cash receipts attributable to our Royalty Properties during the first three monthssecond quarter of 2021 totaled $10.8$15.0 million. Approximately 81%82% of these receipts reflect oil sales during December 2020March 2021 through FebruaryMay 2021 and natural gas sales during November 2020February 2021 through JanuaryApril 2021, and approximately 19%18% from prior sales periods. The average indicated prices for oil and natural gas sales cash receipts attributable to the Royalty Properties during the firstsecond quarter of 2021 were $43.62/$53.33/bbl and $2.34/$3.29/mcf, respectively.

Cash receipts attributable to our Net Profits Interests during the first three monthssecond quarter of 2021 totaled $1.8$3.4 million. Approximately 72%69% of these receipts reflect oil sales and natural gas sales during November 2020February 2021 through JanuaryApril 2021, and approximately 28%31% from prior sales periods. The average indicated prices for oil and natural gas sales cash receipts attributable to the NPI properties during the firstsecond quarter of 2021 were $38.94/$49.29/bbl and $2.17/$3.36/mcf, respectively.

Liquidity and Capital Resources

Capital Resources

Our primary sources of capital are our cash flows from the NPI and the Royalty Properties. Our partnership agreement requires that we distribute quarterly an amount equal to all funds that we receive from NPIs and the Royalty Properties (other than cash proceeds received by the Partnership from a public or private offering of securities of the Partnership) less certain expenses and reasonable reserves. Additional cash requirements include the payment of oil and natural gas production and property taxes not otherwise deducted from gross production revenues and general and administrative expenses incurred on our behalf and allocated to the Partnership in accordance with the partnership agreement. Because the distributions to our unitholders are, by definition, determined after the payment of all expenses actually paid by us, the only cash requirements that may create liquidity concerns for us are the payment of expenses. Because many of these expenses vary directly with oil and natural gas sales prices and volumes, we anticipate that sufficient funds will be available at all times for payment of these expenses. See Note 45 to the unaudited Condensed Consolidated Financial Statements included in “Item 1 – Financial Statements” of this Quarterly Report on Form 10-Q for additional information regarding cash distributions to unitholders.

We are not directly liable for the payment of any exploration, development or production costs. We do not have any transactions, arrangements or other relationships that could materially affect our liquidity or the availability of capital resources. We have not guaranteed the debt of any other party, nor do we have any other arrangements or relationships with other entities that could potentially result in unconsolidated debt.

Pursuant to the terms of the partnership agreement, we cannot incur indebtedness, other than trade payables, (i) in excess of $50,000 in the aggregate at any given time or (ii) which would constitute “acquisition indebtedness” (as defined in Section 514 of the Internal Revenue Code of 1986, as amended).

We currently expect to have sufficient liquidity to fund our distributions to unitholders and operations despite potential material uncertainties that may impact us as a result of the COVID-19 pandemic and continued oil and natural gas market volatility. Although demand and market prices for oil and natural gas have recently increased due to the rising energy use and the improvements in the U.S. economic activity, we cannot predict events that may lead to future price volatility. Our ability to fund future distributions to unitholders may be affected by the prevailing economic conditions in the oil and natural gas market and other financial and business factors, including the ongoing evolution of the COVID-19 pandemic, including the spread of its variants, which are beyond our control. If market conditions were to change due to further declines in oil prices or uncertainty created by the ongoing COVID-19 pandemic, and our revenues were reduced significantly or our operating costs were to increase significantly, our cash flows and liquidity could be reduced. TheDespite recent improvements, the current economic environment is volatile, and therefore, we cannot predict the ultimate impact on our liquidity or cash flows.

Liquidity and Working Capital

Cash and cash equivalents totaled $13.3$20.5 million at March 31,June 30, 2021 and $11.2 million at December 31, 2020.

Critical Accounting Policies

As of March 31,June 30, 2021, there have been no significant changes to our critical accounting policies and related estimates previously disclosed in our 2020 Annual Report on Form 10-K.

Not applicable.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our principal executive officer and principal financial officer carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based on their evaluation, they have concluded that our disclosure controls and procedures were effective.

Changes in Internal Control

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) during the quarter ended March 31,June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

The Partnership and the Operating Partnership are involved in legal and/or administrative proceedings arising in the ordinary course of their businesses, none of which have predictable outcomes, and none of which are believed to have any significant effect on consolidated financial position, cash flows, or operating results.

There have been no material changes to the Partnership's risk factors as disclosed in “Item 1A – Risk Factors” of Part I of the Partnership's annual report on Form 10-K for the year ended December 31, 2020.

Issuer Purchases of Equity Securities

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.