SAN JUAN BASIN ROYALTY TRUST
For the period ended Aug 14, 2024. Filed Aug 14, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Aug 14, 2024 · Filed Aug 14, 2024
SJT$3.21+6.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-14.
0000950170-24-059354
Item 2. Trustee’s Discu ssion and Analysis of Financial Condition and Results of Operations. OverviewCurrent report: 10-Q
Period ended 2024-08-14; filed 2024-08-14.
0000950170-24-096731
Item 2. Trustee’s Discu ssion and Analysis of Financial Condition and Results of Operations. OverviewThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 78 previous paragraphs and 77 current paragraphs.
44 unchanged; 28 reworded; 3 added; 3 removed; 3 previous and 2 current paragraphs rearranged.
Tables are not compared: 4 previous and 5 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (3)
Current report
Revenue related to audit exceptions and associated interest.
Current report
Production Costs exceeded Gross Proceeds by $1,655,045. The Conveyance provides that any excess production costs applicable to the Subject Interests over Gross Proceeds from such properties must be recovered from future Net Proceeds before Royalty Income is again paid to the Trust. The Trust is not obligated to reimburse Hilcorp for any excess Production Costs if future Gross Proceeds from the Subject Interests are insufficient to cover such costs.
Current report
Excess Production Costs. The Conveyance provides that any excess Production Costs applicable to the Subject Interests over the amount of Gross Proceeds from such properties must be recovered from future Net Proceeds before Royalty Income is again paid to the Trust. The Trust is not obligated to reimburse Hilcorp for any excess Production Costs if future Gross Proceeds from the Subject Interests are insufficient to cover such costs. For the three and six months ended June 30, 2024, Production Costs exceeded Gross Proceeds by approximately $1,655,0457 ($1,241,284 net to the Trust). There were no excess Production Costs for the three and six months ended June 30, 2023. These excess Production Costs are to be recovered in future periods when the Gross Proceeds exceed Production Costs for such period.
Removed paragraphs (3)
Previous report
Successor Trustee
Previous report
A Special Meeting of the Unit Holders was held on December 1, 2023 (the “December Special Meeting”), where Unit Holders were asked (1) to approve the appointment of Argent Trust Company as successor trustee of the Trust, (2) to approve an amendment to the Indenture to permit a bank or trust company with capital, surplus and undivided profits (as of the end of its last fiscal year prior to its appointment) of at least $15,000,000 to serve as successor trustee of the Trust, (3) to approve an amendment to the Indenture that would clarify the word “Trustee” to include former trustees of the Trust for indemnification purposes, and (4) to approve an adjournment of the special meeting, if necessary or appropriate to permit solicitation of additional proxies in favor of the above proposals (collectively, the “Proposals). The Trust issued a press release on December 1, 2023, announcing the December Special Meeting was adjourned to permit the solicitation of additional proxies in favor of proposals (1) through (4) above, as described in the Trust’s definitive proxy statement filed by the Trust with the Securities and Exchange Commission on October 2, 2023 (the “Proxy Statement”).
Previous report
The Trust again held a special meeting of its Unit Holders on January 16, 2024 (the “January Special Meeting”) where the Unit Holders of the Trust voted to approve the proposals set forth in the Trust’s Proxy Statement, including the appointment of Argent Trust Company as successor trustee of the Trust, following the effective date of PNC Bank’s resignation. Following approval by the Trust’s Unit Holders at the January Special Meeting, the Trust entered into the First Amendment to the Amended and Restated Royalty Trust Indenture of San Juan Basin Royalty Trust to clarify the word “Trustee” as used in the Indenture, would include former trustees of the Trust for indemnification purposes and to permit a bank or trust company with capital, surplus and undivided profits of at least $15,000,000 to serve as successor trustee of the Trust. The effective date of PNC Bank’s resignation as Trustee and the effective date of Argent Trust Company’s appointment as successor Trustee was February 15, 2024.
Reworded paragraphs (28)
Previous wording
Conveyance of the Royalty, through a series of sales, assignments and mergers, Southland’s successor became Hilcorp, which acquired the Subject Interests from Burlington Resources Oil & Gas Company LP (“Burlington”), an indirect wholly-owned subsidiary of ConocoPhillips, on July 31, 2017.
Current wording
Pursuant to the Net Overriding Royalty Conveyance effective November 1, 1980, Southland conveyed the Royalty that burdens the Subject Interests in properties located in the San Juan Basin of northwestern New Mexico to the Trust. Subsequent to the Conveyance of the Royalty, through a series of sales, assignments and mergers, Southland’s successor became Hilcorp, which acquired the Subject Interests from Burlington Resources Oil & Gas Company LP (“Burlington”), an indirect wholly-owned subsidiary of ConocoPhillips, on July 31, 2017.
Previous wording
The primary function of the Trustee is to collect Royalty Income, to pay all expenses and charges of the Trust, and to distribute the remaining available income to the Unit Holders. The amount of income distributable to Unit Holders, which the Trust refers to as “Distributable Income,” depends on the amount of Royalty Income and interest received by the Trust, as well as the amount of expenses paid by the Trust and any change in cash reserves. The Trust has no employees, officers, or directors. The Trustee performs all administrative functions of the Trust.
Current wording
The primary function of the Trustee is to collect Royalty Income, to pay all expenses and charges of the Trust, and to distribute the remaining available income to the Unit Holders. The amount of income distributable to Unit Holders, which the Trust refers to as “Distributable Income,” depends on the amount of Royalty Income and interest received by the Trust, as well as the amount of expenses paid by the Trust and any change in cash reserves. The Trust has no employees, officers, or directors. The Trustee performs all administrative functions of the Trust. Argent Trust Company has served as Trustee since February 15, 2024.
Previous wording
2021 and 2022, various adjustments were made to reconcile actual revenue and severance taxes to the previously reported estimates. Hilcorp conducted a process review of the new accounting system that included review of production volume allocations for 2017 through 2020 and resulted in reallocations of affected volumes for many of the Trust properties.
Current wording
Gross Proceeds and Severance Tax Estimates. Hilcorp transitioned to a new accounting system in 2021. During and immediately following the transition period, revenue and severance taxes on the distributions to the Trust were estimated. Then, in 2021 and 2022, various adjustments were made to reconcile actual revenue and severance taxes to the previously reported estimates. Hilcorp conducted a process review of the new accounting system that included review of production volume allocations for 2017 through 2020 and resulted in reallocations of affected volumes for many of the Trust properties.
Previous wording
Since the transition to Hilcorp’s new accounting system in 2021, the Trustee has engaged and continues to engage with Hilcorp on an ongoing basis regarding Hilcorp’s accounting and reporting to the Trust. The Trust’s third-party compliance auditors continue to audit payments made by Hilcorp to the Trust, inclusive of sales revenues, production costs, capital expenditures, adjustments, actualizations, and recoupments. The Trust’s auditing process has also included detailed analyses of Hilcorp’s pricing and rates charged. As previously disclosed in the Trust’s filings, these revenues and costs (along with all costs) are the subject of the Trust’s ongoing comprehensive audit process by professional consultants and outside counsel to help evaluate compliance with the underlying operative Trust agreements and evaluate potential remedies in the event there is evidence of non-compliance.
Current wording
Since the transition to Hilcorp’s new accounting system in 2021, the Trustee has engaged and continues to engage with Hilcorp on an ongoing basis regarding Hilcorp’s accounting and reporting to the Trust. The Trust’s third-party compliance auditors continue to audit payments made by Hilcorp to the Trust, inclusive of sales revenues, production costs, capital expenditures, adjustments, actualizations, and recoupments. The Trust’s auditing process has also included detailed analyses of Hilcorp’s pricing and rates charged. As previously disclosed in the Trust’s filings, these revenues and costs (along with all costs) are the subject of the Trust’s ongoing comprehensive audit process by professional consultants and outside counsel to help evaluate compliance with the underlying operative Trust agreements and evaluate potential remedies in the event there is suspected non-compliance.
Previous wording
Hilcorp informed the Trust that its 2024 Plan will allocate approximately $25.0 million of the 2024 Plan’s budget toward two drilling projects in the Mancos formation. Approximately $8.0 million of the 2024 Plan’s budget will be allocated to 36 well recompletions and workovers scheduled to be completed in the Mesaverde and Fruitland Coal formations. Approximately $1.0 million of the 2024 Plan’s budget will be allocated to facilities projects related to natural gas compression. Hilcorp further informed the Trust that its planned project status for 2024 is subject to revision if Hilcorp revises its assumptions underlying the 2024 Plan, in which event the actual capital costs may vary from these estimates.
Current wording
Hilcorp informed the Trust that its 2024 Plan will allocate approximately $25.0 million of the 2024 Plan’s budget toward two drilling projects in the Mancos formation. Approximately $8.0 million of the 2024 Plan’s budget will be allocated to 36 well recompletions and workovers scheduled to be completed in the Mesaverde and Fruitland Coal formations. Approximately $1.0 million of the 2024 Plan’s budget will be allocated to facilities projects related to natural gas compression. Hilcorp further informed the Trust that its planned project status for 2024 is subject to revision if Hilcorp revises its assumptions underlying the 2024 Plan, in which event the actual capital costs may vary from these estimates. Hilcorp informed the Trustee that during the six months ended June 30, 2024, seven workover wells were completed, two new wells are in progress, and six workover wells are in progress.
Previous wording
Under the terms of the Conveyance, production costs are deducted from Gross Proceeds in calculating Net Proceeds, which is multiplied by 75% to calculate Royalty Income. “Production Costs” generally means costs incurred on an accrual basis by Hilcorp in operating the Subject Interests, including both capital and non-capital costs. For example, these costs include development drilling, production and processing costs, applicable taxes and operating charges. However, Hilcorp informed the Trust that for wells operated by Hilcorp it did not intend to accrue lease operating expenses to the Trust. If production costs exceed Gross Proceeds in any month, the excess is recovered out of future Gross Proceeds prior to the making of further payments to the Trust. However, the Trust is not otherwise liable for any Production Costs or other costs or liabilities attributable to the Subject Interests or the minerals produced therefrom. If at any time the Trust receives more than the amount due under the Royalty, it is not obligated to return such overpayment, but the amounts payable to it for any subsequent period are reduced by such amount, plus interest, at a rate specified in the Conveyance. The Trust and the Trustee have very limited authority to control the amount and timing of Production Costs.
Current wording
Under the terms of the Conveyance, production costs are deducted from Gross Proceeds in calculating Net Proceeds, which is multiplied by 75% to calculate Royalty Income. “Production Costs” generally means costs incurred on an accrual basis by Hilcorp in operating the Subject Interests, including both capital and non-capital costs. For example, these costs include development drilling, production and processing costs, applicable taxes and operating charges. However, Hilcorp informed the Trust that for wells operated by Hilcorp it did not intend to accrue lease operating expenses to the Trust. If Production Costs exceed Gross Proceeds in any month, the excess is recovered out of future Gross Proceeds prior to making any further payments to the Trust. However, the Trust is not otherwise liable for any Production Costs or other costs or liabilities attributable to the Subject Interests or the minerals produced therefrom. If at any time the Trust receives more than the amount due under the Royalty, it is not obligated to return such overpayment, but the amounts payable to it for any subsequent period are reduced by such amount, plus interest, at a rate specified in the Conveyance. The Trust and the Trustee have very limited authority to control the amount and timing of Production Costs.
Previous wording
Factors that Affect Net Proceeds. Generally, Net Proceeds are affected by (a) disruptions caused by weather, particularly winter storms that disrupt access to the production fields, (b) the timing and size of Hilcorp’s capital expenditures, and (c) commodity prices.
Current wording
Factors that Affect Net Proceeds. Generally, Net Proceeds are affected by (a) disruptions caused by weather, particularly winter storms that disrupt access to the production fields, (b) the timing and size of Hilcorp’s capital expenditures, and other Production Costs, and(c) commodity prices.
Previous wording
Capital Expenditures. The timing and size of capital expenditures by Hilcorp may impact Net Proceeds. Hilcorp’s capital expenditures increased approximately $957,194, from $33,600 for the three months ended March 31, 2023, to $990,794 for the three months ended March 31, 2024. The increases in capital costs in the three-month period were primarily attributable to a substantially higher capital project spending budget for 2024 as compared to 2023.
Current wording
Capital Expenditures. The timing and size of capital expenditures by Hilcorp may impact Net Proceeds. Hilcorp’s capital expenditures increased approximately $707,669, from $122,203 for the three months ended June 30, 2023, to $829,872 for the three months ended June 30, 2024. The increase in capital costs in the three-month period were primarily attributable to a substantially higher capital project spending budget for Hilcorp's 2024 plan as compared to 2023.
Previous wording
Results of Operations – for the Three Months Ended March 2024 and 2023
Current wording
Results of Operations – for the Three and Six Months Ended June 2024 and 2023
Previous wording
Royalty Income. Royalty Income consists of 75% of the monthly Net Proceeds attributable to the Royalty. Royalty Income for the three months ended March 31, 2024, and 2023 was determined as shown in the following table:
Current wording
Royalty Income. Royalty Income consists of 75% of the monthly Net Proceeds attributable to the Royalty. Royalty Income for the three and six months ended June 30, 2024, and 2023 was determined as shown in the following table:
Previous wording
The Royalty Income distributed to the Trust for the three months ended March 31, 2024, was lower than that distributed during the same period of 2023, due primarily to a large decline in natural gas prices. The average natural gas price decreased from $10.53 per Mcf for the three months ended March 31, 2023, to $3.19 per Mcf for the three months ended March 31, 2024. Production of natural gas from the Subject Interests decreased from 5,863,499 Mcf for the three months ended March 31, 2023, to 5,595,016 Mcf for the three months ended March 31, 2024.
Current wording
The Royalty Income distributed to the Trust for the three and six months ended June 30, 2024, was lower than that distributed during the same period of 2023, due primarily to a decline in natural gas prices and an increase in production costs, including capital expenditures and lease operating expenses. The average natural gas price decreased from $3.69 per Mcf for the three months ended June 30, 2023, to $1.92 per Mcf for the three months ended June 30, 2024. The average natural gas price decreased from $7.19 per Mcf for the six month period ended June 30, 2023 to $2.56 per Mcf for the six month period ended June 30, 2024. Production of natural gas from the Subject Interests decreased from 5,613,332 Mcf for the three months ended June 30, 2023, to 5,457,753 Mcf for the three months ended June 30, 2024. Production of natural gas from the Subject Interests also decreased slightly from 11,476,831 Mcf for the six months ended June 30, 2023 to 11,052,771 Mcf for the six months ended June 30, 2024.
Previous wording
Gross Proceeds from Subject Interests. Total Gross Proceeds decreased approximately $44.0 million, or 70.71%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The decrease was primarily due to lower natural gas prices.
Current wording
Gross Proceeds from Subject Interests. Total Gross Proceeds decreased approximately $10.0 million, or 47.15%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Total Gross Proceeds decreased approximately $54.1 million or 64.7% for the six months ended June 30, 2024 compared to the same time period in 2023. The decrease was primarily due to lower natural gas prices.
Previous wording
The timing and size of capital expenditures by Hilcorp may impact Net Proceeds. Hilcorp’s capital expenditures increased approximately $957,134, or 2,843.5%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase in capital costs in the three-month period was primarily attributable to the higher capital project spending budget for 2024 as compared to 2023.
Current wording
Capital Expenditures. The timing and size of capital expenditures by Hilcorp have and will continue to impact Net Proceeds. Hilcorp's capital expenditures increased approximately $707,669, or 479%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and increased approximately $1,664,804 or 968% for the six months ended June 30, 2024, compared to the same time period in 2023. The increase in capital costs in the three-month and six-month periods were primarily attributable to the significantly higher capital project spending budget for Hilcorp's 2024 Plan (as defined below), as compared to 2023.
Previous wording
$25.0 million of the 2024 Plan’s budget toward two drilling projects in the Mancos formation. Approximately $8.0 million of the 2024 Plan’s budget will be allocated to 36 well recompletions and workovers scheduled to be completed in the Mesaverde and Fruitland Coal formations. Approximately $1.0 million of the 2024 Plan’s budget will be allocated to facilities projects related to natural gas compression. Hilcorp further informed the Trust that its planned project status for 2024 is subject to revision if Hilcorp revises its assumptions underlying the 2024 Plan, in which event the actual capital costs may vary from these estimates.
Current wording
On February 16, 2024, the Trust announced that Hilcorp had provided the Trust with its 2024 capital project plan for the Subject Interests (the “2024 Plan”), and Hilcorp has estimated its 2024 capital expenditures for the Subject Interests to be $36.0 million. This plan was updated on March 6, 2024, with a reduction of approximately $2.0 million, bringing the total estimate of 2024 capital expenditures to $34.0 million. Hilcorp informed the Trust that its 2024 Plan will allocate approximately $25.0 million of the 2024 Plan’s budget toward two drilling projects in the Mancos formation. Approximately $8.0 million of the 2024 Plan’s budget will be allocated to 36 well recompletions and workovers scheduled to be completed in the Mesaverde and Fruitland Coal formations. Approximately $1.0 million of the 2024 Plan’s budget will be allocated to facilities projects related to natural gas compression. Hilcorp further informed the Trust that its planned project status for 2024 is subject to revision if Hilcorp revises its assumptions underlying the 2024 Plan, in which event the actual capital costs may vary from these estimates. Hilcorp informed The Trustee that there were seven workover wells completed, two new wells in progress, and six workover wells in progress during the six months ended June 30, 2024.
Previous wording
Severance Taxes. Aggregate severance taxes decreased approximately $4.46 million, or 64.78%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The decrease was primarily attributable to lower Gross Proceeds. Severance taxes represented approximately 13.29% of Gross Proceeds for the three months ended March 31, 2024 compared to approximately 11.05% for the same period of 2023.
Current wording
Severance Taxes. Aggregate severance taxes decreased approximately $1.2 million, or 47%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 and decreased approximately $5.7 million or 60% for the six months ended June 30, 2024 compared to the same time period during 2023. The decrease was primarily attributable to lower Gross Proceeds. Severance taxes represented approximately 13% of Gross Proceeds for the three months ended June 30, 2024 compared to approximately 12% for the same period of 2023. Severance taxes represented approximately 13% of Gross Proceeds for the six months ended June 30, 2024, compared to approximately 11% for the same period of 2023.
Previous wording
Lease Operating Expenses and Property Taxes. Lease operating expenses and property taxes increased $1,244,988, or 18.35%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Monthly lease operating expenses for the Subject Interests, including property taxes, for the three months ended March 31, 2024, averaged approximately $2.68 million compared to $2.26 million for the three months ended March 31, 2023.
Current wording
Monthly lease operating expenses for the Subject Interests, including property taxes, for the three months ended June 30, 2024, averaged approximately $2.6 million compared to $2.4 million for the three months ended June 30, 2023. Monthly lease operating expenses for the Subject Interests, including property taxes for the six months ended June 30, 2024 averaged $2.6 million for 2024 compared to $2.3 million for the six months ended June 30, 2023.
Previous wording
Distributable Income. Distributable Income for the three months ended March 31, 2024, and 2023 was determined as shown in the following table:
Current wording
Distributable Income. Distributable Income for the three and six months ended June 30, 2024, and 2023 was determined as shown in the following table:
Previous wording
Distributable Income decreased approximately 88.62% from $36.0 million ($0.771771 per Unit) for the three months ended March 31, 2023, to $4.1 million ($0.087806 per Unit) for the three months ended March 31, 2024. The decrease in Distributable Income was primarily attributable to a sharp decline in natural gas prices.
Current wording
Distributable Income decreased approximately 87% from $8.1 million ($0.173518 per Unit) for the three months ended June 30, 2023, to $1.1 million ($0.022864 per Unit) for the three months ended June 30, 2024. Distributable income decreased approximately 88% from $44.1 million (0.945289 per Unit) for the six-months period ended June 30, 2023 to $5.2 million ($0.110670 per Unit) for the same period in 2024. The decrease in Distributable Income was primarily attributable to a sharp decline in natural gas prices and increased capital expenditures.
Previous wording
Based on 46,608,796 Units outstanding, the per-Unit distributions during the first quarter of 2024 were as follows:
Current wording
Based on 46,608,796 Units outstanding, the per-Unit distributions during the second quarter of 2024 were as follows:
Previous wording
Interest Income. Interest income decreased for the three months ended March 31, 2024, as compared to the same periods in 2023 primarily due to the decrease in Royalty Income and lower returns on short-term investments.
Current wording
Interest Income. Interest income decreased for the three and six months ended June 30, 2024, as compared to the same periods in 2023 primarily due to the decrease in Royalty Income.
Previous wording
General&Administrative Expenses. General and administrative expenses increased approximately 110.66% for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The changes were primarily attributable to differences in timing of the receipt and payment of certain expenses by the Trust.
Current wording
General&Administrative Expenses. General and administrative expenses increased approximately 40% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, general and administrative expenses increased approximately 47% compared to the six months ended June 30, 2023. The changes for the three and six-month periods were attributable to differences in timing of the receipt and payment of certain expenses by the Trust, as well as expenses in 2024 associated with the transition to Argent Bank as Trustee of the Trust.
Previous wording
Cash Reserves. Total cash reserves were $1.4 million as of March 31, 2024. The Trustee is authorized to determine, in its discretion, the amount of cash reserves needed to cover liabilities and contingencies of the Trust. The Trustee previously maintained a cash reserve in the amount of $1.0 million. However, to cover Trust Expenses during any period of revenue shortfall, which could result from lower commodity prices or increased capital expenditures under Hilcorp's 2024 project plan for the Subject Interests, the Trustee has been increasing the cash reserves in March and April of 2024, and will continue to do so in the coming months until the cash reserve balance is $2.0 million. The Trustee reserved $400,000 in cash received by the Trust in each of March and April 2024, which brought the balance of cash reserves maintained by the Trustee to $1.4 million as of March 31, 2024 and $1.8 million as of April 30, 2024.
Current wording
Cash Reserves. Total cash reserves were $1.47 million as of June 30, 2024. The Trustee is authorized to determine, in its discretion, the amount of cash reserves needed to cover liabilities and contingencies of the Trust. The Trustee previously maintained a cash reserve in the amount of $1.0 million. However, to cover Trust Expenses during any period of revenue shortfall, which has resulted and could continue to result from lower commodity prices or increased capital expenditures under Hilcorp's 2024 project plan for the Subject Interests, the Trustee increased the cash reserves in March and April of 2024, such that total cash reserves were $1.8 million as of April 30, 2024. Cash reserves of $249,344 and $82,913, along with interest income, were utilized to pay the balance of Trust administrative expenses remaining (after applying interest income) for May and June 2024, respectively, when the Trust did not receive any Royalty Income. Prior to any distributions to Unitholders, the Trustee plans to replenish the cash reserves and continue to increase the cash reserves to $2.0 million.
Previous wording
In the event the Trust does not receive Royalty Income from Hilcorp sufficient to pay its liabilities, the Trust believes it has sufficient capacity to draw upon the cash reserve amount or borrow funds against the Royalty to cover the Trust’s operating expenses until its cash reserve can be replenished from subsequent Royalty Income payments from Hilcorp.
Current wording
In each of May, June, and July 2024, the Trust did not receive any Royalty Income, and interest income received was insufficient to pay Trust liabilities. In the event the Trust does not receive Royalty Income from Hilcorp and interest income sufficient to pay its liabilities in future months, which is expected to occur given the significantly increased expenditures anticipated in Hilcorp's 2024 Plan, the Trust will draw upon the cash reserve amount or borrow funds against the Royalty to cover the Trust’s operating expenses until its cash reserve can be replenished from subsequent Royalty Income payments from Hilcorp.
Previous wording
Royalty Income for the three months ended March 31, 2024, is associated with natural gas and oil production during November through December 2023 and January 2024 from the Subject Interests.
Current wording
Royalty Income for the three months ended June 30, 2024, is associated with natural gas and oil production during the period from February 2024 through April 2024. Royalty Income for the six months ended June 30, 2024, is associated with natural gas and oil production from the Subject Interests during the period from November 2023 through April 2024.
Previous wording
Natural gas production volumes decreased for the Subject Interests and the Royalty by 268,483 Mcf (4.6%) and 1,975,743 Mcf (53.4%), respectively for the three months ended March 31, 2024, as compared to the same period in 2023. This decrease was primarily due to a natural decline in the producing properties, market conditions, variances in capital spending to generate production from new and existing wells, and a decrease in demand. Natural gas production is also influenced by the line pressure of the natural gas gathering systems in the San Juan Basin.
Current wording
Natural gas production volumes decreased for the Subject Interests and the Royalty by 155,579 Mcf (2.8%) and 2,684,070 Mcf (119.6%), respectively for the three months ended June 30, 2024, as compared to the same period in 2023. For the six months period ending June 30, 2024, natural gas production volumes decreased 424,061 Mcf (3.7%) for the Subject Interests and 4,659,813 Mcf (78.4%) for the Royalty compared to the same periods in 2023. Royalty volume is calculated using a formula determined by revenue less expenses. Excess production costs contributed to negative volumes for gas for the Royalty. The decrease in production volume was also affected by a natural decline in the producing properties, market conditions, and a decrease in demand. Natural gas production is also influenced by the line pressure of the natural gas gathering systems in the San Juan Basin.
Previous wording
Oil production volumes increased for the Subject Interests by 217 Bbls (3.9%) for the three months ended March 31, 2024, as compared to the same period in 2023. Oil production volumes decreased for the Royalty by 222 Bbls (6.6%) for the three months ended March 31, 2024, as compared to the same period in 2023. These changes generally resulted from changes in the demand for natural gas during the applicable time periods, natural gas inventory levels, availability of market conditions, and variances in capital spending to generate production from new and existing wells.
Current wording
Oil production volumes decreased for the Subject Interests by 283 Bbls (3.1%) for three months ended June 30, 2024, as compared to the same period in 2023. Oil production volumes decreased for the Royalty by 300 Bbls (5.1%) for the three months ended June 30, 2024, as compared to the same period in 2023. For the six months period ending June 30, 2024, oil production volume decreased by 8,888 Bbls (60.4%) for the Subject Interests and 6,114 Bbls (65.9%) for the Royalty as compared to the same period in 2023. These changes generally resulted from changes in the demand for natural gas during the applicable time periods, natural gas inventory levels, availability of market conditions, and an increase in capital spending to generate production from new and existing wells.
Previous wording
The average realized natural gas price per Mcf decreased for the three months ended March 31, 2024, as compared to the same period in 2023. This decrease was primarily due to a decrease in the El Paso Natural Gas Company, San Juan Basin Index pricing.
Current wording
The average realized natural gas price per Mcf decreased for the three and six months ended June 30, 2024, as compared to the same periods in 2023. This decrease was primarily due to a decrease in the El Paso Natural Gas Company, San Juan Basin Index pricing.
Previous wording
The average realized oil price per Bbl decreased for the three months ended March 31, 2024, as compared to the same period in 2023. This decrease was primarily due to a decrease in the WTI benchmark oil price.
Current wording
The average realized oil price per Bbl increased for the three and six months ended June 30, 2024 as compared to the same periods in 2023. This increase was primarily due to an increase in the WTI benchmark oil price.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Lease Operating Expenses and Property Taxes. Lease operating expenses and property taxes increased $0.6 million or 7.37%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, lease operating expenses and property taxes increased approximately $1.8 million or 13% compared to the six months ended June 30, 2023. As previously disclosed in the Trust’s filings, these costs (along with all revenue and costs) are the subject of the Trust’s ongoing comprehensive audit process by professional consultants and outside counsel to help evaluate compliance with the underlying operative Trust agreements and evaluate potential remedies in the event there is suspected non-compliance.
Current report — wording carried from elsewhere
Production of natural gas and oil and related average sales prices attributable to each of the Subject Interests and the Royalty for the six months ended June 30, 2024 and 2023 were as follows:
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
Pursuant to the Net Overriding Royalty Conveyance effective November 1, 1980, Southland conveyed the Royalty that burdens the Subject Interests in properties located in the San Juan Basin of northwestern New Mexico to the Trust. Subsequent to the
Previous report — wording carried elsewhere
Gross Proceeds and Severance Tax Estimates. Hilcorp transitioned to a new accounting system in 2021. During and immediately following the transition period, revenue and severance taxes on the distributions to the Trust were estimated. Then, in
Previous report — wording carried elsewhere
Capital Expenditures. On February 16, 2024, the Trust announced that Hilcorp had provided the Trust with its 2024 capital project plan for the Subject Interests (the “2024 Plan”), and Hilcorp has estimated its 2024 capital expenditures for the Subject Interests to be $36.0 million. This plan was updated on March 6, 2024, with a reduction of approximately $2.0 million, bringing the total estimate of 2024 capital expenditures to $34.0 million. Hilcorp informed the Trust that its 2024 Plan will allocate approximately