MESA ROYALTY TRUST/TX

Previous wording

At December 31, 2023, the 1,863,590 units outstanding were held by 422 unitholders of record. The Trust did not repurchase any units during the period covered by this Form 10-K.

Current wording

At December 31, 2024, the 1,863,590 units outstanding were held by 406 unitholders of record. The Trust did not repurchase any units during the period covered by this Form 10-K.

Previous wording

Liquidity. As discussed in “Business — Description of the Trust” under Item 1 of this Form 10-K, the Trust’s primary source of cash is the Royalty income received from its share of the Net Proceeds from the Royalty Properties, and the only other source of cash is interest income earned pursuant to the Trust Indenture. For estimates of future Royalty income attributable to the Royalty, refer to the Notes to Financial Statements under Item 8 of this Form 10-K.

Current wording

Liquidity. As discussed in “Business — Description of the Trust” under Item 1 of this Form 10-K, the Trust’s primary source of cash is the Royalty income received from its share of the Net Proceeds from the Royalty Properties, and the only other source of cash is interest income earned pursuant to the Trust Indenture. For estimates of future Royalty income attributable to the Royalty, refer to the Notes to Financial Statements under Item 8 of this Form 10-K. Also see “Summary Reserve Report from Miller and Lents” attached hereto as Exhibit 99 for more information.

Previous wording

The net effects of such adjustments for the year ended December 31, 2023 resulted in the balance of the Contingent Reserve being equal to $1,730,214 as of December 31, 2023. The Trustee intends to increase the Contingent Reserve to a total of $2.0 million, which will reduce Net Proceeds available to the Trust and distributions to Trust unitholders. The amount and timing of the addition to the Contingent Reserve will be determined by the Trustee on a monthly basis and is expected to vary in future periods depending on circumstances at the time.

Current wording

The net effects of such adjustments for the year ended December 31, 2024 resulted in the balance of the Contingent Reserve being equal to $1,872,026 as of December 31, 2024. The Trustee intends to increase the Contingent Reserve to a total of $2.0 million, which will reduce Net Proceeds available to the Trust and distributions to Trust unitholders. The amount and timing of the addition to the Contingent Reserve will be determined by the Trustee on a monthly basis and is expected to vary in future periods depending on circumstances at the time.

Previous wording

Royalty and Other Income. The Trust’s Royalty and other income was $3,294,600 and $4,119,378 for the years ended December 31, 2023 and 2022, respectively. The decrease in Royalty income was primarily a result of decreases in pricing reported for natural gas, natural gas liquids and oil and condensate and decreases in net production for natural gas liquids, offset in part by decreases in operating and capital expenses for natural gas and natural gas liquids and increases in net production for natural gas for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Current wording

Royalty and Other Income. The Trust’s Royalty and other income was $634,500 and $3,294,600 for the years ended December 31, 2024 and 2023, respectively. The decrease in Royalty income was primarily a result of decreases in pricing reported for natural gas and natural gas liquids and decreases in net production for natural gas, natural gas liquids and oil and condensate, offset in part by decreases in operating and capital expenses for natural gas and natural gas liquids for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

Previous wording

Interest Income. The Trust’s interest income for the years ended December 31, 2023 and 2022 was $99,057 and $19,832, respectively. The increase in interest income received by the Trust was primarily a result of increases to the United States Prime Rate in the year ended December 31, 2023 as compared to the year ended December 31, 2022. In accordance with the Trust Indenture and as explained below, interest on cash on hand was paid at a rate equivalent to 1.5% below the prime interest rate.

Current wording

Interest Income. The Trust’s interest income for the years ended December 31, 2024 and 2023 was $96,855 and $99,057, respectively. In accordance with the Trust Indenture and as explained below, interest on cash on hand was paid at a rate equivalent to 1.5% below the prime interest rate.

Previous wording

General and Administrative Expense. General and administrative expense was $186,843 and $197,482 for the years ended December 31, 2023 and 2022, respectively. The Trustee’s fees are included in general and administrative expense.

Current wording

General and Administrative Expense. General and administrative expense was $196,399 and $186,843 for the years ended December 31, 2024 and 2023, respectively. The Trustee’s fees are included in general and administrative expense.

Previous wording

For the year ended December 31, 2023, the Trustee was due $475,000 for its services. The Trust paid $433,153 of this amount to the Trustee, and $41,847 was allocated to offset against interest due to the Trust under the Trust Indenture. The Trust Indenture requires that cash being held by the Trustee earn interest at 1.5% below the prime rate, which would have yielded the Trust a 6.00% annualized return from January 1, 2023 through February 1, 2023, a 6.25% annualized return from February 2, 2023 through March 22, 2023, a 6.50% annualized return from March 23, 2023 through May 3, 2023, a 6.75% annualized return from May 4, 2023 through July 25, 2023 and a 7.00% annualized return from July 26, 2023 through December 30, 2023. However, due to the interest rate environment at the time, the Trustee was unable to obtain an account in which such an interest rate was available. In the event such an interest rate is unavailable in the future, the Trustee intends to allocate certain of its fees due to the Trust to meet the minimum interest rate payable under the Trust Indenture. In future periods the Trustee will continue to allocate a portion of the fees earned for its services to the Trust until all remaining interest due to the Trust is fully offset.

Current wording

For the year ended December 31, 2024, the Trustee was due $475,000 for its services. The Trust paid $433,153 of this amount to the Trustee, and $41,847 was allocated to offset against interest due to the Trust under the Trust Indenture. The Trust Indenture requires that cash being held by the Trustee earn interest at 1.5% below the prime rate, which would have yielded the Trust a 7.00% annualized return from January 1, 2024 through September 18, 2024, a 6.50% annualized return from September 19, 2024 through November 7, 2024, a 6.25% annualized return from November 8, 2024 through December 18, 2024, a 6.00% annualized return from December 19, 2024 through December 31, 2024. However, due to the interest rate environment at the time, the Trustee was unable to obtain an account in which such an interest rate was available. In the event such an interest rate is unavailable in the future, the Trustee intends to allocate certain of its fees due to the Trust to meet the minimum interest rate payable under the Trust Indenture. In future periods the Trustee will continue to allocate a portion of the fees earned for its services to the Trust until all remaining interest due to the Trust is fully offset.

Previous wording

Contingent Reserve is included in cash and short-term investments. The Trustee utilizes the Contingent Reserve in its discretion in accordance with the Conveyance, and adjusts the balance of the Contingent Reserve as necessary when funds are added or removed. The net effects of such adjustments for the year ended December 31, 2023 resulted in the balance of the Contingent Reserve being equal to $1,297,168 as of December 31, 2022 and equal to $1,730,214 as of December 31, 2023. The Trustee intends to increase the Contingent Reserve to a total of $2.0 million.

Current wording

Contingent Reserve is included in cash and short-term investments. The Trustee utilizes the Contingent Reserve in its discretion in accordance with the Conveyance, and adjusts the balance of the Contingent Reserve as necessary when funds are added or removed. The net effects of such adjustments for the year ended December 31, 2024 resulted in the balance of the Contingent Reserve being equal to $1,872,026 as of December 31, 2024 and equal to $1,730,214 as of December 31, 2023. The Trustee intends to increase the Contingent Reserve to a total of $2.0 million.

Previous wording

Distributable Income Available for Distribution. The portion of the Trust’s distributable income available for distribution each year includes the Royalty income received from the Working Interest Owners during such period, plus interest income earned to the date of distribution (if any) and increases or withdrawals to and from the Contingent Reserve (if any). Distributable income available for distribution for the years ended December 31, 2023 and 2022 was $2,773,768 and $3,669,560, respectively. For the years ended December 31, 2023 and 2022, the Trust calculated total aggregate distributions of $1.4884 and $1.9691 per unit, respectively.

Current wording

Distributable Income Available for Distribution. The portion of the Trust’s distributable income available for distribution each year includes the Royalty income received from the Working Interest Owners during such period, plus interest income earned to the date of distribution (if any) and increases or withdrawals to and from the Contingent Reserve (if any). Distributable income available for distribution for the years ended December 31, 2024 and 2023 was $393,144 and $2,773,768, respectively. For the years ended December 31, 2024 and 2023, the Trust calculated total aggregate distributions of $0.2109 and $1.4884 per unit, respectively.

Previous wording

The West Texas Intermediate spot price of crude oil decreased from $80.26 per barrel on December 30, 2022 to $71.65 per barrel on December 29, 2023. The Henry Hub Natural Gas Spot Prices decreased from $3.52 per MMBtu on December 30, 2022 to $2.58 per MMBtu on December 29, 2023. Oil prices have been impacted by certain actions by OPEC+, uneven global supply and demand trends, Russia’s invasion into Ukraine and hostilities and heightened geopolitical risks in the Middle East, among other factors. Global and domestic natural gas markets have experienced volatility due to macroeconomic conditions, infrastructure and logistical constraints, weather, and geopolitical issues, among other factors. If commodity prices for crude oil and natural gas fall or remain volatile, monthly distributions to unitholders could be substantially reduced or there may be no distributions in future periods. While inflationary pressures in the United States’ economy have begun to subside, high interest rates and global supply disruptions continue to affect the cost of labor and supplies. In addition changes in economic conditions, including relatively high interest rates and lower global economic activity, could result in additional shifts in demand and supply for future periods. High levels of inflation and interest rates coupled with shipping and supply chain disruptions are expected to increase expenses for Working Interest Owners and are expected to have an adverse impact on Royalty income during 2024.

Current wording

The West Texas Intermediate spot price of crude oil increased from $71.65 per barrel on December 29, 2023 to $71.72 per barrel on December 31, 2024. The Henry Hub Natural Gas Spot Prices increased from $2.58 per MMBtu on December 29, 2023 to $3.40 per MMBtu on December 31, 2024. Crude Oil prices have been impacted by certain actions by OPEC+, uneven global supply and demand trends, ongoing hostilities between Russia and Ukraine, hostilities and heightened geopolitical risks in the Middle East, and global trading sanctions and tariffs, among other factors. Global and domestic natural gas markets have experienced volatility due to macroeconomic conditions, infrastructure and logistical constraints, weather, and geopolitical issues, among other factors. If commodity prices for crude oil and natural gas fall or remain volatile, monthly distributions to unitholders could be substantially reduced or there may be no distributions in future periods. While inflationary pressures in the United States’ economy have begun to subside, high interest rates, trade barriers, including tariffs, and global supply disruptions continue to affect the cost of labor and supplies. In addition changes in economic conditions, including relatively high interest rates and lower global economic activity, could result in additional shifts in demand and supply for future periods.

Previous wording

Royalty Income. Royalty income attributable to the Hugoton Royalty Properties for the years ended December 31, 2023 and 2022 was $0 and $1,008,301, respectively. The decrease in Royalty income was primarily a result of actual expenses being greater than actual revenues for the year ended December 31, 2023, as reported by Scout. The Trustee is in ongoing discussions with Scout regarding financial and operational information required to be delivered to the Trustee for purposes of timely disclosures by the Trust, and is engaged with Scout in reviewing the amount of Net Proceeds in past and current periods.

Current wording

Royalty Income. Royalty income attributable to the Hugoton Royalty Properties was $0 for both of the years ended December 31, 2024 and 2023. The lack of Royalty income was primarily a result of actual expenses being greater than actual revenues for the years ended December 31, 2024 and 2023, as reported by Scout. The Trust is engaged with Scout in reviewing the amount of Net Proceeds in past and current periods.

Previous wording

Operating Costs and Capital Expenditures. Operating costs attributable to the Hugoton Royalty Properties for the year ended December 31, 2023 were $1,693,857, an increase of approximately 4% as compared to $1,621,522 for the year ended December 31, 2022.

Current wording

Operating Costs and Capital Expenditures. Operating costs attributable to the Hugoton Royalty Properties for the year ended December 31, 2024 were $1,829,086, an increase of approximately 8% as compared to $1,693,857 for the year ended December 31, 2023.

Previous wording

Capital expenditures on these properties were $103,186 for the year ended December 31, 2023, a decrease of approximately 33% as compared to $153,823 for the year ended December 31, 2022. The decrease was primarily the result of no drilling activity in the year ended December 31, 2023 as compared to two new wells that were drilled in the year ended December 31, 2022.

Current wording

Capital expenditures on these properties were $3,508 for the year ended December 31, 2024, a decrease of $99,678, as compared to $103,186 for the year ended December 31, 2023. As reported by Scout, the decrease was due primarily to the decrease in activity in 2024, as there have been no capital upgrades in 2024, and due to the expected price environment, capital projects to increase production are not economically justified.

Previous wording

Royalty Income. Royalty income attributable to the San Juan Basin — Colorado Properties for the years ended December 31, 2023 and 2022 was $65,082 and $0, respectively. The lack of Royalty income for the year ended December 31, 2022 was primarily a result of prior period adjustments reported by Simcoe in 2021 that were recovered by Simcoe by withholding the Net Proceeds that would otherwise be payable to the Trust in the year ended December 31, 2022. Net Proceeds from the San Juan Basin — Colorado Properties operated by Simcoe, adjusted against the outstanding expenses and recovered by Simcoe for the year ended December 31, 2022 were $155,532, leaving a balance of $206,432 to be recovered from future proceeds, if any.

Current wording

Royalty Income. Royalty income attributable to the San Juan Basin — Colorado Properties for the years ended December 31, 2024 and 2023 was $35,115 and $65,082, respectively. Royalty income received by the Trust for the year ended December 31, 2024 was due to Simcoe remitting proceeds to the Trust although the Trust remained in a deficit position with Simcoe as of the cash receipt date and as of the year ended December 31, 2024. The deficit position was primarily a result of prior period adjustments reported by Simcoe in 2021 that were recovered by Simcoe by withholding the Net Proceeds that would otherwise be payable to the Trust.

Previous wording

In March 2023, Simcoe informed the Trustee that Simcoe performed a true-up of its production for the periods of 2020 through 2022, and a true-up report was received by the Trustee. Net Proceeds from the San Juan Basin — Colorado Properties operated by Simcoe were received by the Trust, indicating that the Trust was no longer in a deficit position with Simcoe at that time. In June 2023, Simcoe informed the Trustee that the true-up previously performed by Simcoe included revenues only and did not include any true-up for joint interest billing amounts. The result is that the Trust remains in a deficit position with Simcoe as of the year ended December 31, 2023. Net Proceeds from the San Juan Basin — Colorado Properties operated by Simcoe, adjusted against the outstanding expenses and recovered by Simcoe for the year ended December 31, 2023 were $147,209, leaving a balance of $59,223 to be recovered from future proceeds, if any. Of the total Net Proceeds received from the San Juan Basin — Colorado Properties for the twelve months ended December 31, 2023, $41,876 was received from the San Juan Basin — Colorado Properties operated by Red Willow. Because of the adjustments reported by Simcoe, the amounts of Net Proceeds reported during the year ended December 31, 2023 for the San Juan Basin — Colorado Properties operated by Simcoe may not be representative of Net Proceeds that will be received in future years. In addition, with the assistance of a third party consultant, the Trust plans to commence a review of certain of Simcoe’s financial and operational statements and the Net Proceeds payable by Simcoe to the Trust.

Current wording

In March 2023, Simcoe informed the Trustee that Simcoe performed a true-up of its production for the periods of 2020 through 2022, and a true-up report was received by the Trustee. Net Proceeds from the San Juan Basin — Colorado Properties operated by Simcoe were received by the Trust, indicating that the Trust was no longer in a deficit position with Simcoe at that time. In June 2023, Simcoe informed the Trustee that the true-up previously performed by Simcoe included revenues only and did not include any true-up for joint interest billing amounts. The result is that the Trust remains in a deficit position with Simcoe as of the year ended December 31, 2024. Net Proceeds from the San Juan Basin — Colorado Properties operated by Simcoe, adjusted against the outstanding expenses and recovered by Simcoe for the year ended December 31, 2024 were $22,600, leaving a balance of $36,622 to be recovered from future proceeds, if any. Because of the adjustments reported by Simcoe, the amounts of Net Proceeds reported during the year ended December 31, 2024 for the San Juan Basin — Colorado Properties operated by Simcoe may not be representative of Net Proceeds that will be received in future years. In March 2025, Simcoe informed the Trustee that it is in the process of performing a true-up for periods from 2020 to 2024. The Trust is engaged with Simcoe in reviewing the amount of Net Proceeds in past and current periods.

Previous wording

Operating Costs and Capital Expenditures. Operating costs attributable to the San Juan Basin — Colorado Properties for the years ended December 31, 2023 and 2022 were $101,923 and $148,683, respectively. The decrease of approximately 31% was primarily the result of a water rate recalculation in the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Current wording

Operating Costs and Capital Expenditures. Operating costs attributable to the San Juan Basin — Colorado Properties for the years ended December 31, 2024 and 2023 were $137,247 and $101,923, respectively. The increase of approximately 35% was primarily the result of a water hauling and disposal credit due to a water rate adjustment, included in Simcoe’s joint interest billing in the year ended December 31, 2023 as compared to the year ended December 31, 2024.

Previous wording

Per information provided by Simcoe, Simcoe pays Working Interest owners on the same blended Weighted Average Sales Price (“WASP”) (fixed plus market) that Simcoe receives from their purchaser. WASP is defined as: for each delivery point, a price per MMBtu for each month equal to gas proceeds less transportation costs, divided by the total number of first of month baseload MMBtus of gas sold at such delivery point. Sales prices received by Simcoe may be lower than current market prices which may result in less than current market average gas prices received by the Trust.

Current wording

Per information provided by Simcoe, Simcoe pays Royalty amounts based on the same blended Weighted Average Sales Price (“WASP”) (fixed plus market) that Simcoe receives from their purchaser. WASP is defined as: for each delivery point, a price per MMBtu for each month equal to gas proceeds less transportation costs, divided by the total number of first of month baseload MMBtus of gas sold at such delivery point. Sales prices received by Simcoe may be lower than current market prices which may result in less than current market average gas prices received by the Trust.

Previous wording

Royalty Income. Royalty income attributable to the San Juan Basin — New Mexico Properties for the years ended December 31, 2023 and 2022 was $3,214,827 and $3,111,077, respectively. The increase was primarily a result of increases in net production for natural gas, natural gas liquids and oil and condensate, decreases in operating costs for natural gas liquids and decreases in capital costs for natural gas and natural gas liquids, offset in part by decreases in pricing reported for natural gas, natural gas liquids and oil and condensate and increases in operating costs for natural gas, for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Current wording

Royalty Income. Royalty income attributable to the San Juan Basin — New Mexico Properties for the years ended December 31, 2024 and 2023 was $614,049 and $3,214,827, respectively. The decrease was primarily a result of decreases in pricing reported for natural gas and natural gas liquids, decreases in net production volumes for natural gas, natural gas liquids and oil and condensate and increases in capital expense and operating costs for natural gas liquids and oil and condensate, offset in part by increases in pricing reported for oil and condensate and decreases capital expense and operating costs for natural gas for the year ended December 31, 2024 as compared to the year ended December 31, 2023.

Previous wording

Operating Costs and Capital Expenditures. Operating costs were $1,203,855 for the year ended December 31, 2023, a decrease of approximately 11% as compared to $1,346,555 for the year ended December 31, 2022. The decrease was primarily the result of including a true-up of historical amounts attributable to the Trust in January 2022.

Current wording

Operating Costs and Capital Expenditures. Operating costs were $970,450 for the year ended December 31, 2024, a decrease of approximately 19% as compared to $1,203,855 for the year ended December 31, 2023. The decrease was due primarily to lower severance tax, as a result of lower gas prices, offset in part by a slight increase in the cost of expenses.

Previous wording

Capital expenditures on these properties for the years ended December 31, 2023 and 2022 were $110,621 and $173,885, respectively. The decrease of approximately 36% for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to the general decrease in activity in 2023, as there was only one major recomplete project in the twelve months ended December 31, 2023 as compared to three major recomplete projects in the twelve months ended December 31, 2022.

Current wording

Capital expenditures on these properties for the years ended December 31, 2024 and 2023 were $142,351 and $110,621, respectively. The increase of approximately 29% for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to the general increase in activity in 2024, as there were two major recomplete projects in the twelve months ended December 31, 2024 as compared to one major recomplete project in the twelve months ended December 31, 2023.