Gulf Coast Ultra Deep Royalty Trust

Previous wording

The onshore Highlander subject interest is the only subject interest that has established commercial production. Abandoning the well eliminated any production from the onshore Highlander subject interest, which also eliminated any proceeds to which the Royalty Trust would be entitled pursuant to its overriding royalty interests. Unless another well is drilled on the onshore Highlander subject interest and produces hydrocarbons in commercial quantities, the Royalty Trust does not expect to receive any income attributable to its overriding royalty interests and accordingly, does not expect to have any cash available to distribute to Royalty Trust unitholders in future periods. HOGA has informed the Trustee that a new well on the onshore Highlander subject interest was spudded on January 30, 2025; however, the future production status of this well remains unknown. Neither the Trustee nor the Royalty Trust unitholders has any right to control or influence operations of the subject interest.

Current wording

The onshore Highlander subject interest is the only subject interest that has established commercial production. Abandoning the well eliminated any production from the onshore Highlander subject interest, which also eliminated any proceeds to which the Royalty Trust would be entitled pursuant to its overriding royalty interests. Unless another well is drilled on the onshore Highlander subject interest and produces hydrocarbons in commercial quantities, the Royalty Trust does not expect to receive any income attributable to its overriding royalty interests and accordingly, does not expect to have any cash available to distribute to Royalty Trust unitholders in future periods. HOGA previously informed the Trustee that a new well on the onshore Highlander subject interest was spudded on January 30, 2025 and recently reported that the well had reached total depth of 30,862 feet on February 17, 2026; however, the future production status of this well remains unknown. Neither the Trustee nor the Royalty Trust unitholders has any right to control or influence operations of the subject interest.

Previous wording

Although distributions were paid to Royalty Trust unitholders in 2021, 2022 and the first quarter of 2023, distributions may not necessarily be made in the future. As a result of the abandonment of the sole well producing on the onshore Highlander subject interest, the Royalty Trust does not expect to receive any income attributable to its overriding royalty interests and accordingly, does not expect to have any cash available to distribute to Royalty Trust unitholders in future periods, unless another well is drilled on the onshore Highlander subject interest and produces hydrocarbons in commercial quantities. HOGA informed the Trustee that a new well on the onshore Highlander subject interest was spudded on January 30, 2025; however, the future production status of this well remains unknown. The Royalty Trust’s only other sources of liquidity are mandatory annual contributions, any loans and the required standby reserve account or letter of credit from HOGA. As a result, any material adverse change in HOGA’s financial condition or results of operations could materially and adversely affect the Royalty Trust and the Royalty Trust units.

Current wording

Although distributions were paid to Royalty Trust unitholders in 2021, 2022 and the first quarter of 2023, distributions may not necessarily be made in the future. As a result of the abandonment of the sole well producing on the onshore Highlander subject interest, the Royalty Trust does not expect to receive any income attributable to its overriding royalty interests and accordingly, does not expect to have any cash available to distribute to Royalty Trust unitholders in future periods, unless another well is drilled on the onshore Highlander subject interest and produces hydrocarbons in commercial quantities. HOGA previously informed the Trustee that a new well on the onshore Highlander subject interest was spudded on January 30, 2025 and recently reported that the well had reached total depth of 30,862 feet on February 17, 2025; however, the future production status of this well remains unknown. The Royalty Trust’s only other sources of liquidity are mandatory annual contributions, any loans and the required standby reserve account or letter of credit from HOGA. As a result, any material adverse change in HOGA’s financial condition or results of operations could materially and adversely affect the Royalty Trust and the Royalty Trust units.

Previous wording

Natural gas prices fluctuate widely in response to relatively minor changes in supply, market uncertainty and a variety of additional factors that are beyond the control of HOGA and the Royalty Trust. These factors include, among others:

Current wording

The Royalty Trust’s quarterly distributions are highly dependent on the prices realized from the sale of natural gas, and a material decrease in such prices could reduce the amount of cash distributions paid to Royalty Trust unitholders. Natural gas prices fluctuate widely in response to relatively minor changes in supply, market uncertainty and a variety of additional factors that are beyond the control of HOGA and the Royalty Trust. These factors include, among others:

Previous wording

These factors and the volatility of the energy markets make it extremely difficult to predict future natural gas price movements with any certainty. During 2024, the New York Mercantile Exchange (NYMEX) natural gas price fluctuated from a low of $1.21 per MMBtu to a high of $13.20 per MMBtu. On March 24, 2025, the NYMEX natural gas price was $4.03 per MMBtu. Royalties that the Royalty Trust receives from its share of production will be reduced as a result of lower natural gas prices. As a result, future distributions from the Royalty Trust to its unitholders could be reduced or discontinued. In addition, lower oil and natural gas prices reduce the likelihood that the onshore Highlander subject interest will be developed or that any oil or natural gas discovered will be economic to produce. The volatility of energy prices reduces the accuracy of estimates of future cash distributions to the Royalty Trust unitholders and could affect the value of the Royalty Trust units.

Current wording

These factors and the volatility of the energy markets make it extremely difficult to predict future natural gas price movements with any certainty. During 2025, the New York Mercantile Exchange (NYMEX) natural gas price fluctuated from a low of $2.65 per MMBtu to a high of $9.86 per MMBtu. On March 2, 2026, the NYMEX natural gas price was $2.99 per MMBtu. Royalties that the Royalty Trust receives from its share of production will be reduced as a result of lower natural gas prices. As a result, future distributions from the Royalty Trust to its unitholders could be reduced or discontinued. In addition, lower oil and natural gas prices reduce the likelihood that the onshore Highlander subject interest will be developed or that any oil or natural gas discovered will be economic to produce. The volatility of energy prices reduces the accuracy of estimates of future cash distributions to the Royalty Trust unitholders and could affect the value of the Royalty Trust units.

Previous wording

To date, only the onshore Highlander subject interest has achieved commercial production of hydrocarbons from Inboard Lower Tertiary/Cretaceous reservoirs in these areas. The lack of comparative data and the limitations of diagnostic tools operating in the extreme temperatures and pressures encountered at these depths make it difficult to predict reservoir quality and well performance of these formations. It is also significantly more expensive and risky to drill and complete wells in these formations than at more conventional depths. Major contributors to such increased costs and risks include far higher temperatures and pressures encountered down hole, longer drilling times and the cost and extended procurement time related to the specialized equipment required to drill and complete these types of wells.

Current wording

To date, only the onshore Highlander subject interest has achieved commercial production of hydrocarbons from Inboard Lower Tertiary/Cretaceous reservoirs in these areas. Moreover, the onshore Highlander subject interest is the only subject interest in which HOGA has an interest, as McMoRan previously has relinquished, allowed to expire or sold all of the other subject interests. The lack of comparative data and the limitations of diagnostic tools operating in the extreme temperatures and pressures encountered at these depths make it difficult to predict reservoir quality and well performance of these formations. It is also significantly more expensive and risky to drill and complete wells in these formations than at more conventional depths. Major contributors to such increased costs and risks include far higher temperatures and pressures encountered down hole, longer drilling times and the cost and extended procurement time related to the specialized equipment required to drill and complete these types of wells.

Previous wording

The threat of climate change continues to attract considerable attention globally. In response to its 2009 finding that emissions of carbon dioxide, methane and other greenhouse gases (“GHGs”) may present an endangerment to public health and the environment, the EPA has issued regulations to restrict emissions of greenhouse gases under existing provisions of the CAA. These regulations include limits on tailpipe emissions from motor vehicles, preconstruction and operating permit requirements for certain large stationary sources, and methane emissions standards for certain new, modified and reconstructed oil and gas sources — as well as the EPA’s methane emissions guidelines for existing oil and gas sources that were adopted in 2024. The EPA also has adopted rules requiring the reporting of GHG emissions from specified large greenhouse gas emission sources in the United States, as well as certain onshore oil and natural gas production facilities, on an annual basis. In addition to this direct regulation of oil and gas sources, the EPA has recently proposed rules to implement the mandatory Waste Emissions Charge under the Inflation Reduction Act of 2022, which will charge a fee based on the methane emissions from applicable facilities in the oil and gas sector starting in 2024.

Current wording

The threat of climate change continues to attract considerable attention globally. The Trump Administration’s efforts to roll back federal regulation of greenhouse gases (GHGs) represent a significant shift in federal climate policy, though the ultimate impact of those efforts on HOGA is unclear. In 2009, the EPA found that emissions of carbon dioxide, methane and other GHGs may present an endangerment to public health and the environment and subsequently issued regulations to restrict emissions of greenhouse gases under existing provisions of the CAA. These regulations include limits on tailpipe emissions from motor vehicles, preconstruction and operating permit requirements for certain large stationary sources, and methane emissions standards for certain new, modified and reconstructed oil and gas sources — as well as the EPA’s methane emissions guidelines for existing oil and gas sources that were adopted in 2024. The EPA also has adopted rules requiring the reporting of GHG emissions from specified large greenhouse gas emission sources in the United States, as well as certain onshore oil and natural gas production facilities, on an annual basis.

Previous wording

The EPA has established GHG standards for oil and gas sources under the CAA based on its endangerment finding. In 2024, the EPA adopted a final rule that will directly regulate volatile organic compound and methane emissions from new oil and gas sources and will require further emissions reductions through its regulation of flaring, compressors, pumps, storage vessels, process controllers, well completions and liquids unloading, and equipment leaks. At the same time, the EPA adopted emissions guidelines that will apply to existing oil and gas sources and that require reductions in volatile organic compound and methane emissions that are largely equivalent to the requirements for new sources. The existing source emissions guidelines are to be implemented through state plans, with expected compliance dates for existing sources arriving in 2029.

Current wording

The EPA has established methane standards for oil and gas sources under the CAA based on the now-repealed GHG endangerment finding. In 2024, the EPA adopted a final rule that will directly regulate volatile organic compound and methane emissions from new oil and gas sources and will require further emissions reductions through its regulation of flaring, compressors, pumps, storage vessels, process controllers, well completions and liquids unloading, and equipment leaks. At the same time, the EPA adopted emissions guidelines that will apply to existing oil and gas sources and that require reductions in volatile organic compound and methane emissions that are largely equivalent to the requirements for new sources. The existing source emissions guidelines are to be implemented through state plans, with expected compliance dates for existing sources arriving in 2029. In 2025, however, the EPA extended certain compliance deadlines for both new and existing sources, and the 2026 endangerment finding repeal provides a basis for undoing the oil and gas methane standards, though the fact that the oil and gas standards address both methane and volatile organic compounds, which are regulated independently of EPA’s authority to regulate GHGs, may limit the impact of future changes to the methane standards that currently apply to oil and gas sources.

Previous wording

The Inflation Reduction Act of 2022 (the IRA) included new CAA section 136(c) directing the EPA to collect the Waste Emissions Charge (WEC) from facilities in the oil and gas sector that report more than 25,000 tons of carbon dioxide equivalent emissions in a calendar year. The charge will first apply to methane emissions from calendar year 2024. The charge is determined by comparing actual reported methane emissions to statutorily established “methane intensity figures” that are based on gas production or throughput, with a charge assessed for every ton of methane emissions that exceeds the facility’s allowable emissions based on the applicable methane intensity figure. The charge will be $900 per ton for 2024 emissions and will increase to $1,200 and then $1,500 per ton in subsequent years. The program includes key exemptions, most notably a regulatory compliance exemption that applies to and exempts the emissions from facilities that are subject to and in complete compliance with the EPA’s new or existing source methane requirements. The EPA adopted new rules to implement the WEC program in November 2024. The EPA adopted new rules to implement the WEC program in November 2024. The fate of the WEC and the EPA rules implementing the WEC is unclear. In February 2025, the United States House of Representatives and Senate both passed resolutions to repeal the EPA’s 2024 WEC rules under the Congressional Review Act (CRA), and on March 14, 2025 President Trump signed the resolution repealing those rules under the CRA. In addition, the United States House of Representatives and Senate may be considering amendment or repeal of certain portions of the IRA, including the statutory provisions establishing the WEC. As a result, the legislative face of the WEC is unclear.

Current wording

The Inflation Reduction Act of 2022 (the IRA) included new CAA section 136(c) directing the EPA to collect the Waste Emissions Charge (WEC) from facilities in the oil and gas sector that report more than 25,000 tons of carbon dioxide equivalent emissions in a calendar year. The charge will first apply to methane emissions from calendar year 2024. The charge is determined by comparing actual reported methane emissions to statutorily established “methane intensity figures” that are based on gas production or throughput, with a charge assessed for every ton of methane emissions that exceeds the facility’s allowable emissions based on the applicable methane intensity figure. The charge will be $900 per ton for 2024 emissions and will increase to $1,200 and then $1,500 per ton in subsequent years. The program includes key exemptions, most notably a regulatory compliance exemption that applies to and exempts the emissions from facilities that are subject to and in complete compliance with the EPA’s new or existing source methane requirements. The EPA adopted new rules to implement the WEC program in November 2024. The EPA adopted new rules to implement the WEC program in November 2024. The fate of the WEC and the EPA rules implementing the WEC is unclear. In March 2025, President Trump signed legislation repealing the EPA’s 2024 WEC rules under the Congressional Review Act. The repeal of the EPA’s WEC rules did not eliminate the statutory requirement to pay the WEC, but it eliminated the rules established by the EPA to determine the WEC due, the payment mechanism, and any payment deadlines. The U.S. Congress may be considering amendment or repeal of certain portions of the IRA, including the statutory provisions establishing the WEC.

Previous wording

Additionally, more than one-third of the states have begun taking actions to control and/or reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs. Although most of the state-level initiatives have to date focused on large sources of GHG emissions, such as coal-fired electric plants, it is possible that smaller sources of emissions could become subject to GHG emission limitations or allowance purchase requirements in the future. In addition, Congress may consider adopting legislation to reduce emissions of greenhouse gases. Any one of these climate change regulatory and legislative initiatives could have a material adverse effect on HOGA’s business, capital expenditures, financial condition and results of operations.

Current wording

Meanwhile, more than one-third of the states have begun taking actions to control and/or reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs. Although most of the state-level initiatives have to date focused on large sources of GHG emissions, such as coal-fired electric plants, it is possible that smaller sources of emissions could become subject to GHG emission limitations or allowance purchase requirements in the future. In addition, Congress may consider adopting legislation to reduce emissions of greenhouse gases. Any one of these climate change regulatory and legislative initiatives could have a material adverse effect on HOGA’s business, capital expenditures, financial condition and results of operations.

Previous wording

In addition, new and emerging regulatory initiatives in the U.S. related to climate change could adversely affect the Royalty Trust. On March 6, 2024, the SEC issued a final rule regarding the enhancement and standardization of mandatory climate-related disclosures for investors. The final rule mandates extensive disclosure of climate-related data, risks, and opportunities, including financial impacts, physical and transition risks, related governance and strategy and greenhouse gas emissions, for certain public companies. Compliance with the final rule may result in increased legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place strain on the personnel, systems and resources of HOGA or the Royalty Trust or both.

Current wording

In addition, future regulatory initiatives in the U.S. related to climate change disclosure or reporting could adversely affect the Royalty Trust. On March 6, 2024, the SEC issued a final rule regarding the enhancement and standardization of mandatory climate-related disclosures for investors. The final rule mandates extensive disclosure of climate-related data, risks, and opportunities, including financial impacts, physical and transition risks, related governance and strategy and greenhouse gas emissions, for certain public companies. The SEC’s climate disclosure rule was challenged in court, and in March 2025 the SEC announced that it had voted to end its defense of the 2024 rule. The outcome of that litigation or separate rule changes made by the SEC may result in changes to climate-related disclosure requirements. Even in the absence of federal requirements, however, some states have adopted climate disclosure laws or rules that are not affected by the SEC’s review. Compliance with the federal or state disclosure rules may result in increased legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place strain on the personnel, systems and resources of HOGA or the Royalty Trust or both.

Previous wording

The Royalty Trust units are quoted on the OTC Pink tier of the over-the-counter (OTC) markets. The OTC Pink is a significantly more limited market than the national securities exchanges, which could adversely affect the market price, trading volume, liquidity and resale price of the Royalty Trust units.

Current wording

The Royalty Trust units are quoted on the OTCID Basic Market (OTCID), operated by OTC Markets Group, Inc. The OTCID is a significantly more limited market than the national securities exchanges, which could adversely affect the market price, trading volume, liquidity and resale price of the Royalty Trust units.

Previous wording

Meanwhile, an active market in the Royalty Trust units may not continue at present levels or increase in the future. In addition, securities that trade on the OTC Pink experience more volatility compared to securities that trade on a national securities exchange. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volumes, and market conditions.

Current wording

Meanwhile, an active market in the Royalty Trust units may not continue at present levels or increase in the future. In addition, securities that trade on the OTCID may experience more volatility compared to securities that trade on a national securities exchange. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volumes, and market conditions.

Previous wording

Pursuant to the Royalty Trust Agreement, the Depositor has agreed to pay annual trust expenses up to a maximum amount of $350,000, with no right of repayment or interest due, to the extent the Royalty Trust lacks sufficient funds to pay administrative expenses. On February 1, 2024, pursuant to this provision, FCX contributed approximately $166,000 for the payment of trust expenses incurred during the year ended December 31, 2023, and contributed the maximum of $350,000 for the payment of trust expenses incurred during the year ended December 31, 2024. In addition to such annual contributions, the Depositor has agreed to lend money, on an unsecured, interest-free basis, to the Royalty Trust to fund the Royalty Trust’s ordinary administrative expenses as set forth in the Royalty Trust Agreement. All funds the Trustee borrows to cover expenses or liabilities, whether from the Depositor or from any other source, must be repaid before the Royalty Trust unitholders will receive any distributions. FCX loaned the Royalty Trust $200,000 during the year ended December 31, 2024. No loans or repayments were made during the year ended December 31, 2023. Pursuant to the Assignment, as of December 31, 2024, FCX assigned to HOGA the promissory note relating to the outstanding loan to the Royalty Trust. To the extent annual trust expenses exceed $350,000, the Royalty Trust may be required to borrow funds from HOGA in the future.

Current wording

Pursuant to the Royalty Trust Agreement, the Depositor has agreed to pay annual trust expenses up to a maximum amount of $350,000, with no right of repayment or interest due, to the extent the Royalty Trust lacks sufficient funds to pay administrative expenses. Pursuant to this provision, HOGA contributed $200,750 on April 4, 2025 and $149,250 on May 16, 2025, together representing the maximum contribution of $350,000 for the payment of trust expenses incurred during the year ended December 31, 2025. On February 1, 2024, FCX contributed the maximum of $350,000 for the payment of trust expenses incurred during the year ended December 31, 2024. In addition to such annual contributions, the Depositor has agreed to lend money, on an unsecured, interest-free basis, to the Royalty Trust to fund the Royalty Trust’s ordinary administrative expenses as set forth in the Royalty Trust Agreement. All funds the Trustee borrows to cover expenses or liabilities, whether from the Depositor or from any other source, must be repaid before the Royalty Trust unitholders will receive any distributions. HOGA loaned the Royalty Trust $216,489 during the year ended December 31, 2025. FCX loaned the Royalty Trust $200,000 during the year ended December 31, 2024. Pursuant to the Assignment, as of December 31, 2024, FCX assigned to HOGA the promissory note relating to the outstanding loan to the Royalty Trust. As of December 31, 2025, the outstanding note payable to HOGA was $416,489. To the extent annual trust expenses exceed $350,000, the Royalty Trust may be required to borrow funds from HOGA in the future.

Previous wording

Each of the Trustee and HOGA depend heavily upon information technology systems and networks in connection with their respective business activities as they relate to the Royalty Trust. Despite any security measures implemented, events such as the loss or theft of back-up tapes or other data storage media could occur, and computer systems could be subject to physical and electronic break-ins, cyber-attacks and similar disruptions from unauthorized tampering, including threats that may come from external factors, such as governments, organized crime, hackers and third parties to whom certain functions are outsourced, or may originate internally from within the respective companies.

Current wording

Each of the Trustee and HOGA depend heavily upon information technology systems and networks in connection with their respective business activities as they relate to the Royalty Trust. Despite any security measures implemented, events such as the loss or theft of back-up tapes or other data storage media could occur, and computer systems could be subject to physical and electronic break-ins, cyber-attacks and similar disruptions from unauthorized tampering, including threats that may come from external factors, such as governments, organized crime, hackers and third parties to whom certain functions are outsourced, or may originate internally from within the respective companies. This risk is exacerbated with the advancement of technologies like artificial intelligence, which malicious third parties are using to create new, sophisticated and more frequent attacks. Furthermore, geopolitical tensions or conflicts, such as the ongoing wars in Ukraine and the Persian Gulf, may further heighten the risk of cybersecurity attacks.