Core Insights - The energy sector is experiencing a trend of oversold stocks, presenting potential buying opportunities for undervalued companies [1][2] Company Summaries - **Chesapeake Energy (CHK)**: Analyst Neal Dingmann maintained a Buy rating but lowered the price target from $112 to $108. The stock fell approximately 4% over the past five days, with a 52-week low of $72.84. The RSI value is 28.39, and shares closed at $77.79, gaining 0.5% on Friday [1][7] - **EQT Corp (EQT)**: The company reported better-than-expected quarterly results and completed the acquisition of Equitrans, positioning itself as a large-scale, vertically integrated natural gas business. The stock fell around 5% over the past five days, with a 52-week low of $32.07. The RSI value is 27.60, and shares closed at $34.31, down 0.2% on Friday [8] - **Indonesia Energy Corp Ltd (INDO)**: The company completed a 3D seismic recording at its Kruh Block. The stock dipped around 23% over the past month, with a 52-week low of $2.03. The RSI value is 23.28, and shares closed at $2.12, gaining 1% on Friday [9] - **BP Prudhoe Bay Royalty Trust (BPT)**: The company announced that unitholders will not receive a dividend for the quarter ended June 30, 2024. The stock lost around 25% over the past five days, with a 52-week low of $1.54. The RSI value is 23.92, and shares closed at $1.63, down 5.2% on Friday [10]

Royalty Payments - BP Prudhoe Bay Royalty Trust did not receive a royalty payment for Q2 2024[12] - Consequently, there will be no quarterly cash distribution to unitholders for the quarter ended June 30, 2024[12]

Financial Performance - The average daily closing WTI price for the quarter ended March 31, 2024, was $77.01, which was below the break-even price, resulting in a negative payment calculation for the quarter[33]. - The average adjusted chargeable costs were $89.61 per barrel, leading to an average per barrel royalty of $(15.28) for the quarter[35]. - The Trust did not receive Royalty Payments for any quarter of 2023 or the first quarter of 2024 due to declining WTI prices and increased costs[60]. - Royalty revenues for Q1 2024 were $0, reflecting a 100% decrease from $6,640 in Q1 2023[97]. - Cash earnings for Q1 2024 were $(271), a decline of 104.3% from $6,363 in Q1 2023[97]. - Cash distributions for Q1 2024 were $0, down 100% from $6,365 in Q1 2023[97]. - The average WTI price for Q4 2023 was $78.47, a decrease of 4.9% compared to $82.53 in Q4 2022[72]. - Adjusted chargeable costs increased by 12.0% to $82.16 in Q4 2023 from $73.36 in Q4 2022[72]. - Average per barrel royalty paid was $(6.44) in Q4 2023, a decrease of $12.69 compared to $6.25 in Q4 2022, primarily due to lower WTI prices and higher chargeable costs[72]. - Average net production decreased by 3.3% to 67.9 mb/d in Q4 2023 from 70.2 mb/d in Q4 2022[72]. Trust Operations - The Trust's cash reserve was increased to $6.0 million in October 2021, fully funded from the Royalty Payment attributable to the third quarter of 2021[40]. - The Trust's cash reserve is currently maintained at approximately $6.0 million, with the potential for adjustments based on future revenue and expenses[66]. - The Trust's Corpus decreased due to expenses being paid from cash reserves instead of from the Per Barrel Royalty[75]. - The Trust will terminate if net revenues from the Royalty Interest are less than $1.0 million per year for two consecutive years, barring force majeure events[60]. - HNS's net production of oil and condensate allocated to the Trust was less than 90,000 barrels per day annually from 2019 through 2023 and is expected to remain below this threshold in future years[43]. - The Trustee has the authority to borrow or establish a cash reserve under limited circumstances as per the Trust Agreement[63]. Market Influences - The Trust's revenues are significantly affected by fluctuations in crude oil prices, which are influenced by global supply and demand dynamics and geopolitical events[42]. - Future net revenue from the Royalty Interest will depend on WTI prices, which are projected to average $84.76 in Q2 2024 and $85.50 in Q3 2024[92]. Compliance and Reporting - No changes in internal control over financial reporting identified during the last fiscal quarter[100]. - The trust does not prepare financial statements in accordance with generally accepted accounting principles[107]. - No legal proceedings reported[101]. - No risk factors disclosed[102]. - No unregistered sales of equity securities or issuer purchases reported[103]. - No additional signatures provided as the registrant is a trust[110]. - The report was signed on behalf of the registrant as required by the Securities Exchange Act of 1934[109]. - The date of the report is May 9, 2024[111]. - No significant financial data or performance metrics disclosed in the provided content[104]. - No new products, technologies, market expansions, or acquisitions mentioned[106].

Royalty Payments - BP Prudhoe Bay Royalty Trust did not receive a royalty payment for Q1 2024[12] - Consequently, there will be no quarterly cash distribution to unitholders for the quarter ended March 31, 2024[12]

Asset Transactions - BP Prudhoe Bay Royalty Trust sold its Alaska assets to Hilcorp Alaska, LLC for a total consideration of $5.6 billion, completed on June 30, 2020[8]. Royalty Interest and Production - The Trust holds a Royalty Interest of 16.4246% on the lesser of the first 90,000 barrels of actual average daily net production or the actual average daily net production from BP Alaska's working interest in the Prudhoe Bay oil field[17]. - Royalty Production is calculated as 16.4246% of the lesser of the first 90,000 barrels of actual average daily net production or the actual average daily net production from the 1989 Working Interests[46]. - The Trust's Royalty Interest is based on HNS's ownership interest in the oil rim participating area of 50.68% as of February 28, 1989[81]. - The Trust's Royalty Interest does not include production from other oil fields within the Prudhoe Bay Unit[78]. - HNS's share of net oil production allocated to the 1989 Working Interests was 65.3 thousand barrels per day in 2023, down from 75.5 thousand barrels per day in 2019, reflecting a decrease of about 13.4%[93]. - The average well production rate declined from 163 barrels per day in 2019 to 147 barrels per day in 2023, representing a decrease of approximately 9.8% over the five-year period[91]. Financial Performance - The Trust's total assets decreased from $6,067,000 in 2022 to $5,302,000 in 2023, a decline of about 12.6%[108]. - The Trust's cash and cash equivalents increased significantly from $132,000 in 2022 to $5,302,000 in 2023[108]. - The Trust's total liabilities rose from $280,000 in 2022 to $338,000 in 2023, an increase of approximately 20.7%[108]. - Royalty revenues for 2023 were $6,640,000, a significant decrease from $82,283,000 in 2022, and down from $9,417,000 in 2021[112]. - Cash earnings for 2023 were $5,600,000, a drastic decline from $80,888,000 in 2022 and $7,811,000 in 2021[115]. - Cash distributions for 2023 totaled $6,365,000, compared to $80,823,000 in 2022 and $2,007,000 in 2021[115]. - Cash distributions per unit for 2023 were $0.2974, significantly lower than $3.7768 in 2022 and $0.0938 in 2021[112]. - The Trust did not receive any net revenues attributable to any quarter in 2023, marking a continuation of revenue challenges[119]. - The Trust's cash reserve is believed to be sufficient to cover fees and expenses for the next 12 months[119]. Costs and Taxes - Chargeable Costs per barrel increased from $23.75 in 2019 to $34.75 in 2023, with a projected increase to $37.50 in 2024[49]. - The Per Barrel Royalty is determined by the WTI Price minus Chargeable Costs and Production Taxes[47]. - Production Taxes for the Trust's Royalty Production are calculated based on the relevant quarter's tax minus allowable monthly stair-step per-barrel tax credits[54]. - HNS's production taxes for Q3 2023 were $2.90 per average barrel royalty[63]. - The average WTI price for Q2 2023 was $73.76, with production taxes at $2.57 per average barrel royalty[63]. - HNS's production taxes for Q1 2023 were $2.67 per average barrel royalty[63]. Trust Operations and Governance - The Trust has no employees; all administrative functions are performed by the Trustee, which incurs liabilities primarily related to administrative expenses[26][27]. - The Trustee is authorized to borrow or sell Trust assets to pay liabilities if cash on hand is insufficient, with no distributions to Unit holders until borrowings are repaid[30]. - The Trust Agreement is irrevocable, and amendments can only be made with the approval of a majority of the outstanding Units, ensuring protection for Unit holders[32]. - The Trust's operations are passive, with no rights to take oil and gas in kind or influence operational decisions regarding HNS's working interest[25]. - Unit holders possess limited voting rights compared to shareholders, with no requirement for annual meetings[41]. - The Trust has no independent directors and is administered by the Trustee under the Trust Agreement[177]. - The Trust has not authorized any units for issuance under equity compensation plans[172]. Financial Reporting and Compliance - The Trust's financial statements are prepared on a modified cash basis, reflecting the most meaningful representation of cash receipts and distributions[121]. - The Trust's financial statements are not prepared in accordance with generally accepted accounting principles in the U.S.[101]. - The Trust maintained effective internal control over financial reporting as of December 31, 2023, according to the independent auditor's opinion[103]. - The Trust's internal control over financial reporting was evaluated as effective as of December 31, 2023[154]. - There were no changes in accountants or disagreements with accountants during the two fiscal years ended December 31, 2023[148]. Future Outlook and Risks - Future Royalty Payments may be affected by projected production declines and changes in oil prices[205]. - The Trust will terminate if net revenues from the Royalty Interest fall below $1,000,000 per year for two consecutive years, unless affected by a "force majeure" event[34]. - Significant geopolitical events, including conflicts and sanctions, may impact crude oil prices and market stability[203]. - The Trust's estimated life and reserve values fluctuate based on WTI price changes and other factors[204]. - The EIA forecasts Brent crude oil prices to average approximately $82 per barrel in 2024[202]. Reserves and Production Estimates - Net proved reserves of oil and condensate attributable to the Trust as of December 31, 2023, were estimated to be 0 million barrels, compared to 8.232 million barrels in 2022[141]. - Proved developed reserves as of December 31, 2022, were 7,862 thousand barrels[145]. - Proved undeveloped reserves as of December 31, 2022, were 370 thousand barrels[145]. - The standardized measure of discounted future net cash flow relating to proved reserves was $56,751,000 as of December 31, 2022[143]. - The Trust's estimated reserve volumes are based on an average WTI price of $78.22 per barrel for the 12-month period prior to December 31, 2023[194]. Trustee Fees and Audit - Trustee's fees for the year ended December 31, 2023, were $213,378, a decrease from $215,538 in 2022[171]. - Total fees paid to KPMG LLP for audit services in 2023 amounted to $196,500, consistent with 2022[178].

In 2023, energy enterprises grappled with a formidable challenge, a stark departure from the robust rally witnessed in the two preceding years. The Energy Select Sector SPDR Fund (NYSEARCA:XLE), a vital benchmark, mirrored the plight of the doomed oil stocks with a 2.33% share price decline in the tumultuous past year. As we look ahead to 2024, projections indicate that crude oil prices will stabilize around the $80 per barrel range. Although the Organization of the Petroleum Exporting Countries and its all ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 or | --- | --- | |----------------------------------------------------------------------------------------------------------------------------------|-------------------- ...

Asset Sales - BP announced the sale of its Alaska assets for a total consideration of $5.6 billion to Hilcorp Alaska, LLC, with the acquisition completed on June 30, 2020[71]. Oil Price Fluctuations - The Trust did not receive Royalty Payments for the first or second quarters of 2023 due to declining WTI prices and increased Average Adjusted Chargeable Costs[74]. - The average WTI Price for the first quarter of 2023 decreased by 19.4% compared to the first quarter of 2022, leading to a 133.1% decrease in the average Per Barrel Royalty[90]. - The average WTI Price for the six-month period in 2023 decreased by 7.3% compared to the same period in 2022, resulting in a $13.17 decrease in the Average Per Barrel Royalty[93]. - The Trust's revenues are significantly affected by fluctuations in oil prices, with the average WTI price forecasted to be approximately $73.32 per barrel in Q3 2023 and $74.97 per barrel in Q4 2023[86]. - Royalty revenues, cash earnings, and cash distributions decreased due to a decline in average WTI Price and an increase in Adjusted Chargeable Costs during the three months ended June 30, 2023[109]. - Average WTI Price for the six months ended March 31, 2023 was $79.38, a decrease of $6.24 or 7.3% compared to $85.62 in the same period in 2022[110]. Production and Revenue Declines - HNS's net production of oil and condensate allocated to the Trust was less than 90,000 barrels per day on an annual basis from 2018 to 2023, with expectations of continued decline[84]. - Production Taxes decreased by 21.9% in the first quarter of 2023 due to the decline in average WTI Price[90]. - The average net production from the 1989 Working Interest declined by 3.0% for the six months ended June 30, 2023, due to the naturally declining production rate from the Prudhoe Bay field[93]. - Average Per Barrel Royalty paid dropped to $3.16, a significant decrease of $13.17 or 80.6% compared to $16.33 in the same period last year[110]. - Average net production decreased to 70.3 mb/d, down by 2.2 mb/d or 3.0% from 72.5 mb/d in the same period in 2022[110]. Financial Control and Performance - The Trust's internal control over financial reporting was evaluated as effective as of June 30, 2023, based on COSO criteria[97]. - The Trust's internal control over financial reporting has not materially changed during the last fiscal quarter[116]. - The Trust will terminate if net revenues from the Royalty Interest are less than $1.0 million per year for two consecutive years, barring force majeure events[74]. - The Trust Corpus decreased at the end of the six months ended June 30, 2023, primarily due to the payment of expenses from cash reserves instead of from the Per Barrel Royalty[112]. - Administrative Expenses increased during the three months ended June 30, 2023, due to timing differences in invoice payments[109]. - There was an increase in interest income, which slightly offset the decrease in Trust Corpus[112]. - The overall financial performance reflects challenges in the market, particularly with fluctuating oil prices and rising operational costs[112]. Cost Adjustments - Adjusted Chargeable Costs increased to $76.89, reflecting a rise of $10.68 or 16.1% from $66.21 in the prior year[110].

In the light of these risks, uncertainties and assumptions, you should not rely unduly on any forward-looking statements. Forward-looking events and outcomes discussed in the 2022 Annual Report and in this report and the Trust's other reports may not occur or may turn out differently. The Trustee undertakes no obligation to update forward-looking statements after the date of this report, except as required by law, and all such forward-looking statements in this report are qualified in their entirety by the ...

PART I [ITEM 1. BUSINESS](index=3&type=section&id=ITEM%201%2E%20BUSINESS) The Trust is a passive grantor trust with a royalty interest in the Prudhoe Bay oil field, where payments depend on WTI prices and declining production, projected to cease after 2024 [The Trust](index=4&type=section&id=THE%20TRUST) The Trust is a passive entity administered by a Trustee, focused on collecting and distributing royalty revenues, with specific termination conditions - The Trust's primary function is to collect income from the Royalty Interest, pay expenses, and distribute the remaining cash to Unitholders[240](index=240&type=chunk) - The Trust will terminate if net revenues from the Royalty Interest are less than **$1,000,000** per year for two successive years, or if holders of at least **60%** of the outstanding Units vote for termination[5](index=5&type=chunk)[245](index=245&type=chunk) - The Trustee has the authority to establish a cash reserve, borrow funds, or sell Trust assets under specific conditions to pay for Trust liabilities, provided it does not adversely affect the Trust's tax status as a 'grantor trust'[293](index=293&type=chunk)[264](index=264&type=chunk) [The Royalty Interest](index=8&type=section&id=THE%20ROYALTY%20INTEREST) The Royalty Interest provides a royalty on Prudhoe Bay production, calculated daily as WTI price minus inflation-adjusted Chargeable Costs and Production Taxes - The daily "Per Barrel Royalty" is calculated as the WTI Price for that day minus the sum of inflation-adjusted Chargeable Costs and Production Taxes[273](index=273&type=chunk) Chargeable Costs Schedule | Year | Chargeable Costs (per barrel) | | :--- | :--- | | 2020 | $26.50 | | 2021 | $29.25 | | 2022 | $32.00 | | 2023 | $34.75 | Per Barrel Royalty Calculation Example (Q3 2022) | Metric | Value ($) | | :--- | :--- | | Average WTI Price | $91.87 | | Adjusted Chargeable Costs | $72.98 | | Production Taxes | $3.30 | | **Average Per Barrel Royalty** | **$15.59** | [The Prudhoe Bay Unit and Field](index=13&type=section&id=THE%20PRUDHOE%20BAY%20UNIT%20AND%20FIELD) The Prudhoe Bay field, operated by HNS, is declining, with Trust's proved reserves at 8.232 million barrels, and royalty payments projected to cease after 2024 - The Prudhoe Bay field has been in production since 1977, with production declining in recent years. The average well production rate has decreased from **166 barrels per day** in 2018 to **157** in 2022[12](index=12&type=chunk)[325](index=325&type=chunk) Net Production Allocated to 1989 Working Interests (thousand barrels per day) | Calendar Year | Oil | Condensate | | :--- | :--- | :--- | | 2018 | 77.3 | 0.0 | | 2019 | 75.5 | 0.0 | | 2020 | 74.0 | 0.0 | | 2021 | 70.6 | 0.0 | | 2022 | 69.5 | 0.0 | - Based on the 2022 average WTI price of **$93.67/barrel**, HNS estimates that royalty payments to the Trust will cease after **2024**. Consequently, no proved reserves are attributed to the Trust beyond that date[57](index=57&type=chunk)[11](index=11&type=chunk)[201](index=201&type=chunk) [Certain Tax Considerations](index=18&type=section&id=CERTAIN%20TAX%20CONSIDERATIONS) The Trust is a grantor trust, not directly taxable, with unitholders reporting income and deductions, and foreign unitholders subject to a 30% withholding tax - The Trust is a grantor trust, not a taxable entity. Unitholders must report their share of Trust income and deductions on their own tax returns[211](index=211&type=chunk) - Foreign unitholders are typically subject to a **30%** withholding tax on gross income from the Royalty Interest, though a lower treaty rate may apply[184](index=184&type=chunk) - The Trustee considers the Trust a widely held fixed investment trust (WHFIT) for U.S. Federal income tax purposes and provides tax information accordingly[148](index=148&type=chunk) [ITEM 1A. RISK FACTORS](index=22&type=section&id=ITEM%201A%2E%20RISK%20FACTORS) The Trust faces significant risks from WTI price volatility, declining production, operational disruptions, rising inflation, and potential termination due to low net revenues [Risks Related To Royalty Payments](index=22&type=section&id=Risks%20Related%20To%20Royalty%20Payments) Royalty payments are uncertain due to WTI prices and rising costs, with past cessations and a **$6.0 million** cash reserve maintained by the Trustee to cover expenses - The Trust did not receive any royalty payments for the four quarters of **2020** and the first quarter of **2021** due to low WTI prices, and payments may cease again in the future[218](index=218&type=chunk) - The Trust will terminate if net revenues are less than **$1,000,000** for two consecutive years. This condition was met for **2020**, making termination a possibility[61](index=61&type=chunk)[220](index=220&type=chunk) - The Trustee intends to maintain a cash reserve of at least **$6,000,000** to pay for administrative and termination expenses, which may reduce or eliminate distributions to unitholders even if royalty payments are received[59](index=59&type=chunk)[219](index=219&type=chunk) [Risks Related to WTI Price](index=24&type=section&id=Risks%20Related%20To%20WTI%20Price) WTI crude oil prices are highly volatile due to global factors, directly impacting Trust revenues and reserve estimates, while inflation further reduces royalty payments - Crude oil prices are subject to wide swings due to factors like economic activity, geopolitical events (e.g., Russia's war with Ukraine), OPEC+ decisions, and the strength of the U.S. dollar[9](index=9&type=chunk)[361](index=361&type=chunk) - High inflation, as measured by the Consumer Price Index, increases the Cost Adjustment Factor, which in turn reduces the Per Barrel Royalty and negatively affects distributions[380](index=380&type=chunk) - Government policies aimed at reducing greenhouse gas emissions and promoting green energy could decrease demand for oil, negatively affecting the WTI price and Trust revenues[384](index=384&type=chunk) [Risks Related to Oil Production](index=25&type=section&id=Risks%20Related%20To%20Oil%20Production) Prudhoe Bay production is declining, HNS has no obligation to maintain it, and the Trans-Alaska Pipeline System (TAPS) faces risks that could halt all production - Production from the Prudhoe Bay field is declining and is expected to continue to do so. Average net production allocated to the Trust has been below **90,000 barrels per day** since **2018**[12](index=12&type=chunk)[385](index=385&type=chunk) - HNS has no obligation to continue production from the 1989 Working Interests and may interrupt or discontinue it at any time, which would halt royalty payments to the Trust[14](index=14&type=chunk)[366](index=366&type=chunk) - All oil from the Prudhoe Bay Unit is transported via the Trans-Alaska Pipeline System (TAPS), which is susceptible to damage from natural causes, accidents, or issues related to declining oil flow, potentially interrupting production[17](index=17&type=chunk) [Risks Related to the Units](index=29&type=section&id=Risks%20Related%20To%20the%20Units) Unitholders have limited rights, unit market price is volatile, and financial statements are prepared on a modified cash basis, not U.S. GAAP - Trust unitholders have limited voting rights and no requirement for annual meetings or re-election of the Trustee[23](index=23&type=chunk) - The Trust's financial statements are prepared on a modified cash basis, which is not U.S. GAAP. This basis differs in how revenues and expenses are recognized[24](index=24&type=chunk)[373](index=373&type=chunk) - Potential conflicts of interest exist between HNS and the Trust, as HNS's actual profitability may differ from the contractually defined Per Barrel Royalty it pays to the Trust[373](index=373&type=chunk)[396](index=396&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=30&type=section&id=ITEM%201B%2E%20UNRESOLVED%20STAFF%20COMMENTS) The Trust has no unresolved written comments from the Securities and Exchange Commission staff regarding its reports - The Trust has no unresolved written comments from the SEC staff[25](index=25&type=chunk) [ITEM 2. PROPERTIES](index=30&type=section&id=ITEM%202%2E%20PROPERTIES) The Trust's properties are detailed in Item 1, with no other properties held - The Trust's properties are detailed in Item 1. No other properties are held[374](index=374&type=chunk)[398](index=398&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=30&type=section&id=ITEM%203%2E%20LEGAL%20PROCEEDINGS) No legal proceedings are reported for the period - Not applicable[26](index=26&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURE](index=30&type=section&id=ITEM%204%2E%20MINE%20SAFETY%20DISCLOSURE) This item is not applicable to the Trust - Not applicable[375](index=375&type=chunk) PART II [ITEM 5. MARKET FOR REGISTRANT'S UNITS, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF UNITS](index=31&type=section&id=ITEM%205%2E%20MARKET%20FOR%20REGISTRANT%27S%20UNITS%2C%20RELATED%20UNITHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20UNITS) The Trust's Units are traded on the NYSE (BPT), with **21.4 million** units outstanding, and distributions depend on WTI prices and production - The Trust's units are listed on the New York Stock Exchange under the symbol BPT[376](index=376&type=chunk) - As of March 13, 2023, there were **21,400,000** Units outstanding with **200** holders of record[28](index=28&type=chunk) [ITEM 7. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=31&type=section&id=ITEM%207%2E%20TRUSTEE%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) The Trust's financial condition is driven by WTI-sensitive royalty revenues, which surged in 2022, with a **$6.0 million** cash reserve maintained and payments projected to cease after 2024 [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) The Trust's liquidity relies solely on royalty revenues, with a **$6.0 million** cash reserve established in 2021 to cover expenses and termination costs - The Trust's only source of liquidity is revenue from the Royalty Interest. The Trustee has the power to borrow or establish a cash reserve under limited circumstances[29](index=29&type=chunk) - In October 2021, the Trustee increased the cash reserve to **$6.0 million**, funded from royalty payments, to cover administrative and future termination expenses[31](index=31&type=chunk)[59](index=59&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Royalty revenues surged to **$82.3 million** in 2022 due to higher WTI prices, leading to **$80.9 million** cash earnings and **$3.7768** per unit distributions Financial Performance Comparison: 2022 vs 2021 (in thousands) | Metric | Year Ended 12/31/2022 | Year Ended 12/31/2021 | Change (%) | | :--- | :--- | :--- | :--- | | Royalty revenues | $82,283 | $9,417 | 773.8% | | Cash earnings | $80,888 | $7,811 | 935.6% | | Cash distributions | $80,823 | $2,007 | 3927.1% | | Administrative expenses | $1,464 | $1,605 | (8.8)% | Key Operational Drivers: 2022 vs 2021 (12 Months Ended 9/30) | Metric | 12 Months Ended 9/30/2022 | 12 Months Ended 9/30/2021 | Change (%) | | :--- | :--- | :--- | :--- | | Average WTI Price | $92.97 | $59.28 | 56.8% | | Adjusted Chargeable Costs | $69.36 | $58.64 | 18.3% | | Average Production Taxes | $4.17 | $2.04 | 104.4% | | Average net royalty production (mb/d) | 69.83 | 71.48 | (2.3)% | Financial Performance Comparison: 2021 vs 2020 (in thousands) | Metric | Year Ended 12/31/2021 | Year Ended 12/31/2020 | Change (%) | | :--- | :--- | :--- | :--- | | Royalty revenues | $9,417 | $9,269 | 1.6% | | Cash earnings | $7,811 | $8,126 | (3.9)% | | Cash distributions | $2,007 | $9,079 | (77.9)% | | Administrative expenses | $1,605 | $1,692 | (5.1)% | [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=36&type=section&id=ITEM%207A%2E%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The Trust's primary market risk is crude oil price volatility, with no material interest rate, foreign currency, or derivative risks - The Trust's main market risk is the volatility of crude oil prices. It is not subject to material interest rate risk, foreign currency risk, or risks from derivative instruments[415](index=415&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=37&type=section&id=ITEM%208%2E%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents KPMG's auditor report and the Trust's financial statements (modified cash basis, not U.S. GAAP) for 2020-2022, with notes detailing accounting and reserves [Report of Independent Registered Public Accounting Firm](index=38&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) KPMG LLP issued unqualified opinions on the Trust's financial statements (modified cash basis) and internal controls for 2022, identifying no critical audit matters - KPMG LLP provided an unqualified opinion on the financial statements, which are prepared on a modified cash basis of accounting[72](index=72&type=chunk)[418](index=418&type=chunk) - KPMG LLP issued an unqualified opinion on the effectiveness of the Trust's internal control over financial reporting as of December 31, 2022[75](index=75&type=chunk)[105](index=105&type=chunk) - The auditor determined that there were no critical audit matters arising from the audit[74](index=74&type=chunk) [Financial Statements](index=40&type=section&id=Financial%20Statements) The Trust's financial statements show significant growth in 2022, with Trust Corpus at **$5.787 million**, cash earnings of **$80.888 million**, and distributions of **$3.7768** per unit Statement of Assets, Liabilities and Trust Corpus (in thousands) | | December 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $132 | $6,002 | | Security held to maturity | $5,935 | — | | **Total Assets** | **$6,067** | **$6,002** | | **Liabilities and Trust Corpus** | | | | Accrued expenses | $280 | $364 | | Trust Corpus | $5,787 | $5,638 | | **Total Liabilities and Trust Corpus** | **$6,067** | **$6,002** | Statements of Cash Earnings and Distributions (in thousands, except per unit data) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Royalty revenues | $82,283 | $9,417 | $9,269 | | Cash earnings | $80,888 | $7,811 | $8,126 | | Cash distributions | $80,823 | $2,007 | $9,079 | | **Cash distributions per unit** | **$3.7768** | **$0.0938** | **$0.4242** | Statements of Changes in Trust Corpus (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Trust corpus at beginning of year | $5,638 | $59 | $898 | | Cash earnings | 80,888 | 7,811 | 8,126 | | Cash distributions | (80,823) | (2,007) | (9,079) | | **Trust corpus at end of year** | **$5,787** | **$5,638** | **$59** | [Notes to Financial Statements](index=43&type=section&id=Notes%20to%20Financial%20Statements) Notes confirm modified cash basis accounting, detail the **$6.0 million** cash reserve, and report **8.232 million barrels** of proved reserves with **$56.751 million** discounted future net cash flow for 2022 - The financial statements are prepared on a modified cash basis, where revenues are recorded when received and expenses are recorded on an accrual basis. This is considered most meaningful as distributions are based on net cash receipts[92](index=92&type=chunk)[122](index=122&type=chunk) - Due to a cash shortfall in **2020**, the Trust received a **$537,835** indemnity payment from HNS. Subsequently, in **2021**, the Trustee increased the cash reserve to approximately **$6,000,000** to cover future expenses[90](index=90&type=chunk) Proved Reserves and Discounted Future Net Cash Flows | As of Year-End | Net Proved Reserves (million barrels) | Standardized Measure of Discounted Future Net Cash Flows (in thousands) | | :--- | :--- | :--- | | 2022 | 8.232 | $56,751 | | 2021 | 0 | $0 | | 2020 | 0 | $0 | [ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE](index=52&type=section&id=ITEM%209%2E%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The Trust reports no changes in or disagreements with its accountants regarding accounting or financial disclosures for the past two fiscal years - There have been no changes in or disagreements with accountants during the last two fiscal years[160](index=160&type=chunk) [ITEM 9A. CONTROLS AND PROCEDURES](index=52&type=section&id=ITEM%209A%2E%20CONTROLS%20AND%20PROCEDURES) The Trustee concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes in the fourth quarter - The Trustee's officers concluded that the Trust's disclosure controls and procedures were effective as of December 31, 2022[137](index=137&type=chunk) - Based on the COSO criteria, the Trustee concluded that the Trust's internal control over financial reporting was effective as of December 31, 2022[140](index=140&type=chunk) - No changes in the Trust's internal control over financial reporting occurred during the fourth quarter that materially affected, or are reasonably likely to materially affect, these controls[141](index=141&type=chunk) [ITEM 9B. OTHER INFORMATION](index=53&type=section&id=ITEM%209B%2E%20OTHER%20INFORMATION) This item is not applicable - Not applicable[142](index=142&type=chunk) PART III [ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE](index=54&type=section&id=ITEM%2010%2E%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) The Trust has no directors or executive officers, being administered by the Trustee under the Trust Agreement, and lacks a formal code of ethics or audit committee - The Trust has no directors or executive officers; it is administered by the Trustee[168](index=168&type=chunk) - There is no audit committee or similar body responsible for reviewing the Trust's financial statements[354](index=354&type=chunk) [ITEM 11. EXECUTIVE COMPENSATION](index=54&type=section&id=ITEM%2011%2E%20EXECUTIVE%20COMPENSATION) The Trust pays no executive compensation, as it has no directors or officers; the Trustee receives a contractually defined administrative fee and expense reimbursements - The Trust has no directors, officers, or employees and therefore pays no executive compensation[1](index=1&type=chunk) Trustee's Fees Received | Year ended December 31, | Trustee's Fees ($) | | :--- | :--- | | 2020 | $213,378 | | 2021 | $229,149 | | 2022 | $215,538 | [ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS](index=55&type=section&id=ITEM%2012%2E%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20UNITHOLDER%20MATTERS) As of March 15, 2023, no beneficial owners held over **5%** of Trust Units, and neither the Trustee nor related parties own any Units, with no equity compensation plans - As of March 15, 2023, there were no known beneficial owners of more than **5%** of the Units[193](index=193&type=chunk) - Neither the Trustee, co-trustee, HNS, Hilcorp, Standard Oil, nor BP owns any Units[147](index=147&type=chunk) - No Units are authorized for issuance under any equity compensation plan[172](index=172&type=chunk) [ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE](index=55&type=section&id=ITEM%2013%2E%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) No material related party transactions occurred since 2022, except for Trustee fees and reimbursements, and the Trust has no independent directors - No material related party transactions have occurred since the start of **2022**, except for the contractually defined payments to the Trustee[175](index=175&type=chunk) - The Trust has no independent directors[334](index=334&type=chunk) [ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES](index=55&type=section&id=ITEM%2014%2E%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) This section details fees paid to KPMG LLP for 2021-2022 services, noting the Trust lacks an audit committee for pre-approval Accountant Fees (KPMG LLP) | Service | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Audit | $196,500 | $174,000 | | Audit related | $24,500 | $22,000 | | Tax | $221,000 | $272,000 | | **Total** | **$442,000** | **$468,000** | - The Trust does not have an audit committee or an audit committee pre-approval policy for accountant fees[196](index=196&type=chunk) PART IV [ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES](index=56&type=section&id=ITEM%2015%2E%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists filed documents, including financial statements and exhibits like the Trust Agreement and Miller and Lents report, with schedules omitted as not applicable - The report includes the Trust's financial statements and lists key legal documents like the Trust Agreement and Overriding Royalty Conveyance as exhibits[177](index=177&type=chunk)[197](index=197&type=chunk) - The report of Miller and Lents, Ltd., an independent oil and gas consulting firm, dated February 24, 2023, is filed as Exhibit 99[55](index=55&type=chunk)[178](index=178&type=chunk) [ITEM 16. FORM 10-K SUMMARY](index=57&type=section&id=ITEM%2016%2E%20FORM%2010-K%20SUMMARY) No summary is provided under this item - None[379](index=379&type=chunk)