Royalty Income and Financial Performance - The Trust currently owns an overriding royalty interest equal to 11.44% of 90% of the Net Proceeds from specified oil and gas properties[16]. - The Trust is entitled to receive 11.44% of 90% of the Net Proceeds each month, following a significant reduction of approximately 88.56% in size due to the 1985 Assignment[16]. - The Monthly Distribution Amount is determined by the cash received from the Royalty during the month, minus obligations paid, with distributions made in January, April, July, and October[30]. - As of December 31, 2024, there were 0ofunreimbursedexpenses,indicatingeffectivecostmanagement[31].−TheTrustwillterminateifRoyaltyincomefallsbelow250,000 per year for two consecutive years or if unitholders vote for termination[23]. - The Trust has no sources of liquidity other than revenues from the Royalty and interest on cash reserves held[23]. - The Trust's units are transferable, with a total of 1,863,590 units outstanding as of March 28, 2025[29]. - The Trust's Royalty income is classified as portfolio income and cannot be offset by passive losses[39]. - Distributions from the Trust are subject to backup withholding at a current rate of 24% unless proper taxpayer identification is provided[41]. - Non-U.S. unitholders are generally subject to a 30% tax on gross income from royalties, which may be reduced by applicable treaties[45]. - Royalty income for the year ended December 31, 2024, was 649,164,asignificantdecreasefrom3,279,909 in 2023, primarily due to lower pricing for natural gas and liquids and decreased net production volumes[198]. - Distributable income for 2024 was 462,956,comparedto2,856,814 in 2023, reflecting a decrease in overall income available for distribution[198]. - The Trust's total gross proceeds for 2024 were 1,885,373,comparedto4,996,266 in 2023, showing a decrease of approximately 62%[198]. - The Trust's distributions to unitholders are influenced by the sale prices received from the marketing of production[187]. Reserves and Production - As of December 31, 2024, the Trust's total proved reserves include 9 thousand barrels of oil and condensate, 337 thousand barrels of natural gas liquids, and 4,536 million cubic feet of gas[60]. - The estimated future royalty income attributable to the Trust is 20,071thousand,withastandardizedmeasureoffuturenetroyaltyincomediscountedat108,907 thousand[62]. - The Hugoton Royalty Properties consist of 104,437 net producing acres, while the San Juan Basin Royalty Properties encompass 31,328 net producing acres[52][54]. - The Trust's net reserves are calculated based on net revenues from Working Interest Owners, with natural gas prices averaging 2.137perMcfforSanJuanBasin−NewMexicoRoyaltyPropertiesin2024[64].−TotalnetproductionvolumesfortheyearendedDecember31,2024,included195,665Mcfofnaturalgasand12,145BblsofoilfromHugotonRoyaltyProperties[71].−ThequantitiesofreservesattributabletotheRoyaltyPropertiesdecreasedin2024andmaycontinuetodecreaseduetolowcommoditypricesandhighoperatingcosts[121].−ActualproductionvolumesattributabletotheRoyaltypaidforHugotonRoyaltyPropertieswere298,972Mcfofnaturalgasand23,697Bblsofoilin2024,comparedto313,407Mcfand23,450Bblsin2023[210].PricingandMarketConditions−Averagesalespricefornaturalgasdecreasedfrom3.90 per Mcf in 2023 to 3.02perMcfin2024,reflectingasignificantpricedrop[71].−TheaverageHenryHubNaturalGasSpotPricesdecreasedfrom2.53 per MMBtu in 2023 to 2.19perMMBtuin2024,indicatingadownwardtrendinmarketprices[75].−TheTrust′sincomeisheavilyinfluencedbynaturalgaspricing,whichhasamoresignificantimpactthanoilandcondensateprices[70].−Theaveragesalespricefornaturalgasliquidsin2024was3.02, down from 3.90in2023,indicatingadeclineinmarketpricing[198].−HenryHubNaturalGasSpotPricesincreasedfrom2.58 per MMBtu on December 29, 2023, to 3.40perMMBtuonDecember31,2024[206].−TheWestTexasIntermediatespotpriceofcrudeoilincreasedfrom71.65 per barrel on December 29, 2023, to 71.72perbarrelonDecember31,2024[206].OperatingandAdministrativeCosts−TheWorkingInterestOwnersarerequiredtoreimbursetheTrustfor59.34793,838 at December 31, 2024, up from 260,731atDecember31,2023[114].−Generalandadministrativeexpensesroseto196,399 in 2024 from 186,843in2023,reflectingincreasedoperationalcosts[200].−Theaverageproductioncostsfornaturalgasin2024were2.64 per Mcf, compared to $2.14 per Mcf in 2023, indicating an increase in production costs[198]. Regulatory and Environmental Factors - The Trust's operations are subject to numerous federal, state, and local environmental regulations, which can impose liability for cleanup costs[90]. - The federal Clean Water Act imposes strict controls on the discharge of pollutants, impacting operational protocols[99]. - Hydraulic fracturing operations are regulated at the state and local level, with potential legislative changes that could affect production[100]. - The Environmental Protection Agency plans to introduce proposed rules targeting per- and polyfluoroalkyl substances (PFAS), which may affect operations[97]. - Environmental regulations are becoming more stringent, potentially increasing compliance costs and adversely affecting Trust distributions[144]. - Climate change legislation could impose additional costs on the Working Interest Owners, impacting their operations and Trust distributions[147]. Risks and Uncertainties - The Trust's financial condition could be adversely affected by declines in commodity prices, particularly natural gas and crude oil[105]. - Cyber-attacks and IT system failures pose significant risks to the operations of the Working Interest Owners, potentially affecting Trust distributions[136]. - Terrorism and geopolitical instability could adversely impact Trust distributions and the market price of Trust units[135]. - The volatility of energy prices reduces the predictability of future cash distributions to unitholders[108]. - The Trustee relies on reserve estimates prepared by Miller and Lents, which may be inaccurate and affect future revenue estimates[122]. - The Trust has no control over the operations of the Royalty Properties, which are managed by independent Working Interest Owners[126]. - Cybersecurity risks could lead to increased costs and operational disruptions, affecting the Trust's financial performance[139]. Governance and Unitholder Rights - The Trust is classified as a grantor trust, incurring no federal income tax liability, with unitholders taxed on their pro rata share of income[35]. - The Trust unitholders have limited voting rights compared to stockholders of public corporations, which may affect governance[152]. - The Trust relies on Working Interest Owners for all operating and financial information regarding the Royalty Properties[186].
