Cross Timbers Royalty Trust(CRT) - 2019 Q2 - Quarterly Report

Glossary of Terms - The report provides definitions for key industry and financial terms, noting the Trust's entitlement to 90% of net proceeds from royalty interests and 75% from working interests[7] PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited condensed financial statements for the quarter ended June 30, 2019, prepared on a modified cash basis, present the Trust's financial position and performance, reviewed by independent auditors Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP reviewed the interim financial statements for June 30, 2019, finding no material modifications needed and reaffirming their prior unqualified opinion - The independent auditors, PricewaterhouseCoopers LLP, conducted a review and found no material modifications that should be made to the interim financial statements[11] - The financial statements are prepared on a modified cash basis, which is a comprehensive basis of accounting other than U.S. GAAP[14] Condensed Statements of Assets, Liabilities and Trust Corpus As of June 30, 2019, the Trust's total assets decreased to $9.87 million from $10.13 million, primarily due to amortization of net profits interests, while maintaining a $1 million expense reserve Condensed Statement of Assets, Liabilities and Trust Corpus (in USD) | | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | ASSETS | | | | Cash and short-term investments | $1,537,868 | $1,600,694 | | Net profits interests in oil and gas properties—net | $8,324,828 | $8,526,512 | | Total Assets | $9,865,206 | $10,129,530 | | LIABILITIES AND TRUST CORPUS | | | | Distribution payable to unitholders | $540,378 | $603,018 | | Expense reserve | $1,000,000 | $1,000,000 | | Trust corpus | $8,324,828 | $8,526,512 | | Total Liabilities and Trust Corpus | $9,865,206 | $10,129,530 | Condensed Statements of Distributable Income Distributable income significantly decreased to $1.72 million for Q2 2019 and $2.80 million for the six months ended June 30, primarily due to lower net profits income Condensed Statement of Distributable Income (Unaudited, in USD) | | Three Months Ended June 30 | Six Months Ended June 30 | | :--- | :--- | :--- | | | 2019 | 2018 | 2019 | 2018 | | Net profits income | $1,857,396 | $2,333,173 | $3,193,281 | $4,610,672 | | Total income | $1,864,253 | $2,337,888 | $3,206,909 | $4,618,847 | | Administration expense | $144,365 | $168,660 | $403,937 | $419,339 | | Distributable income | $1,719,888 | $2,169,228 | $2,802,972 | $4,199,508 | | Distributable income per unit | $0.286648 | $0.361538 | $0.467162 | $0.699918 | Condensed Statements of Changes in Trust Corpus The Trust Corpus decreased from $8.53 million to $8.32 million as of June 30, 2019, primarily due to $201,684 in amortization of net profits interests Condensed Statement of Changes in Trust Corpus (Unaudited, in USD) | | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Trust corpus, beginning of period | $8,437,697 | $8,526,512 | | Amortization of net profits interests | ($112,869) | ($201,684) | | Distributable income | $1,719,888 | $2,802,972 | | Distributions declared | ($1,719,888) | ($2,802,972) | | Trust corpus, end of period | $8,324,828 | $8,324,828 | Notes to Condensed Financial Statements The notes detail the Trust's modified cash basis accounting, tax status, and significant contingencies, including a challenged $40,000 lawsuit allocation and $2.0 million in cumulative excess costs - The Trust's financial statements are prepared on a modified cash basis, recognizing revenues when received and expenses when paid, which is a comprehensive basis of accounting other than U.S. GAAP[22][23] - The Trust is a grantor trust for federal income tax purposes and is not subject to tax at the trust level; unitholders are taxed directly on their share of the Trust's income[28] - A potential contingency exists where XTO Energy may allocate approximately $40,000 in costs to the Trust from the Chieftain lawsuit settlement, which the Trustee is challenging this allocation and has deferred accounting entries pending an arbitration award[36][37] Excess Costs to be Recovered as of June 30, 2019 (Underlying Properties) | Conveyance | Cumulative Excess Costs | Accrued Interest | Total to be Recovered | | :--- | :--- | :--- | :--- | | TX WI | $1,720,153 | $288,533 | $2,008,686 | | OK WI | $0 | $0 | $0 | | Total | $1,720,153 | $288,533 | $2,008,686 | Trustee's Discussion and Analysis This section analyzes the Trust's financial performance for Q2 and the first six months of 2019, detailing a significant decrease in distributable income due to lower net profits income, reduced prices, and higher expenses Distributable Income Analysis Distributable income for Q2 2019 decreased to $1.72 million ($0.286648 per unit) and for the six months to $2.80 million, primarily due to a 20% to 31% decline in net profits income Distributable Income Comparison (in USD) | Period | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Q2 Ended June 30 | $1,719,888 | $2,169,228 | (20.7%) | | Six Months Ended June 30 | $2,802,972 | $4,199,508 | (33.3%) | Distributions per Unit (Q2 2019) | Record Date | Payment Date | Distribution per Unit | | :--- | :--- | :--- | | April 30, 2019 | May 14, 2019 | $0.114560 | | May 31, 2019 | June 14, 2019 | $0.082025 | | June 28, 2019 | July 15, 2019 | $0.090063 | | Total | | $0.286648 | Net Profits Income Analysis Net profits income decreased 20% for Q2 2019 and 31% for the six-month period, driven by lower oil sales volumes, reduced oil prices, and a 59% increase in production expense, with an estimated 6% to 8% annual natural production decline Net Profits Income Calculation Summary (Three Months Ended June 30) | | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $4,308,590 | $4,764,754 | (10%) | | Total Costs | $2,222,899 | $2,088,188 | 6% | | Net Proceeds | $2,085,691 | $2,676,566 | (22%) | | Net Profits Income | $1,857,396 | $2,333,173 | (20%) | - Q2 2019 vs Q2 2018 Variances: - Oil sales volumes (underlying properties) decreased 15% due to timing of cash receipts and natural decline - Gas sales volumes (underlying properties) increased 18% due to timing of cash receipts - Average oil price decreased 8% to $54.11 per Bbl - Production expense increased 59% due to timing of charges and reclassification of well work activity[57][58][60] - The estimated rate of natural production decline on the underlying oil and gas properties is approximately 6% to 8% a year[59] Contingencies and Forward-Looking Statements The report refers to Note 3 for contingencies, including the Chieftain lawsuit, and provides a standard safe harbor statement regarding forward-looking information subject to risks and uncertainties - For information on contingencies, see Note 3 to Condensed Financial Statements[66] - The report contains forward-looking statements concerning future plans, production, costs, and market conditions, which are subject to risks and uncertainties; the Trustee assumes no duty to update these statements[67] Quantitative and Qualitative Disclosures about Market Risk This section is not applicable as the Trust qualifies as a smaller reporting company, exempting it from market risk disclosures - Disclosure about market risk is not required as the Trust qualifies as a smaller reporting company[68] Controls and Procedures The Trustee concluded that the Trust's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation, the Trustee concluded that the Trust's disclosure controls and procedures are effective for timely recording, processing, and reporting of required information[69] - No changes in the Trust's internal control over financial reporting occurred during the period that materially affected, or are reasonably likely to materially affect, these controls[69] PART II. OTHER INFORMATION Risk Factors No material changes have occurred in the risk factors previously disclosed in the Trust's Annual Report on Form 10-K for the year ended December 31, 2018 - There have been no material changes in the risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[70] Exhibits This section lists the exhibits filed with the report, including the Rule 13a-14(a)/15d-14(a) and Section 1350 Certifications - The exhibits filed with this report include: - (31) Rule 13a-14(a)/15d-14(a) Certification - (32) Section 1350 Certification[72] Signatures - The report was duly signed on August 7, 2019, on behalf of the Registrant by Simmons Bank, the Trustee, and by Exxon Mobil Corporation[74]