San Juan Basin Royalty Trust(SJT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The financial statements are prepared on a modified cash basis, not in accordance with U.S. GAAP, presenting condensed statements of assets, liabilities, trust corpus, and distributable income for the three and six months ended June 30, 2023, and 2022 Condensed Statements of Assets, Liabilities and Trust Corpus | | June 30, 2023 (Unaudited) | December 31, 2022 (Audited) | | :--- | :--- | :--- | | ASSETS | | | | Cash and short-term investments | $1,791,747 | $5,488,194 | | Net overriding royalty interest | $2,812,651 | $2,968,707 | | Total Assets | $4,604,398 | $8,456,901 | | LIABILITIES AND TRUST CORPUS | | | | Distribution payable to Unit Holders | $791,747 | $4,488,194 | | Cash reserves | $1,000,000 | $1,000,000 | | Trust corpus | $2,812,651 | $2,968,707 | | Total Liabilities and Trust Corpus | $4,604,398 | $8,456,901 | Condensed Statements of Distributable Income (Unaudited) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2023 | 2022 | 2023 | 2022 | | Royalty income | $8,519,333 | $13,722,931 | $44,936,036 | $28,613,422 | | Interest income | $62,365 | $1,829 | $99,301 | $2,036 | | Total income | $8,581,698 | $13,724,760 | $45,035,337 | $28,615,458 | | General and administrative expenses | ($494,195) | ($381,718) | ($976,558) | ($903,189) | | Distributable income | $8,087,503 | $13,343,042 | $44,058,779 | $27,712,269 | | Distributable income per Unit | $0.173518 | $0.286277 | $0.945289 | $0.594571 | - The Trust's financial statements are prepared on a modified cash basis, differing from U.S. GAAP, by recording revenues when received, expenses when paid, and amortization directly to the Trust corpus[15] - Hilcorp's transition to a new accounting system may lead to future revisions for 2017-2020 production volumes, with the Trustee and third-party auditors conducting an ongoing comprehensive audit of all payments, costs, and adjustments[28] - Subsequent to quarter end, on July 21, 2023, the Trust announced a cash distribution of $475,477.18, or $0.010201 per Unit, paid on August 14, 2023[30] Item 2. Trustee's Discussion and Analysis of Financial Condition and Results of Operations The Trust's income is primarily derived from a 75% net overriding royalty interest in San Juan Basin properties operated by Hilcorp, with Q2 2023 distributable income decreasing year-over-year due to lower natural gas prices and production volumes, while the six-month period saw an increase due to strong Q1 gas prices Results of Operations Royalty income for Q2 2023 decreased to $8.5 million from $13.7 million in Q2 2022 due to lower natural gas production and prices, while for the first six months of 2023, it rose to $44.9 million from $28.6 million due to higher average gas prices Royalty Income Calculation (Three and Six Months Ended June 30) | | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Gross proceeds | $21,320,395 | $28,479,389 | $83,572,633 | $59,670,919 | | Production Costs | $9,961,285 | $10,182,147 | $23,657,918 | $21,519,689 | | Net profits | $11,359,110 | $18,297,242 | $59,914,715 | $38,151,230 | | Royalty Income (75%) | $8,519,333 | $13,722,931 | $44,936,036 | $28,613,423 | - Q2 2023 Royalty Income decreased year-over-year due to lower production and natural gas prices, while H1 2023 Royalty Income increased due to higher natural gas prices in Q1 2023[52] Key Operating Metrics (YoY Comparison) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Avg. Gas Price (per Mcf) | $3.69 | $4.54 | $7.19 | $4.67 | | Gas Production (Mcf) | 5,613,332 | 6,073,883 | 11,476,831 | 12,304,960 | - Distributable income decreased to $8.1 million ($0.173518/Unit) in Q2 2023 from $13.3 million ($0.286277/Unit) in Q2 2022, but increased to $44.1 million ($0.945289/Unit) for the six-month period from $27.7 million ($0.594571/Unit)[60] Liquidity and Capital Resources The Trust's main source of liquidity is Royalty Income from Hilcorp, used for expenses and distributions, with a stable $1.0 million cash reserve maintained for liabilities and contingencies - The Trust's principal source of liquidity is Royalty Income, used to fund expenses and distributions, with the Trust not liable for Production Costs[64] - As of June 30, 2023, cash reserves remained stable at $1.0 million, with no anticipated changes by the Trustee in 2023[63] - Hilcorp has estimated $4.4 million in 2023 capital expenditures for Subject Interests, allocated to well recompletions, workovers, and facilities projects[42][55] Natural Gas and Oil Production Production from Subject Interests decreased for both the three and six-month periods ending June 30, 2023, compared to 2022, influenced by changes in demand, market conditions, and capital spending Production and Average Prices for the Three Months Ended June 30, | | 2023 | 2022 | | :--- | :--- | :--- | | Natural Gas | | | | Subject Interests Production (Mcf) | 5,613,332 | 6,073,883 | | Average Price (per Mcf) | $3.69 | $4.54 | | Oil and Condensate | | | | Subject Interests Production (Bbls) | 9,105 | 8,250 | | Average Price (per Bbl) | $66.09 | $92.63 | Production and Average Prices for the Six Months Ended June 30, | | 2023 | 2022 | | :--- | :--- | :--- | | Natural Gas | | | | Subject Interests Production (Mcf) | 11,476,831 | 12,304,960 | | Average Price (per Mcf) | $7.19 | $4.67 | | Oil and Condensate | | | | Subject Interests Production (Bbls) | 14,709 | 14,290 | | Average Price (per Bbl) | $67.77 | $81.36 | Item 3. Quantitative and Qualitative Disclosures about Market Risk The report does not provide new quantitative or qualitative disclosures about market risk, referring readers to the Trust's Annual Report on Form 10-K for the year ended December 31, 2022 - No new disclosures are provided, with the report referring to the Form 10-K for the year ended December 31, 2022, for market risk information[77][78] Item 4. Controls and Procedures The Trustee concluded that the Trust's disclosure controls and procedures were effective as of June 30, 2023, at a "reasonable assurance" level, with ongoing audits of Hilcorp's data and no material changes to internal controls during the quarter - The Trustee concluded that the Trust's disclosure controls and procedures were effective at a "reasonable assurance" level as of June 30, 2023[84] - The Trust's ability to provide accurate and timely disclosures relies on information from Hilcorp, the operator of the underlying assets[79] - The Trustee and third-party compliance auditors are conducting an ongoing, comprehensive audit of payments and costs reported by Hilcorp, especially after its transition to a new accounting system[82] - No material changes to the Trust's internal control over financial reporting occurred during the quarter[85] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Trust reported no legal proceedings for the period - No legal proceedings were reported[87] Item 1A. Risk Factors As a smaller reporting company, the Trust is not required to provide this information - Information on risk factors is not required for smaller reporting companies[87] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Trust reported no unregistered sales of equity securities or use of proceeds - No unregistered sales of equity securities or use of proceeds were reported[87] Item 3. Defaults Upon Senior Securities The Trust reported no defaults upon senior securities - No defaults upon senior securities were reported[87] Item 4. Mine Safety Disclosures This item is not applicable to the Trust - This item is not applicable to the Trust[87] Item 5. Other Information The Trust reported no other information - No other information was reported[87] Item 6. Exhibits This section lists the exhibits filed with the report, including the Amended and Restated Royalty Trust Indenture, the Net Overriding Royalty Conveyance, and certifications required by SEC rules - Exhibits include the Trust's governing documents and certifications by the Trustee's Senior Vice President, Ross C. Durr, as required by Rule 13a-14(a) and 13a-14(b)[88]