Hugoton Royalty Trust Declares No August Cash Distribution

Rhea-AI Summary

Simmons Bank, Trustee of the Hugoton Royalty Trust (OTCQB:HGTXU), announced that there will be no cash distribution for August 2020 due to excess costs on net profits interests. The Trust reported gas sales of 991,000 Mcf in August at an average price of $1.81 per Mcf, compared to 866,000 Mcf in July at $1.88 per Mcf. Cumulative excess costs total $3,056,000 for Kansas, $24,935,000 for Oklahoma, and $4,136,000 for Wyoming. Additionally, an arbitration regarding $24.3 million in production costs is scheduled for October 12, 2020.

Positive

• None.

Negative

• No cash distribution for August 2020 due to excess costs.
• Current underlying cumulative excess costs total $32,127,000 across Kansas, Oklahoma, and Wyoming.
• The settlement in the Chieftain litigation may lead to an adjustment of approximately $24.3 million, affecting future distributions.

DALLAS, Aug. 21, 2020 /PRNewswire/ -- Simmons Bank, as Trustee of the Hugoton Royalty Trust (OTCQB:HGTXU) (the "Trust"), today declared there would not be a cash distribution to the holders of its units of beneficial interest for August 2020 due to the excess cost positions on all three of the Trust's conveyances of net profits interests. The following table shows underlying gas sales and average prices attributable to the net overriding royalty for both the current month and prior month. Underlying gas sales volumes attributable to the current month were primarily produced in June.

	Underlying Gas Sales
	Volumes (Mcf) (a)				Average Gas
	Total		Daily		Price per Mcf
Current Month	991,000		33,000		$1.81
Prior Month	866,000		28,000		$1.88

(a)	Sales volumes are recorded in the month the Trust receives the related net profits income.  Because of this, sales volumes may fluctuate from month to month based on the timing of cash receipts.

XTO Energy has advised the Trustee that it has included oil sales volumes of approximately 12,000 barrels from the new horizontal wells drilled in Major County, Oklahoma and has deducted development costs of $1,000, production expense of $1,171,000 and overhead of $1,018,000 in determining the royalty calculation for the Trust for the current month.

Excess Costs

XTO Energy has advised the Trustee that excess costs were $149,000 on properties underlying the Kansas net profits interests for the current month. Underlying cumulative excess costs remaining on the Kansas net profits interests total $3,056,000, including accrued interest of $292,000.

XTO Energy has advised the Trustee that excess costs were $96,000 on properties underlying the Oklahoma net profits interests. Underlying cumulative excess costs remaining on the Oklahoma net profits interests total $24,935,000, including accrued interest of $1,384,000.

XTO Energy has advised the Trustee that excess costs were $139,000 on properties underlying the Wyoming net profits interests for the current month. Underlying cumulative excess costs remaining on the Wyoming net profits interests total $4,136,000, including accrued interest of $116,000.

Arbitration

As previously disclosed, XTO Energy advised the Trustee that it reached a settlement with the plaintiffs in the Chieftain class action royalty case. On July 27, 2018 the final plan of allocation was approved by the court. Based on the final plan of allocation XTO Energy has advised the Trustee that it believes approximately $24.3 million in additional production costs should be allocated to the Trust. On May 2, 2018, the Trustee submitted a demand for arbitration seeking a declaratory judgment that the Chieftain settlement is not a production cost and that XTO Energy is prohibited from charging the settlement as a production cost under the conveyance or otherwise reducing the Trust's payments now or in the future as a result of the Chieftain litigation. The hearing on the claims related to the Chieftain settlement is currently scheduled to begin October 12, 2020. Other Trustee claims related to disputed amounts on the computation of the Trust's net proceeds for 2014 through 2016 were bifurcated from the initial arbitration and will be heard at a later date, which is still to be determined.

If the Trustee prevails on the claims related to the $24.3 million in alleged additional production costs in connection with the Chieftain settlement, there will be no adjustment to the Trust's share of net proceeds. If XTO Energy prevails as to those same claims, there will be an adjustment of approximately $24.3 million to the Trust's share of net proceeds. The Oklahoma conveyance is already currently subject to excess costs that will need to be recovered prior to any distribution to unitholders. Therefore, an adjustment of approximately $24.3 million to the Trust's share of net proceeds would result in additional excess costs under the Oklahoma conveyance that would likely result in no distributions under the Oklahoma conveyance for several additional years while these additional excess costs are recovered.

For more information on the Trust, please visit our web site at www.hgt-hugoton.com.

Statements made in this press release regarding future events or conditions are forward looking statements.  Actual future results, including development costs and future net profits, could differ materially due to changes in natural gas prices and other economic conditions affecting the gas industry and other factors described in Part I, Item 1A of the Trust's Annual Report on Form 10-K for the year ended December 31, 2019.

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SOURCE Hugoton Royalty Trust

FAQ

Why won't Hugoton Royalty Trust pay a cash distribution in August 2020?

The Hugoton Royalty Trust will not pay a cash distribution for August 2020 due to excess costs on its net profits interests.

What were the underlying gas sales volumes for Hugoton Royalty Trust in August 2020?

The underlying gas sales volumes for August 2020 were 991,000 Mcf.

What is the average gas price for Hugoton Royalty Trust in August 2020?

The average gas price for August 2020 was $1.81 per Mcf.

What are the total cumulative excess costs reported by Hugoton Royalty Trust?

The total cumulative excess costs reported are $32,127,000 across Kansas, Oklahoma, and Wyoming.

What is the significance of the Chieftain settlement for Hugoton Royalty Trust?

The Chieftain settlement could lead to an adjustment of approximately $24.3 million, impacting the Trust's share of net proceeds.