Hugoton Royalty Trust Declares No June Cash Distribution

Rhea-AI Summary

Simmons Bank, as Trustee of the Hugoton Royalty Trust (OTCQB:HGTXU), announced that there would be no cash distribution for June 2021 due to excess costs on net profits interests. For the current month, gas sales totaled 804,000 Mcf at an average price of $3.38 per Mcf. XTO Energy reported excess costs of $28,000 for Kansas, $1,991,000 for Oklahoma, and a recovery of $107,000 for Wyoming, with cumulative excess costs reaching $24,878,000 for Oklahoma. The Trust's financial obligations, including arbitration outcomes and development costs, impact future distributions significantly.

Positive

• Underlying gas sales volumes increased from 801,000 Mcf in the prior month to 804,000 Mcf.
• Average gas price for the current month is $3.38, compared to $3.66 in the prior month.

Negative

• $28,000 excess costs for Kansas and $1,991,000 for Oklahoma, with cumulative excess costs for Oklahoma totaling $24,878,000.
• No cash distribution declared for June 2021.
• Potential for several additional years without distributions due to excess costs related to the Oklahoma conveyance.

DALLAS, June 18, 2021 /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 June 2021 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 April.

		Underlying Gas Sales
		Volumes (Mcf) (a)				Average Gas
		Total		Daily		Price per Mcf
Current Month		804,000		27,000		$3.38
Prior Month		801,000		26,000		$3.66
(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 7,000 barrels from the new horizontal wells drilled in Major County, Oklahoma and has deducted development costs of $2,649,000, production expense of $1,304,000 and overhead of $1,029,000 in determining the royalty calculation for the Trust for the current month.

Expense Reserve
The expense reserve used to pay administrative expenses in the absence of current month distributions was depleted in October 2020. As a result, Simmons Bank, the Trustee, is currently paying the expenses for the Trust, subject to its rights to be indemnified and reimbursed pursuant to the terms of the Trust indenture. However, there is nothing in the Trust indenture that requires Simmons Bank to pay the expenses for the Trust. The right to indemnification would include proceeds received from a sale of the Trust's assets, if any. The Trustee has engaged a third party to market the Trust's assets. Any material sale of assets and/or termination of the Trust requires unitholder approval by at least 80% of all outstanding units.

Excess Costs
XTO Energy has advised the Trustee that excess costs were $28,000 on properties underlying the Kansas net profits interests. Underlying cumulative excess costs remaining on the Kansas net profits interests total $3,620,000, including accrued interest of $383,000.

XTO Energy has advised the Trustee that excess costs were $1,991,000 on properties underlying the Oklahoma net profits interests. Underlying cumulative excess costs remaining on the Oklahoma net profits interests total $24,878,000, including accrued interest of $2,049,000. This balance does not include the approximately $14.6 million of additional production costs the Panel determined could be charged in the second interim final award of the Chieftain arbitration.

XTO Energy has advised the Trustee that $107,000 of excess costs were recovered on properties underlying the Wyoming net profits interests. However, after the partial recovery, there were no remaining proceeds from the properties underlying the Wyoming net profits interests to be included in the current month's distribution. Underlying cumulative excess costs remaining on the Wyoming net profits interests total $4,152,000, including accrued interest of $240,000.

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 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 Trust and XTO Energy conducted the interim hearing on the claims related to the Chieftain settlement on October 12-13, 2020. In the arbitration, the Trustee contended that the approximately $24.3 million allocation related to the Chieftain settlement was not a production cost and, therefore, there should not be a related adjustment to the Trust's share of net proceeds. However, XTO Energy contended that the approximately $24.3 million was a production cost and should reduce the Trust's share of net proceeds.

On January 20, 2021, the Panel issued its Corrected Interim Final Award (i) "reject[ing] the Trust's contention that XTO has no right under the Conveyance to charge the Trust with amounts XTO paid under section 1.18(a)(i) as royalty obligations to settle the Chieftain litigation" and (ii) stating "[t]he next phase will determine how much of the Chieftain settlement can be so charged, if any of it can be, in the exercise of the right found by the Panel." Following briefing by both parties, the Panel issued its second interim final award over the amount of XTO Energy's settlement in the Chieftain class action lawsuit that can be charged to the Trust as a production cost. The Panel in its decision has ruled that out of the $80 million settlement, the "Trust is obligated to pay its share under the Conveyance of the $48 million that was received by the plaintiffs in the Chieftain lawsuit by virtue of the settlement of that litigation. The Trust is not obligated by the Conveyance to pay any share of the $32 million received by the lawyers for the plaintiffs in the Chieftain lawsuit by virtue of the settlement." The final amount owed will be considered an excess cost on the Oklahoma conveyance. XTO Energy and the Trustee are in the process of determining the portion of the $48 million that is allocable Trust properties to be charged as an excess cost to the Trust, but estimate it to be approximately $14.6 million.

The Oklahoma conveyance is already currently subject to excess costs that will need to be recovered prior to any distribution to unitholders. Therefore, the reduction in the Trust's share of net proceeds from the portion of the settlement amount the Panel has ruled may be charged against the Oklahoma conveyance 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. This award completes the portion of the arbitration related to the Chieftain settlement.

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. Panel has stayed proceedings and requires a status update no later than August 31, 2021.

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, 2020.

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SOURCE Hugoton Royalty Trust

FAQ

Why was there no cash distribution for Hugoton Royalty Trust in June 2021?

There was no cash distribution for June 2021 due to excess costs on net profits interests.

What were the underlying gas sales volumes for Hugoton Royalty Trust in June 2021?

The underlying gas sales volumes for June 2021 were 804,000 Mcf.

What were the average gas prices reported for Hugoton Royalty Trust in June 2021?

The average gas price reported for June 2021 was $3.38 per Mcf.

What are the excess costs reported for Oklahoma by Hugoton Royalty Trust?

The excess costs reported for Oklahoma totaled $24,878,000 including accrued interest.

What impact does the Chieftain arbitration settlement have on Hugoton Royalty Trust?

The arbitration settlement may lead to additional excess costs that could delay distributions to unitholders.