HUGOTON ROYALTY TRUST DECLARES NOVEMBER CASH DISTRIBUTION

Rhea-AI Summary

Simmons Bank, Trustee of the Hugoton Royalty Trust (HGTXU), announced a cash distribution of $0.066725 per unit, payable on December 14, 2022. This distribution is for unitholders on record as of November 30, 2022. Underlying sales for the current month include 811,000 Mcf of gas and 15,000 Bbls of oil. Average prices were $8.41 per Mcf for gas and $84.06 per Bbl for oil. Development costs of $5 million are expected for a new well in Oklahoma. The Trust is also engaged in ongoing arbitration regarding production cost disputes, including a $24.3 million allocation related to the Chieftain settlement.

Positive

• Cash distribution of $0.066725 per unit signifies continued returns to unitholders.
• Underlying sales volumes show stability with 811,000 Mcf of gas and 15,000 Bbls of oil.
• Average prices reflect some resilience: gas priced at $8.41 per Mcf and oil at $84.06 per Bbl.

Negative

• XTO Energy's deductions for development costs, production expense, and overhead total $3,290,000 for the current month, impacting net proceeds.
• Ongoing arbitration regarding the Chieftain settlement could affect future distributions, with an estimated excess cost of $14.6 million net to the Trust.

DALLAS, Nov. 18, 2022 /PRNewswire/ -- Simmons Bank, as Trustee of the Hugoton Royalty Trust (OTCQB:HGTXU) (the "Trust"), today declared a cash distribution to the holders of its units of beneficial interest of $0.066725 per unit, payable on December 14, 2022, to unitholders of record on November 30, 2022. The following table shows underlying gas and oil sales and average prices attributable to the net overriding royalty for both the current month and prior month. Underlying gas and oil sales volumes attributable to the current month were primarily produced in September.

		Underlying Sales Volumes (a)					Average Price
		Gas (Mcf)			Oil (Bbls)		Gas (per Mcf)			Oil (per Bbl)
Current Month Distribution		811,000			15,000		$8.41		$84.06
Prior Month Distribution			841,000		15,000		$8.45			$94.15
(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 deducted development costs of $550,000, production expense of $1,668,000 and overhead of $1,072,000 in determining the royalty calculation for the Trust for the current month.

Development Costs

XTO Energy has advised the Trustee that it has elected to participate in the development of a non-operated well in Major County, Oklahoma. The well was proposed by Comanche Exploration Co. LLC under a joint operating agreement. XTO Energy has advised the Trustee that development costs for the well are anticipated to be approximately $5 million underlying ($4 million net to the Trust), and that drilling commenced late September 2022 and is expected to be completed in the first quarter of 2023. However, no assurances can be made as to the estimated costs or timing to complete the well.  XTO Energy has advised the Trustee that the Trust has not yet incurred development costs related to this well. The Trustee and XTO Energy will continue to provide material updates in subsequent communications.

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 arbitration 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, on May 18, 2021, 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." XTO Energy and the Trustee are in the process of determining the portion of the $48 million that is allocable to Trust properties to be charged as an excess cost to the Trust, but estimate it to be approximately $14.6 million net to the Trust.

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 excess costs under the Oklahoma conveyance that would likely result in no distributions under the Oklahoma conveyance while these excess costs are recovered. This award completes the portion of the arbitration related to the Chieftain settlement. Excess costs on any individual conveyance would not affect net proceeds to the Trust on any of the other remaining conveyances.

Other Trustee claims related to disputed amounts on the computation of the Trust's net proceeds for 2014 through 2019 and 2021 were bifurcated from the initial arbitration. Pursuant to the purchase and sale agreement entered into between the Trustee and XTO Energy, the parties had agreed to stay the arbitration from the date of execution of the purchase and sale agreement to the earlier of the termination of the purchase and sale agreement or closing date of the sale of assets. Effective August 22, 2022, the Trustee and XTO Energy mutually agreed to terminate the purchase and sale agreement. As a result of the termination, the stay of these arbitration proceedings between XTO Energy and the Trustee with respect to the Trust is lifted. The arbitration proceedings have recommenced and the hearing is currently scheduled for May 30-31, 2023.

For more information on the Trust, please visit our website 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 timing, and future net profits, could differ materially due to changes in natural gas and oil prices and other economic conditions affecting the gas and oil 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, 2021.

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SOURCE Hugoton Royalty Trust

FAQ

What is the cash distribution amount for Hugoton Royalty Trust (HGTXU) declared on November 18, 2022?

The cash distribution amount is $0.066725 per unit.

When is the distribution payment date for HGTXU unitholders?

The distribution payment date is December 14, 2022.

What are the underlying sales volumes for the current month for HGTXU?

The underlying sales volumes are 811,000 Mcf of gas and 15,000 Bbls of oil.

What are the average prices for gas and oil for HGTXU for the current month?

Average price for gas is $8.41 per Mcf, and for oil, it is $84.06 per Bbl.

What are the anticipated development costs for the new well in Oklahoma mentioned in the HGTXU press release?

The anticipated development costs for the new well are approximately $5 million.

How might the Chieftain settlement arbitration affect Hugoton Royalty Trust (HGTXU)?

The arbitration could result in excess costs of approximately $14.6 million to the Trust, potentially impacting future distributions.