San Juan Basin Royalty Trust Declares No Cash Distribution for September 2024 and Announces Production Costs in Excess of Proceeds

Rhea-AI Summary

San Juan Basin Royalty Trust (NYSE: SJT) announced no cash distribution for September 2024 due to excess production costs and low natural gas prices. Hilcorp San Juan L.P. reported $3,905,235 in total revenue and $6,966,097 in production costs for July 2024. The excess production costs of $11,517,368 gross will be charged to the next month's distribution. Gas volumes for July 2024 totaled 1,891,889 Mcf with an average price of $1.94 per Mcf.

The Trust's cash reserves were $1,099,699 after utilizing $139,442 to cover administrative expenses. The Trustee plans to replenish and increase cash reserves to $2.0 million before future distributions. The Trust continues to audit Hilcorp's payments and analyze compliance with operative agreements.

Positive

• Gas volumes increased from 1,828,685 Mcf in June to 1,891,889 Mcf in July 2024
• Average gas price improved from $1.41 per Mcf in June to $1.94 per Mcf in July 2024

Negative

• No cash distribution declared for September 2024
• Excess production costs of $11,517,368 gross ($8,638,026 net to the Trust)
• Total revenue ($3,905,235) significantly lower than production costs ($6,966,097)
• Continued low natural gas pricing affecting Trust's financial performance
• Cash reserves decreased to $1,099,699, requiring replenishment before future distributions

Insights

Financial Analyst

The news is significantly negative for San Juan Basin Royalty Trust (SJT). The Trust's inability to declare a cash distribution due to excess production costs signals severe financial strain. With total revenue of $3,905,235 dwarfed by production costs of $6,966,097, the Trust is operating at a substantial loss. The $11,517,368 gross excess production costs will be carried forward, further burdening future distributions.

The average gas price increase from $1.41 to $1.94 per Mcf is overshadowed by the overall financial picture. The Trust's depleting cash reserves, now at $1,099,699, raise concerns about its ability to cover administrative expenses in the coming months. Investors should be wary of the Trust's financial health and its ability to generate returns in the near term.

Energy Industry Expert

The situation at San Juan Basin Royalty Trust reflects broader challenges in the natural gas sector. Despite a slight increase in gas production (1,891,889 Mcf in July vs 1,828,685 Mcf in June), the Trust is grappling with "significant lease operating expenses and capital expenditures" associated with Hilcorp's 2024 capital project plan. This highlights the delicate balance between investment in infrastructure and profitability in the current low-price environment.

The Trust's predicament underscores the volatility in the natural gas market and the impact of operational costs on royalty trusts. Investors should monitor natural gas prices closely, as sustained low prices could further strain the Trust's financial position. The ongoing audit of Hilcorp's accounting and reporting suggests potential discrepancies, adding another layer of uncertainty for unitholders.

Legal Expert

The Trust's situation raises potential legal considerations. The Trustee's decision to increase cash reserves to $1.8 million as of April 30, 2024 and plans to further increase to $2.0 million, aligns with its fiduciary duty to ensure the Trust can meet its obligations. However, the lack of distributions and ongoing depletion of reserves may lead to unitholder discontent.

The comprehensive audit process, including "detailed analysis of Hilcorp's pricing and rates charged," suggests a proactive approach to ensuring compliance with Trust agreements. The mention of "potential remedies in the event there is suspected non-compliance" indicates the Trust is prepared for potential legal action if discrepancies are found. Unitholders should closely monitor these developments, as any legal issues could significantly impact the Trust's future operations and distributions.

DALLAS, Sept. 20, 2024 /PRNewswire/ -- Argent Trust Company, as the trustee (the "Trustee") of the San Juan Basin Royalty Trust (the "Trust") (NYSE: SJT), today reported that it will not declare a monthly cash distribution to the holders of its Units of beneficial interest (the "Unit Holders") due to excess production costs for the Trust's subject interests ("Subject Interests") during the production month of July 2024, as well as continued low natural gas pricing. Excess production costs occur when production costs and capital expenditures exceed the gross proceeds for a certain period. Excess production costs for this reporting period are due primarily to significant lease operating expenses and capital expenditures associated with Hilcorp San Juan L.P.'s ("Hilcorp") 2024 capital project plan.

Hilcorp reported $3,905,235 of total revenue from the Subject Interests for the production month of July 2024, consisting of $3,670,009 of gas revenues and $235,226 of oil revenues. For the Subject Interests, Hilcorp reported $6,966,097 of production costs (excluding excess production costs) for the production month of July 2024, consisting of $2,598,942 of lease operating expenses, $413,728 of severance taxes, and $3,953,427 of capital costs.

Hilcorp will charge the excess production costs of approximately $11,517,368 gross ($8,638,026 net to the Trust) to the next month's distribution. No cash distributions will be made by the Trust until future net proceeds are sufficient to pay Trust liabilities and replenish cash reserves. This month's Trust administrative expenses totaled $145,121. The decrease in administrative expenses was attributable to differences in timing of the receipt and payment of certain expenses by the Trust. Interest income received by the Trust in the amount of $5,679 will be applied to cover a portion of this month's Trust administrative expenses, with cash reserves utilized to pay the remaining administrative expenses.

Based upon information provided to the Trust by Hilcorp, gas volumes for the subject interests for July 2024 totaled 1,891,889 Mcf (2,102,099 MMBtu), as compared to 1,828,685 Mcf (2,031,872 MMBtu) for June 2024. Dividing gas revenues by production volume yielded an average gas price for July 2024 of $1.94 per Mcf ($1.75 per MMBtu), as compared to an average gas price for June 2024 of $1.41 per Mcf ($1.27 per MMBtu).

Pursuant to the Amended and Restated Royalty Trust Indenture, dated December 12, 2007 (as amended on February 15, 2024, by the First Amendment to the Amended and Restated Royalty Trust Indenture), the Trustee is authorized to retain, in its sole discretion, a cash reserve for payment of Trust liabilities that are contingent or uncertain or otherwise not currently due and payable. To cover Trust expenses during any period of revenue shortfall, which has resulted and may continue to result from lower commodity prices and increased capital expenditures and lease operating expenses under Hilcorp's 2024 capital project plan for the Subject Interests, the Trustee increased the cash reserves in March and April of 2024, such that total cash reserves were $1.8 million as of April 30, 2024. Interest income and cash reserves were utilized to pay Trust administrative expenses in each of May, June, July, and August of 2024. This month, cash reserves in the amount of $139,442 will be utilized to cover the balance of Trust administrative expenses which will bring the balance of cash reserves maintained by the Trustee to $1,099,699. Prior to any future distributions to Unit Holders, the Trustee plans to replenish the cash reserves and continue to increase the cash reserves to $2.0 million.

Production from the Subject Interests continues to be gathered, processed, and sold under market sensitive and customary agreements, as recommended for approval by the Trust's Consultant. The Trustee continues to engage with Hilcorp regarding its ongoing accounting and reporting to the Trust, and the Trust's third-party compliance auditors continue to audit payments made by Hilcorp to the Trust, inclusive of sales revenues, production costs, capital expenditures, adjustments, actualizations, and recoupments. The Trust's auditing process has also included detailed analysis of Hilcorp's pricing and rates charged.  As previously disclosed in the Trust's filings, these revenues and costs (along with all costs) are the subject of the Trust's ongoing comprehensive audit process by the Trust's professional consultants and outside counsel to analyze compliance with all the underlying operative Trust agreements and evaluate potential remedies in the event there is suspected non-compliance.

Forward Looking Statements. Except for historical information contained in this news release, the statements in this news release are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements generally are accompanied by words such as "estimates," "anticipates," "could," "plan," or other words that convey the uncertainty of future events or outcomes.  Forward-looking statements and the business prospects of San Juan Basin Royalty Trust are subject to a number of risks and uncertainties that may cause actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties include, among other things, certain information provided to the Trust by Hilcorp, volatility of oil and gas prices, governmental regulation or action, litigation, and uncertainties about estimates of reserves. These and other risks are described in the Trust's reports and other filings with the Securities and Exchange Commission.

Contact:	San Juan Basin Royalty Trust
	Argent Trust Company, Trustee
	Nancy Willis, Director of Royalty Trust Services
	Toll-free: (855) 588-7839 or (866) 809-4553
	Fax: (214) 559-7010
	Website: www.sjbrt.com
	Email: royaltytrustgroup@argenttrust.com

 

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SOURCE San Juan Basin Royalty Trust

FAQ

Why did San Juan Basin Royalty Trust (SJT) declare no cash distribution for September 2024?

SJT declared no cash distribution due to excess production costs for the Trust's subject interests during July 2024 and continued low natural gas pricing.

What were the total revenues and production costs reported by Hilcorp for SJT in July 2024?

Hilcorp reported total revenues of $3,905,235 and production costs of $6,966,097 for SJT's subject interests in July 2024.

How much were the excess production costs for SJT in July 2024?

The excess production costs for SJT in July 2024 were approximately $11,517,368 gross ($8,638,026 net to the Trust).

What was the average gas price for SJT's subject interests in July 2024?

The average gas price for SJT's subject interests in July 2024 was $1.94 per Mcf ($1.75 per MMBtu).

What is the current balance of cash reserves for San Juan Basin Royalty Trust (SJT)?

After utilizing $139,442 to cover administrative expenses, the current balance of cash reserves for SJT is $1,099,699.