San Juan Basin Royalty Trust Declares No Cash Distribution for January 2025 and Announces Production Costs in Excess of Proceeds

Rhea-AI Summary

San Juan Basin Royalty Trust (NYSE: SJT) announced no cash distribution to Unit Holders for January 2025 due to excess production costs and low natural gas prices. Hilcorp reported total revenue of $4,880,618 from Subject Interests for November 2024, including $4,752,207 in gas revenues and $128,411 in oil revenues. However, production costs were significantly higher at $13,139,376.

The excess production costs of approximately $29.5 million gross ($22.1 million net to Trust) will be charged to next month's distribution. Gas volumes totaled 2,261,819 Mcf at an average price of $2.10 per Mcf, compared to 1,880,071 Mcf at $1.92 per Mcf in October 2024.

The Trust's cash reserves decreased to $651,323 after covering administrative expenses. The Trustee plans to replenish and increase cash reserves to $2.0 million before future distributions resume.

Positive

• Gas volumes increased from 1.88 million Mcf in October to 2.26 million Mcf in November 2024
• Average gas price improved from $1.92 to $2.10 per Mcf month-over-month

Negative

• No cash distribution to Unit Holders for January 2025
• Significant excess production costs of $29.5 million gross
• Production costs ($13.1M) substantially exceeded revenues ($4.9M)
• Cash reserves declined to $651,323 from previous $1.8 million level
• Continued low natural gas pricing affecting distributions

Insights

Financial Analyst

The announcement of no cash distribution for January 2025 due to excess production costs represents a critical financial development for San Juan Basin Royalty Trust. The excess production costs of $29.5 million gross ($22.1 million net to Trust) significantly exceed the total revenue of $4.9 million, creating a substantial deficit that must be recovered before future distributions can resume.

The financial metrics reveal concerning operational dynamics: while gas production increased by 20.3% month-over-month, the Trust faces overwhelming production costs at $13.1 million, dominated by $9.9 million in capital costs. The average gas price improvement to $2.10 per Mcf from $1.92 remains insufficient to offset these expenses.

The Trust's rapidly depleting cash reserves, now at $651,323 from $1.8 million in April 2024, signals deteriorating financial health. The Trustee's plan to rebuild reserves to $2.0 million before resuming distributions suggests an extended period without unitholder payments, particularly given the current cost structure and commodity price environment.

Energy Market Analyst

The operational dynamics reflect broader challenges in the natural gas sector. The reported gas price of $2.10 per Mcf is substantially below historical averages, indicating continued market weakness. Hilcorp's aggressive capital expenditure program, while potentially beneficial for long-term production, is creating near-term financial strain given the current price environment.

The production increase to 2.26 million Mcf from 1.88 million Mcf suggests successful operational execution, but the timing is unfortunate given weak commodity prices. The substantial lease operating expenses of $2.6 million combined with the massive capital costs of $9.9 million indicate a significant infrastructure investment phase that's poorly timed with market conditions.

DALLAS, Jan. 21, 2025 /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 November 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 $4,880,618 of total revenue from the Subject Interests for the production month of November 2024, consisting of $4,752,207 of gas revenues and $128,411 of oil revenues.  For the Subject Interests, Hilcorp reported $13,139,376 of production costs (excluding excess production costs) for the production month of November 2024, consisting of $2,634,510 of lease operating expenses, $597,211 of severance taxes, and $9,907,655 of capital costs.

Hilcorp will charge the excess production costs of approximately $29,506,766 gross ($22,130,075 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 $113,093.  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 $3,497 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 November 2024 totaled 2,261,819 Mcf (2,513,132 MMBtu), as compared to 1,880,071 Mcf (2,088,968 MMBtu) for October 2024. Dividing gas revenues by production volume yielded an average gas price for November 2024 of $2.10 per Mcf ($1.89 per MMBtu), as compared to an average gas price for October 2024 of $1.92 per Mcf ($1.72 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 each month from May through December of 2024.  This month, cash reserves in the amount of $109,596 will be utilized to cover the balance of Trust administrative expenses which will bring the balance of cash reserves maintained by the Trustee to $651,323.  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: trustee@sjbrt.com

 

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SOURCE San Juan Basin Royalty Trust

FAQ

Why did SJT suspend distributions for January 2025?

SJT suspended distributions due to excess production costs and low natural gas prices, with production costs of $13.1 million exceeding revenues of $4.9 million for November 2024.

What is the current excess production cost balance for SJT?

The excess production costs are approximately $29.5 million gross ($22.1 million net to the Trust), which will be charged to the next month's distribution.

How much are SJT's current cash reserves and what is the target level?

Current cash reserves are $651,323, down from $1.8 million. The Trustee plans to increase reserves to $2.0 million before resuming distributions.

What was SJT's gas production and pricing for November 2024?

Gas production was 2,261,819 Mcf at an average price of $2.10 per Mcf in November 2024, compared to 1,880,071 Mcf at $1.92 per Mcf in October 2024.

When will SJT resume cash distributions to Unit Holders?

Distributions will resume when future net proceeds are sufficient to pay Trust liabilities and replenish cash reserves to the target level of $2.0 million.