San Juan Basin Royalty Trust Declares No Cash Distribution for February 2025

Rhea-AI Summary

San Juan Basin Royalty Trust (NYSE: SJT) announced no cash distribution for February 2025 due to excess production costs and low natural gas prices. The Trust reported total revenue of $8.69 million for December 2024, with production costs of $6.46 million. Cumulative excess production costs stand at $27.28 million gross ($20.46 million net to Trust).

Gas volumes for December 2024 totaled 2,669,858 Mcf at an average price of $3.14 per Mcf, compared to 2,261,819 Mcf at $2.10 per Mcf in November. The Trust's cash reserves decreased to $512,140, with plans to increase reserves to $2.0 million before future distributions.

Hilcorp's 2025 capital project plan estimates approximately $9.0 million in expenditures, including $4.0 million for new vertical drill projects, $4.5 million for recompletions and workovers, and $0.5 million for facilities projects.

Positive

• Gas volumes increased to 2,669,858 Mcf in December from 2,261,819 Mcf in November 2024
• Average gas price improved to $3.14 per Mcf from $2.10 per Mcf month-over-month
• Excess production costs deficit decreased by $2.23 million gross from previous month

Negative

• No cash distribution declared for February 2025
• Significant excess production costs of $27.28 million gross ($20.46 million net)
• Cash reserves declined to $512,140 from previous $1.8 million level
• High production costs of $6.46 million against $8.69 million revenue

Insights

Energy Industry Financial Analyst

The Trust's announcement of zero distribution marks a critical financial situation driven by a perfect storm of challenges. The $27.28M gross excess production costs ($20.46M net to Trust) represents a severe burden that must be fully recovered before any new distributions can resume. While the deficit decreased by $2.23M from the previous month, this improvement is insufficient given the Trust's rapidly depleting cash reserves, which have fallen to just $512,140 from $1.8M in April 2024.

The financial strain is particularly concerning when examining the Trust's operating metrics. Despite improved natural gas prices of $3.14 per Mcf in December (up from $2.10 in November), and increased production volumes of 2.67M Mcf (up from 2.26M Mcf), the Trust still couldn't generate sufficient net proceeds. This indicates a fundamental challenge in the cost structure, with production costs consuming 74.3% of total revenues even before addressing the excess cost deficit.

Hilcorp's $9.0M capital expenditure plan for 2025 presents a double-edged sword. While the investment in 7 new vertical wells and 22 recompletion projects could enhance future production, these expenditures will likely extend the period of no distributions as they add to the cost burden. The Trust's dwindling cash reserves, now requiring replenishment to a $2.0M target, further suggests an extended period before unit holders might see resumed distributions.

The Trust's predicament highlights the inherent risks of royalty trust structures in commodity-dependent businesses. Without operational control and facing fixed costs, the Trust's financial health remains highly vulnerable to natural gas price fluctuations and operator spending decisions. Unit holders should prepare for a potentially prolonged period of no distributions until both the excess cost deficit is cleared and cash reserves are rebuilt to sustainable levels.

DALLAS, Feb. 18, 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 December 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 $8,687,779 of total revenue from the Subject Interests for the production month of December 2024, consisting of $8,390,577 of gas revenues and $297,202 of oil revenues. For the Subject Interests, Hilcorp reported $6,459,217 of production costs (excluding excess production costs) for the production month of December 2024, consisting of $2,751,758 of lease operating expenses, $825,059 of severance taxes, and $2,882,401 of capital costs.

Cumulative excess production costs total approximately $27,278,204 gross ($20,458,653 net to the Trust), a decrease in the deficit of $2,228,562 gross ($1,671,422 net to the trust) from last month's reporting period. Hilcorp will charge the excess production costs 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 $141,887. The increase 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 $2,703.69 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 December 2024 totaled 2,669,858 Mcf (2,966,509 MMBtu), as compared to 2,261,819 Mcf (2,513,132 MMBtu) for November 2024. Dividing gas revenues by production volume yielded an average gas price for December 2024 of $3.14 per Mcf ($2.83 per MMBtu), as compared to an average gas price for November 2024 of $2.10 per Mcf ($1.89 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 2024 through January of 2025. This month, cash reserves in the amount of $139,183 will be utilized to cover the balance of Trust administrative expenses which will bring the balance of cash reserves maintained by the Trustee to $512,140. 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.

Hilcorp has provided the Trust with its calendar year 2025 capital project plan for the Subject Interests (the "2025 Plan"). Under the 2025 Plan, Hilcorp estimates its 2025 capital expenditures for the Subject Interests to be approximately $9.0 million. 

Hilcorp informed the Trust that the 2025 Plan for the Subject Interests includes 29 projects. Approximately $4.0 million of the $9.0 million budget in the 2025 Plan will be allocated to seven new vertical drill projects, all completed in the Dakota/Mesaverde formations. Approximately $4.5 million of the $9.0 million budget will be allocated to 22 projects for recompletions and workovers in the Fruitland Coal formation, and approximately $0.5 million of the $9.0 million budget will be allocated to facilities projects related to natural gas compression and other facility projects. Hilcorp further informed the Trust that its planned project status for 2025 is subject to revision if Hilcorp revises its assumptions underlying the 2025 Plan, and that actual capital costs may vary from these estimates.

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

View original content:https://www.prnewswire.com/news-releases/san-juan-basin-royalty-trust-declares-no-cash-distribution-for-february-2025-302378070.html

SOURCE San Juan Basin Royalty Trust

FAQ

Why did SJT suspend its February 2025 distribution?

SJT suspended its February 2025 distribution due to excess production costs and low natural gas prices, with total excess production costs reaching $27.28 million gross.

What is SJT's current cash reserve level and target?

SJT's cash reserves are currently at $512,140, with plans to increase reserves to $2.0 million before resuming distributions to unitholders.

What are the key components of Hilcorp's 2025 capital project plan for SJT?

Hilcorp's 2025 plan includes $9.0 million in capital expenditures: $4.0 million for vertical drill projects, $4.5 million for recompletions and workovers, and $0.5 million for facilities projects.

How did SJT's gas production and prices change in December 2024?

Gas production increased to 2,669,858 Mcf in December from 2,261,819 Mcf in November, while average gas prices rose to $3.14 per Mcf from $2.10 per Mcf.

What were SJT's revenue and production costs for December 2024?

SJT reported total revenue of $8.69 million ($8.39 million gas, $0.30 million oil) and production costs of $6.46 million for December 2024.