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

Rhea-AI Summary

San Juan Basin Royalty Trust (NYSE: SJT) announced no cash distribution for July 2024 due to excess production costs and lower natural gas pricing. Hilcorp reported $2,518,037 in total revenue and $6,183,810 in production costs for May 2024. The excess production costs of approximately $4,888,522 gross will be charged to the next month's distribution. Gas volumes for May 2024 totaled 1,970,451 Mcf, with an average gas price of $1.14 per Mcf. The Trust's cash reserves were $1,420,537 after covering administrative expenses. The Trustee plans to increase cash reserves to $2.0 million before future distributions.

Positive

• Gas volumes increased from 1,788,912 Mcf in April 2024 to 1,970,451 Mcf in May 2024

Negative

• No cash distribution declared for July 2024
• Excess production costs of $4,888,522 gross ($3,666,391 net to the Trust)
• Total revenue ($2,518,037) significantly lower than production costs ($6,183,810)
• Average gas price decreased from $1.24 per Mcf in April to $1.14 per Mcf in May 2024
• Cash reserves decreased from $1.8 million to $1,420,537

Insights

Financial Analyst

The decision by the San Juan Basin Royalty Trust to forego a cash distribution for July 2024 highlights a concerning financial trend for investors. The primary reason is the excessive production costs in May 2024, attributed to Hilcorp's capital project plan. Specifically, there was a significant discrepancy between the $2.5 million in revenue and the $6.2 million in production costs. This difference underscores the potential liquidity issues and suggests that the Trust may continue to face challenges in generating positive cash flows in the near term.

Investors should be aware of the operational and financial risks associated with such high production costs. The Trust, despite increasing its cash reserves, indicates uncertainty about future distributions until the net proceeds can cover liabilities and replenish these reserves. This could signal a prolonged period of limited or no cash distributions, which might dissuade income-focused investors. Additionally, the lower gas pricing, from $1.24 per Mcf in April to $1.14 per Mcf in May, exacerbates the issue by reducing revenue potential from the subject interests.

The decision to increase cash reserves to $2 million as a buffer against future revenue shortfalls demonstrates a conservative financial strategy. However, it also highlights potential liquidity concerns and the need for prudent financial management amidst fluctuating commodity prices and elevated capital expenditures.

Market Research Analyst

The current scenario presented by the San Juan Basin Royalty Trust indicates a broader market challenge, particularly in the natural gas sector. The fall in average gas prices to $1.14 per Mcf in May 2024 from $1.24 per Mcf in April 2024 shows a declining trend in commodity prices, which can be a concern for stakeholders. This decreasing price trend impacts the revenue-generating ability of the Trust, especially when juxtaposed against rising operational costs.

From a market perspective, this situation underlines the volatility inherent in the energy sector. Investors should note that such fluctuations can significantly affect the profitability and subsequent distributions from royalty trusts. The increased capital expenditures and production costs associated with Hilcorp's 2024 capital project plan reflect ongoing investments in infrastructure. While this could potentially lead to higher future yields, the immediate financial strain cannot be ignored.

For those considering investments in similar trusts, it’s important to assess the balance between potential future returns and current financial health. The Trust's proactive steps to ensure compliance and accurate reporting of revenues and costs through third-party audits may offer some reassurance, but the immediate financial implications remain a critical consideration.

DALLAS, July 19, 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 May 2024, as well as lower 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 $2,518,037 of total revenue from the Subject Interests for the production month of May 2024, consisting of $2,242,475 of gas revenues and $275,562 of oil revenues. For the Subject Interests, Hilcorp reported $6,183,810 of production costs (excluding excess production costs) for the production month of May 2024, consisting of $2,507,667 of lease operating expenses, $391,862 of severance taxes, and $3,284,281 of capital costs.

Hilcorp will charge the excess production costs of approximately $4,888,522 gross ($3,666,391 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 then-current Trust liabilities and replenish cash reserves. This month's Trust administrative expenses totaled $53,688. Interest income received by the Trust in the amount of $6,482 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 May 2024 totaled 1,970,451 Mcf (2,189,390 MMBtu), as compared to 1,788,912 Mcf (1,987,680 MMBtu) for April 2024. Dividing gas revenues by production volume yielded an average gas price for May 2024 of $1.14 per Mcf ($1.02 per MMBtu), as compared to an average gas price for April 2024 of $1.24 per Mcf ($1.12 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 May and June of 2024. This month, cash reserves in the amount of $47,206 will be utilized to cover the balance of Trust administrative expenses which will bring the balance of cash reserves maintained by the Trustee to $1,420,537. 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

View original content:https://www.prnewswire.com/news-releases/san-juan-basin-royalty-trust-declares-no-cash-distribution-for-july-2024-and-announces-production-costs-in-excess-of-proceeds-302201232.html

SOURCE San Juan Basin Royalty Trust

FAQ

Why did San Juan Basin Royalty Trust (SJT) not declare a cash distribution for July 2024?

SJT did not declare a cash distribution for July 2024 due to excess production costs for the Trust's subject interests during May 2024 and lower natural gas pricing.

What were the total revenue and production costs for San Juan Basin Royalty Trust (SJT) in May 2024?

In May 2024, SJT reported total revenue of $2,518,037 and production costs of $6,183,810.

How much were the excess production costs for San Juan Basin Royalty Trust (SJT) in May 2024?

The excess production costs for SJT in May 2024 were approximately $4,888,522 gross ($3,666,391 net to the Trust).

What was the average gas price for San Juan Basin Royalty Trust (SJT) in May 2024?

The average gas price for SJT in May 2024 was $1.14 per Mcf ($1.02 per MMBtu).

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

As of the latest report, the balance of cash reserves maintained by the Trustee for SJT is $1,420,537.