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

Rhea-AI Summary

The San Juan Basin Royalty Trust (SJT) announced no cash distribution for June 2024 due to production costs surpassing revenues and lower natural gas prices in April 2024. The Trust reported total revenues from gas and oil at approximately $2.47 million while incurring production costs of $3.26 million, resulting in excess costs of around $1.22 million. Cash reserves are being used to cover administrative expenses, leaving $1.47 million in reserves. The Trustee aims to replenish reserves to $2 million before any future distributions. Continuous audits and engagements with Hilcorp ensure compliance and accurate reporting.

Positive

• Total revenue for April 2024 from subject interests: $2,470,705.
• Gas revenues for April 2024: $2,224,435.
• Oil revenues for April 2024: $246,270.
• Trust cash reserves as of April 30, 2024: $1.8 million.
• Current cash reserve balance: $1,467,743.
• Trustee plans to increase cash reserves to $2.0 million before future distributions.
• Ongoing audits and engagements with Hilcorp ensure compliance and accurate reporting.

Negative

• No cash distribution for June 2024 due to excess production costs.
• Production costs for April 2024: $3,261,156, exceeding total revenue.
• Excess production costs: approximately $1,222,748.
• Decreased average gas price: $1.24 per Mcf in April 2024 vs. $1.50 per Mcf in March 2024.
• Utilization of cash reserves to cover administrative expenses, reducing available reserves.
• Future distributions delayed until net proceeds cover liabilities and replenish reserves.

Financial Analyst

The San Juan Basin Royalty Trust's announcement of no cash distribution for June 2024 highlights significant financial challenges. Lower natural gas prices and excess production costs exceeding revenues have resulted in a negative cash flow, depleting the Trust's reserves. Trust revenues for April 2024 were reported at $2,470,705, but production costs amounted to $3,261,156, leading to a deficit. This situation underscores the importance of commodity price volatility and operational efficiency in the Trust's financial stability.

Given that the production costs exceeded revenues by a considerable margin, investors should be mindful of the Trust's dependency on natural gas prices and lease operating expenses. Such financial strain may also signal reduced distributions in subsequent months unless there is a significant improvement in commodity prices or a reduction in operating costs.

Additionally, the Trust's intention to rebuild cash reserves to $2.0 million before resuming distributions further delays any potential income for Unit Holders. This prudent approach to financial management emphasizes the uncertain nature of future cash flows, which could be concerning for income-focused investors.

DALLAS, June 17, 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 April 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 associated with Hilcorp San Juan L.P.'s ("Hilcorp") 2024 capital project plan.

Hilcorp reported $2,470,705 of total revenue from the Subject Interests for the production month of April 2024, consisting of $2,224,435 of gas revenues and $246,270 of oil revenues.  For the Subject Interests, Hilcorp reported $3,261,156 of production costs (excluding excess production costs) for the production month of April 2024, consisting of $2,465,257 of lease operating expenses, $327,905 of severance taxes, and $467,994 of capital costs.

Cash reserves will be utilized to pay Trust administrative expenses of $92,364. Hilcorp will charge the excess production costs of approximately $1,222,748 gross ($917,061 net to the Trust) to the next month's distribution. No cash distributions will be distributed by the Trust until future net proceeds are sufficient to pay then-current Trust liabilities and replenish cash reserves.

Based upon information provided to the Trust by Hilcorp, gas volumes for the subject interests for April 2024 totaled 1,788,912 Mcf (1,987,680 MMBtu), as compared to 1,909,338 Mcf (2,121,487 MMBtu) for March 2024. Dividing gas revenues by production volume yielded an average gas price for April 2024 of $1.24 per Mcf ($1.12 per MMBtu), as compared to an average gas price for March 2024 of $1.50 per Mcf ($1.35 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 production costs under Hilcorp's 2024 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.  This month, cash reserves of $82,913 will be utilized to pay Trust administrative expenses for June 2024 which will bring the balance of cash reserves maintained by the Trustee to $1,467,743.  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 SJT declare no cash distribution for June 2024?

SJT declared no cash distribution for June 2024 due to excess production costs and lower natural gas prices in April 2024.

What were the production costs for SJT in April 2024?

Production costs for SJT in April 2024 were $3,261,156.

How much revenue did SJT generate from gas in April 2024?

SJT generated $2,224,435 in gas revenue in April 2024.

What is the current cash reserve balance for SJT?

The current cash reserve balance for SJT is $1,467,743.

What is the Trustee’s plan for future cash reserves for SJT?

The Trustee plans to increase cash reserves to $2.0 million before making any future distributions.

How did lower natural gas prices impact SJT in April 2024?

Lower natural gas prices in April 2024 resulted in decreased revenues, contributing to the inability to declare a cash distribution.