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

Rhea-AI Summary

San Juan Basin Royalty Trust (NYSE: SJT) announced no cash distribution for November 2024 due to excess production costs and low natural gas prices. Hilcorp reported total revenue of $2,853,533 from Subject Interests for September 2024, while production costs were $5,566,414. The excess production costs of approximately $17.86 million gross will be charged to next month's distribution. Gas volumes totaled 1,869,291 Mcf with an average price of $1.42 per Mcf, down from $1.79 in August. The Trust's cash reserves will decrease to $961,566 after covering administrative expenses, with plans to increase reserves to $2.0 million before future distributions.

Positive

• None.

Negative

• No cash distribution for November 2024
• Production costs ($5.57M) significantly exceed revenues ($2.85M)
• Excess production costs of $17.86M gross to be charged to future distributions
• Gas price declined to $1.42/Mcf from $1.79/Mcf in August
• Cash reserves declining to $961,566 from previous $1.8M level

Insights

Financial Analyst

This is a significant negative development for San Juan Basin Royalty Trust, indicating severe operational challenges. The Trust reported $2.85 million in total revenue against $5.57 million in production costs for September 2024, resulting in excess production costs of approximately $17.86 million gross. The situation is exacerbated by low natural gas prices, with September prices dropping to $1.42 per Mcf from $1.79 in August.

The Trust's cash reserves have declined substantially from $1.8 million in April 2024 to $961,566, raising concerns about financial stability. The suspension of distributions and need to replenish reserves to $2.0 million before resuming payments suggests a prolonged period without income for unit holders. This financial strain, combined with ongoing audits of Hilcorp's accounting and reporting, presents significant risks for investors.

DALLAS, Nov. 18, 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 September 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 $2,853,533 of total revenue from the Subject Interests for the production month of September 2024, consisting of $2,651,297 of gas revenues and $202,236 of oil revenues. For the Subject Interests, Hilcorp reported $5,566,414 of production costs (excluding excess production costs) for the production month of September 2024, consisting of $2,592,399 of lease operating expenses, $362,225 of severance taxes, and $2,611,790 of capital costs.

Hilcorp will charge the excess production costs of approximately $17,863,330 gross ($13,397,497 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 $59,870. 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 $4,301 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 September 2024 totaled 1,869,291 Mcf (2,076,989 MMBtu), as compared to 1,922,538 Mcf (2,136,153 MMBtu) for August 2024. Dividing gas revenues by production volume yielded an average gas price for September 2024 of $1.42 per Mcf ($1.28 per MMBtu), as compared to an average gas price for August 2024 of $1.79 per Mcf ($1.61 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 October of 2024. This month, cash reserves in the amount of $55,569 will be utilized to cover the balance of Trust administrative expenses which will bring the balance of cash reserves maintained by the Trustee to $961,566. 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 November 2024?

SJT suspended distributions due to excess production costs and low natural gas prices, with production costs of $5.57M exceeding revenues of $2.85M for September 2024.

What was SJT's average gas price in September 2024?

The average gas price for SJT in September 2024 was $1.42 per Mcf, down from $1.79 per Mcf in August 2024.

How much are SJT's excess production costs to be charged forward?

SJT's excess production costs of approximately $17.86 million gross ($13.40 million net to the Trust) will be charged to the next month's distribution.

What is the current level of SJT's cash reserves?

After covering administrative expenses, SJT's cash reserves will decrease to $961,566, down from the previous $1.8 million level set in April 2024.