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

Rhea-AI Summary

San Juan Basin Royalty Trust (NYSE: SJT) announced no cash distribution for August 2024 due to excess production costs and low natural gas pricing. Hilcorp reported $2,851,950 in total revenue and $6,419,934 in production costs for June 2024. The excess production costs of approximately $8,456,506 gross ($6,342,379 net to the Trust) will be charged to the next month's distribution. Trust administrative expenses totaled $187,698. Gas volumes for June 2024 were 1,828,685 Mcf with an average price of $1.41 per Mcf. The Trustee is utilizing cash reserves to cover expenses and plans to increase reserves to $2.0 million before future distributions.

Positive

• Interest income of $6,302 received by the Trust
• Trustee maintaining cash reserves to cover Trust expenses during revenue shortfall

Negative

• No cash distribution declared for August 2024
• Excess production costs of $8,456,506 gross ($6,342,379 net to the Trust)
• Low natural gas pricing affecting revenues
• Significant lease operating expenses and capital expenditures
• Decrease in gas volumes from 1,970,451 Mcf in May to 1,828,685 Mcf in June 2024
• Utilization of cash reserves to cover Trust administrative expenses

Insights

Financial Analyst

The news is highly negative for San Juan Basin Royalty Trust (NYSE: SJT) unitholders. The Trust declared no cash distribution for August 2024 due to excess production costs and low natural gas pricing. Key points:

• Revenue: $2,851,950
• Production costs: $6,419,934
• Excess production costs: $8,456,506 gross ($6,342,379 net to Trust)
• Average gas price: $1.41 per Mcf ($1.27 per MMBtu)

The Trust's cash reserves are depleting, down to $1,239,141 from $1.8 million in April. This financial strain suggests potential long-term challenges for the Trust's ability to make distributions, especially if natural gas prices remain low and production costs stay high.

Energy Industry Expert

The situation reflects broader challenges in the natural gas sector. The low natural gas price of $1.41 per Mcf is significantly below the five-year average, impacting profitability. Hilcorp's high capital expenditures of $3,651,890 suggest attempts to improve production efficiency, but the immediate impact is negative for unitholders. The decline in gas volumes from 1,970,451 Mcf in May to 1,828,685 Mcf in June is concerning, potentially indicating production issues or strategic output reduction due to low prices. This scenario underscores the volatility and risks associated with royalty trusts tied to commodity prices.

Legal Expert

The Trust's ongoing comprehensive audit of Hilcorp's accounting and reporting is a critical development. The mention of "potential remedies in the event there is suspected non-compliance" suggests possible legal implications. Unitholders should closely monitor this audit, as any findings of non-compliance could lead to legal actions or contract renegotiations. The Trust's ability to enforce its rights under the operative agreements is important for protecting unitholder interests, especially given the current financial strain. The Trustee's actions in managing cash reserves and conducting audits demonstrate fiduciary responsibility but also highlight the complex legal landscape of royalty trust operations.

DALLAS, Aug. 20, 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 June 2024, as well as 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 $2,851,950 of total revenue from the Subject Interests for the production month of June 2024, consisting of $2,577,981 of gas revenues and $273,969 of oil revenues. For the Subject Interests, Hilcorp reported $6,419,934 of production costs (excluding excess production costs) for the production month of June 2024, consisting of $2,444,154 of lease operating expenses, $323,890 of severance taxes, and $3,651,890 of capital costs.

Hilcorp will charge the excess production costs of approximately $8,456,506 gross ($6,342,379 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 $187,698. 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 $6,302 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 June 2024 totaled 1,828,685 Mcf (2,031,872 MMBtu), as compared to 1,970,451 Mcf (2,189,390 MMBtu) for May 2024. Dividing gas revenues by production volume yielded an average gas price for June 2024 of $1.41 per Mcf ($1.27 per MMBtu), as compared to an average gas price for May 2024 of $1.14 per Mcf ($1.02 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 each of May, June, and July of 2024. This month, cash reserves in the amount of $181,396 will be utilized to cover the balance of Trust administrative expenses which will bring the balance of cash reserves maintained by the Trustee to $1,239,141. 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-august-2024-and-announces-production-costs-in-excess-of-proceeds-302225953.html

SOURCE San Juan Basin Royalty Trust

FAQ

Why is San Juan Basin Royalty Trust (SJT) not declaring a cash distribution for August 2024?

SJT is not declaring a cash distribution for August 2024 due to excess production costs for the Trust's subject interests during the production month of June 2024 and low natural gas pricing.

What were the total revenues and production costs reported by Hilcorp for SJT in June 2024?

Hilcorp reported total revenues of $2,851,950 and production costs of $6,419,934 for SJT's subject interests in June 2024.

How much are the excess production costs for SJT in June 2024?

The excess production costs for SJT in June 2024 are approximately $8,456,506 gross ($6,342,379 net to the Trust).

What was the average gas price for SJT's subject interests in June 2024?

The average gas price for SJT's subject interests in June 2024 was $1.41 per Mcf ($1.27 per MMBtu).

How much cash reserves does the Trustee of SJT plan to maintain?

The Trustee of SJT plans to increase the cash reserves to $2.0 million before making any future distributions to Unit Holders.