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

Rhea-AI Summary

Argent Trust Company, as the trustee of the San Juan Basin Royalty Trust (SJT), announced no cash distribution for May 2024 due to excessive production costs and lower natural gas pricing. For March 2024, Hilcorp San Juan L.P. reported revenues of $3,161,533 and production costs of $3,593,830, leading to a shortfall. Gas volumes increased from February to March 2024, but average gas prices dropped significantly. The Trustee will use cash reserves of $249,344 to cover administrative expenses, aiming to replenish reserves to $2.0 million before future distributions. An ongoing audit process ensures compliance with Trust agreements.

Positive

• Hilcorp reported increased gas volumes for March 2024 (1,909,338 Mcf) compared to February 2024 (1,759,503 Mcf).
• Ongoing comprehensive audit ensures compliance with Trust agreements and evaluates potential remedies for non-compliance.
• The Trustee has a clear plan to replenish and maintain cash reserves at $2.0 million for future distributions.

Negative

• No cash distribution for May 2024 due to excess production costs and lower natural gas pricing.
• Production costs for March 2024 ($3,593,830) exceeded revenues ($3,161,533), resulting in a financial shortfall.
• Average gas prices dropped significantly from $3.06 per Mcf in February 2024 to $1.50 per Mcf in March 2024.
• Excess production costs will be charged to next month's distribution, further delaying potential payouts to Unit Holders.

Insights

Financial Analyst

San Juan Basin Royalty Trust's announcement of no cash distribution for May 2024 due to excess production costs and lower natural gas pricing is significant for several reasons. Firstly, the decrease in average gas price from $3.06 per Mcf in February to $1.50 per Mcf in March is substantial. This rapid decline in natural gas pricing directly impacts revenue generation, which is critical for the Trust and its Unit Holders.

Moreover, the $3,593,830 in production costs reported for March 2024, which includes high lease operating expenses and severance taxes, surpass the total revenue of $3,161,533. This indicates operational inefficiencies or high operational costs, which need to be scrutinized. The utilization of cash reserves to cover Trust administrative expenses and the Trustee's plan to replenish and increase these reserves to $2 million suggests an ongoing liquidity concern that must be addressed.

For a retail investor, the immediate impact is the absence of cash distribution, which directly affects short-term income. Long-term concerns revolve around the sustainability of cash flows, given fluctuating natural gas prices and high production costs. Investors should monitor whether production costs can be optimized and if natural gas prices stabilize or improve. The audit process mentioned, although necessary, indicates that there could be underlying compliance issues that might further affect financial health if not resolved quickly.

Market Research Analyst

The announcement underscores the volatility inherent in the natural gas market and its direct impact on entities like the San Juan Basin Royalty Trust. The significant drop in gas prices can be attributed to broader market dynamics, such as oversupply, changes in demand, or shifts in energy policy. For retail investors, understanding these market conditions is important when evaluating investments in royalty trusts tied to natural resources.

The Trust's proactive approach in engaging Hilcorp and auditing the financials demonstrates a commitment to transparency and governance, which are positive long-term attributes. However, the immediate financial strain and the need to draw from cash reserves to cover operational costs highlight potential cash flow issues. Investors should pay attention to the outcomes of these audits and any future disclosures regarding compliance or financial irregularities.

On a broader scale, this event serves as a reminder of the importance of diversification. Relying heavily on income from a single commodity-based investment can expose investors to significant risks, particularly in volatile markets.

DALLAS, May 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 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 a significant increase in lease operating expenses associated with Hilcorp San Juan L.P.'s ("Hilcorp") 2024 capital project plan.

Hilcorp reported $3,161,533 of total revenue from the Subject Interests for the production month of March 2024, consisting of $2,855,791 of gas revenues and $305,742 of oil revenues. For the Subject Interests, Hilcorp reported $3,593,830 of production costs for the production month of March 2024, consisting of $2,947,024 of lease operating expenses, $380,082 of severance taxes, and $266,724 of capital costs.

Cash reserves will be utilized to pay Trust administrative expenses of $252,481. Hilcorp will charge the excess production costs of approximately $432,297 gross ($324,223 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 March 2024 totaled 1,909,338 Mcf (2,121,487 MMBtu), as compared to 1,759,503 Mcf (1,955,004 MMBtu) for February 2024. Dividing gas revenues by production volume yielded an average gas price for March 2024 of $1.50 per Mcf ($1.35 per MMBtu), as compared to an average gas price for February 2024 of $3.06 per Mcf ($2.75 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 $249,344 will be utilized to pay Trust administrative expenses for May 2024, which will bring the balance of cash reserves maintained by the Trustee to $1,550,656. 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 ensure full compliance with all the underlying operative Trust agreements and evaluate potential remedies in the event there is evidence of 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-may-2024-and-announces-production-costs-in-excess-of-proceeds-302149542.html

SOURCE San Juan Basin Royalty Trust

FAQ

Why is there no cash distribution for San Juan Basin Royalty Trust (SJT) in May 2024?

There is no cash distribution for May 2024 due to excess production costs and lower natural gas pricing.

What were the production costs for San Juan Basin Royalty Trust's subject interests in March 2024?

The production costs for March 2024 were $3,593,830, consisting of $2,947,024 in lease operating expenses, $380,082 in severance taxes, and $266,724 in capital costs.

What were the revenues for San Juan Basin Royalty Trust's subject interests in March 2024?

The revenues for March 2024 were $3,161,533, including $2,855,791 from gas and $305,742 from oil.

How did the average gas price change for San Juan Basin Royalty Trust's subject interests from February to March 2024?

The average gas price dropped from $3.06 per Mcf in February 2024 to $1.50 per Mcf in March 2024.

What is the Trustee's plan to handle future revenue shortfalls for the San Juan Basin Royalty Trust?

The Trustee plans to replenish cash reserves to $2.0 million before making future distributions to Unit Holders.