#United States #Dallas #cash distribution #San Juan Basin #Hilcorp

San Juan Basin Royalty Trust: No Cash Distribution for March 2025

The San Juan Basin Royalty Trust (NYSE: SJT), managed by Argent Trust Company, has announced that there will be no cash distribution for March 2025. This decision primarily arises from the necessity to offset production costs which have significantly accrued following the drilling of two new horizontal wells by Hilcorp San Juan L.P. in 2024.

According to the latest report, the Trust will allocate net proceeds amounting to $4,153,693, which would typically be distributed as royalty income, towards covering excess production costs. Currently, the cumulative excess production costs amount to approximately $21,739,947 gross ($16,304,960 net to the Trust). Although this figure signifies a decrease from last month's accumulated costs, significant expenses still necessitate the Trust withholding cash distributions until future net proceeds can adequately meet its obligations and replenish cash reserves.

Hilcorp has reported a total revenue of $10,152,016 derived from the Subject Interests for January 2025, generated from both gas and oil sales. This revenue includes $10,063,934 attributed to gas, supplemented by $88,082 from oil. However, the reported production costs, which exclude the rising excess production costs, amount to $4,613,759. These figures incorporate crucial operational costs, such as lease operating expenses, severance taxes, and capital costs, thereby illuminating the financial challenges facing the Trust at present.

The administrative expenses for the Trust, amounting to $255,657, have also seen an uptick. This rise has been linked to timing discrepancies in expense receipt and payment. Notably, the Trust incurred annual NYSE listing fees and the expenses for reserve engineers within this reporting period. Interest income accrued will aid in covering part of these rising administrative costs, with remaining expenses being drawn from cash reserves.

Looking at the gas production from the Subject Interests, January 2025 witnessed volumes totaling 2,689,216 Mcf, a slight increase from the previous month. This uptick translates into an average gas price of $3.74 per Mcf, showcasing a notable rise compared to December’s average.

In accordance with the Trust's Amended Royalty Trust Indenture, the Trustee has the discretion to retain cash reserves for unsettled or uncertain Trust liabilities. Given the ongoing performance pressures — notably from lower commodity prices and elevated expenditures — the Trustee has reinforced reserve funds. As of April 2024, these reserves were boosted to $1.8 million, with ongoing monthly administrative costs being covered by both interest income and cash reserves.

Currently, the Trustee is exploring various credit avenues to ensure operational expenses are managed until the excess production costs are resolved and regular royalty income resumes. Hilcorp's production from the Subject Interests is being handled under typical market-sensitive agreements, with continued consultations and compliance auditing conducted between the Trust and Hilcorp.

Looking forward, Hilcorp has introduced its capital project plan for 2025, with projected expenditures capped at approximately $9.0 million across 29 planned projects, including vertical drilling and other facility upgrades. While this plan outlines ambitious growth, it is also subject to adjustments based on prevailing market conditions and operational costs.

In summary, the San Juan Basin Royalty Trust is facing substantial financial hurdles, resulting in the current decision to refrain from cash distributions amid ongoing production and operational cost challenges. Stakeholders should remain attentive to future announcements as the Trust navigates these complexities.