#USA #Dallas #Royalty Trust #San Juan Basin #Hilcorp

No Cash Distribution for January 2025 from San Juan Basin Royalty Trust

In a recent announcement, the San Juan Basin Royalty Trust, managed by Argent Trust Company, has revealed that it will not issue a cash distribution for January 2025. This decision is primarily driven by substantial production costs exceeding the revenues generated from its natural gas and oil interests, as reported for November 2024. This situation indicates a critical phase for the trust, reflecting the ongoing challenges in the oil and gas market.

Reasons Behind the Decision

The Trust's reported costs exceeded $13 million in production expenditures, significantly influenced by the operational costs associated with Hilcorp San Juan L.P. Managed capital projects. In November 2024, Hilcorp generated roughly $4.88 million in total revenue, composed of $4.75 million from gas and a little over $128,000 from oil. However, the steep production costs coupled with low natural gas pricing have rendered it impossible for the Trust to declare any distributions to its beneficial interest holders this month.

Hilcorp has identified around $29.5 million in excess production costs for this reporting period, which will be carried over to the next month's distribution report. This surplus, which amounts to approximately $22 million net for the trust, underscores the precarious financial position currently faced by the Trust. Until the net proceeds surpass the Trust's liabilities and sufficiently replenish cash reserves, no distributions will likely occur.

Financial Overview

In a deeper financial analysis, administrative expenses for the Trust for the month came to about $113,000. The scaling down of these expenditures is attributed to various timing discrepancies concerning the receipt and payment of specific expenses. This month, the Trust managed to receive a small interest income of around $3,500, helping to offset some of the administrative costs.

Comparative data show that gas volumes for the Trust’s interests stood at approximately 2.26 million Mcf for November, up from 1.88 million Mcf in October. This, however, only reflects an average gas price per Mcf of $2.10, a marginal increase compared to October’s average price of $1.92. These fluctuations in pricing emphasize the unpredictability of the current market.

Looking Ahead

Under the guidelines set by the Amended and Restated Royalty Trust Indenture, the Trustee has the authority to retain cash reserves in anticipation of future liabilities. With a strategic approach in mind, the Trustee has been increasing cash reserves to offer a cushion against ongoing revenue shortfalls, which have emerged due to declining commodity prices alongside soaring operational costs. As of April 30, 2024, the cash reserves totaled about $1.8 million, which will be essential in addressing upcoming administrative needs before any future distributions can be considered.

The Trust’s financial strategy includes replenishing cash reserves, aiming to achieve a baseline of $2 million prior to disbursing any future distributions to unit holders. The continued collaboration with Hilcorp will remain vital as both parties work toward resolving accounting discrepancies and managing production effectively.

In summary, the San Juan Basin Royalty Trust’s current circumstances reflect broader challenges in the energy sector, where price volatility and rising operational costs threaten the financial health of institutions reliant on commodity revenues. Continuous monitoring and strategic financial planning will be crucial for the Trust to navigate this challenging landscape and ensure future stability for its unit holders.