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

San Juan Basin Royalty Trust Declares No Cash Distribution for April 2025

On April 17, 2025, Argent Trust Company, acting as the trustee of the San Juan Basin Royalty Trust (NYSE: SJT), communicated to unit holders the decision not to declare the monthly cash distribution for April 2025. The absence of distributions stems from the challenges posed by excess production costs related to the recent drilling activities conducted by Hilcorp San Juan L.P. in 2024.

The Trust reported a notable figure of $3,435,269 that was meant to be allocated to the Trust as royalty income, but instead, it must be directed towards alleviating the cumulative excess production costs. Currently, the outstanding balance of these costs stands at approximately $17,159,588 gross, which translates to $12,869,691 net to the Trust. This signifies a reduction of $4,580,359 gross from the previous reporting period, indicating some progress but still leaving a significant financial burden that the Trust must address.

Hilcorp’s new horizontal wells have contributed to these excess production costs, as their drilling expenditures have surpassed the income generated. The Trust will continue applying all net proceeds against these excess production costs until they are fully settled. Consequently, the Trust will withhold making any cash distributions until sufficient revenue is generated to both cover its liabilities and restock its cash reserves.

The figures provided by Hilcorp reveal that total revenue for the production month of February 2025 reached $7,869,451, primarily driven by gas revenues of $7,685,519 and oil revenues amounting to $183,932. The production costs, excluding the balance of excess production costs, saw a report of $3,289,092, comprising lease operating expenses, severance taxes, and capital expenditures.

In terms of administrative expenses, this month demonstrated a total of $142,466, reflecting a decrease attributed to timing differences in financial activities. Interest income, which amounted to $1,742, was earmarked to assist in covering these administrative costs, while remaining expenses were settled from existing cash reserves.

The Trust’s substantial gas volumes for February was registered at 2,287,310 Mcf (approximately 2,541,456 MMBtu), lower than the preceding month’s figures. This drop in volume influenced the average gas price, which declined to $3.36 per Mcf ($3.02 per MMBtu) from $3.74 per Mcf ($3.37 per MMBtu) in January.

Following the guidelines set out in the Amended and Restated Royalty Trust Indenture, the Trustee retains the authority to hold a cash reserve to cover uncertain or contingent liabilities. In response to ongoing revenue shortfalls, the Trustee has made strides in bolstering the cash reserves, which amounted to $1.8 million prior to April 2024. Moving forward, the Trustee is setting plans to increase reserves to a goal of $2.0 million before any distributions can be envisioned for unit holders.

Moreover, the Trust remains operationally engaged with Hilcorp regarding its accounting practices, with continued monitoring by third-party auditors to ensure compliance with all agreements and to evaluate revenues generated against costs incurred. This scrutiny extends to examining pricing structures to secure the Trust's interests and to address any suspicious discrepancies.

These developments reflect a cautious but necessary response to the financial realities faced by the San Juan Basin Royalty Trust amidst fluctuating commodity prices and pressing operational expenses. Though challenges persist, strategies are being implemented to realign the Trust's financial outlook, with an emphasis on fiscal responsibility and transparency for unit holders as they navigate this complex landscape.

In conclusion, while the San Juan Basin Royalty Trust finds itself in a pause for cash distributions due to pressing excess production costs, the responsible management approaches being adopted underscore a commitment to recovery and advancement in financial stability.