Cross Timbers Royalty Trust - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2005. Cross Timbers Royalty Trust is a Texas trust holding net profits interests in oil and gas properties owned by XTO Energy Inc. The trust holds 90% net profits interests in royalty/overriding royalty interests and 75% net profits interests in working interests across Texas, Oklahoma, and New Mexico. As of April 1, 2005, there were 6,000,000 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Q1 2005 | Q1 2004 |
|---|---|---|
| Net Profits Income | $4,462,096 | $3,116,138 |
| Total Income | $4,465,615 | $3,116,566 |
| Distributable Income | $4,340,544 | $3,045,984 |
| Distributable Income Per Unit | $0.723424 | $0.507664 |
| Administration Expense | $125,071 | $70,582 |
| Cash and Short-Term Investments | $1,373,527 | $1,435,478 |
| Net Profits Interests (Net) | $22,411,018 | $22,847,694 |
| Trust Corpus | $22,411,018 | $22,847,694 |
Note: The filing does not explicitly list debt or liquidity ratios beyond cash balances. The trust operates on a modified cash basis.
Material Changes vs. Prior Period
- Revenue Growth: Net profits income increased 43% year-over-year, driven primarily by higher commodity prices rather than volume.
- Commodity Prices: Average oil sales price rose 42% to $42.25 per barrel; average gas sales price rose 34% to $6.96 per Mcf.
- Production Volumes: Underlying oil and gas sales volumes both decreased by approximately 2% due to natural production decline.
- Expenses: Administration expenses increased 77% due to fees related to the 2004 audit of internal controls and timing of expenditures. Production expenses increased 11% due to maintenance costs.
- Trust Corpus: Decreased by $436,676 due to amortization of net profits interests, offset by distributable income and distributions.
Outlook, Risks, and Commentary
- Price Outlook: Management notes oil prices reached record levels in April 2005 (exceeding $58/Bbl). Gas prices remain volatile, influenced by weather, demand, and LNG imports.
- Cost Structure: The trust bears no production or development costs for its 90% interests, but the 75% interests are subject to these costs. Costs generally increased due to higher production taxes and maintenance timing.
- Tax Contingency: Several states have enacted legislation requiring income tax withholding from nonresident recipients. XTO Energy currently believes the trust is not subject to these requirements, but regulations are subject to change. If withholding is required, distributions would be reduced.
- Forward-Looking Statements: Future results depend on oil/gas prices, production volumes, and costs, all of which are subject to market risks and uncertainties.
Investor Verification Checklist
- Verify the impact of potential state income tax withholding legislation on future distribution amounts.
- Monitor the correlation between NYMEX futures prices and the trust's actual realized prices (noted as a discount for oil and premium for gas).
- Review the natural production decline rates for underlying properties to assess long-term revenue sustainability absent price increases.
- Confirm the timing of cash receipts, as income is recognized with a lag (approx. 2 months for oil, 3 months for gas) relative to production.