Cross Timbers Royalty Trust - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2004. Cross Timbers Royalty Trust is a Texas trust holding net profits interests in oil and gas properties owned by XTO Energy Inc. The trust receives net profits income based on 90% or 75% of net proceeds from underlying properties in Texas, Oklahoma, and New Mexico. As of April 27, 2004, there were 6,000,000 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Q1 2004 | Q1 2003 |
|---|---|---|
| Net Profits Income | $3,116,138 | $2,662,646 |
| Total Income | $3,116,566 | $2,663,637 |
| Distributable Income | $3,045,984 | $2,595,228 |
| Distributable Income Per Unit | $0.507664 | $0.432538 |
| Administration Expense | $70,582 | $68,409 |
| Cash and Short-Term Investments | $1,032,253 | $994,389 |
| Trust Corpus (Net) | $24,243,319 | $26,079,477 |
Note: The filing does not report traditional debt or liquidity ratios as the trust operates on a modified cash basis with no long-term debt obligations listed in the condensed statements.
Material Changes vs. Prior Period
- Revenue Growth: Net profits income increased 17% year-over-year, driven primarily by higher natural gas prices.
- Production Volumes: Oil sales volumes decreased 12% and gas sales volumes decreased 6% due to natural production decline and timing of cash receipts.
- Price Increases: Average oil prices rose 10% to $29.66 per barrel, while average gas prices surged 33% to $5.19 per Mcf.
- Cost Variance: Development costs increased 96% due to increased drilling activity on an Oklahoma property. Production expenses decreased 5% due to timing of maintenance projects.
Outlook, Risks, and Management Commentary
- Market Outlook: Management notes that oil prices reached 13-year highs in March 2004 due to low gasoline stocks. Natural gas prices remain volatile, supported by forecasts of production declines and increasing demand, though subject to weather and economic recovery.
- Contingencies: Several states have enacted legislation requiring income tax withholding from nonresident recipients of oil and gas proceeds. While XTO Energy currently believes the trust is not subject to these requirements, changing regulations could reduce distributions to unitholders if withholding becomes mandatory.
- Forward-Looking Statements: The filing includes standard disclaimers regarding uncertainties in oil and gas prices, production volumes, and development costs.
Investor Verification Checklist
- Verify the impact of potential state tax withholding legislation on future net distributions.
- Monitor natural gas price volatility and its correlation to the trust's revenue, given the 33% price increase drove the quarter's growth.
- Review the sustainability of the 96% increase in development costs and its effect on future net proceeds.
- Confirm the natural production decline rates for oil and gas volumes against future price projections.
- Check the trust's cash reserves against upcoming distribution obligations, noting the modified cash basis of accounting.