Cross Timbers Royalty Trust - Q1 2002 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2002. Cross Timbers Royalty Trust holds net profits interests in oil and gas properties operated by XTO Energy Inc. The trust receives net profits income based on 90% of net proceeds from royalty/overriding royalty interests and 75% of net proceeds from working interests. As of May 1, 2002, there were 6,000,000 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Q1 2002 | Q1 2001 |
|---|---|---|
| Net Profits Income | $1,879,550 | $4,107,459 |
| Total Income | $1,880,476 | $4,114,495 |
| Distributable Income | $1,804,746 | $4,048,902 |
| Distributable Income Per Unit | $0.300791 | $0.674817 |
| Cash and Short-Term Investments | $472,771 | $852,349 (Dec 31, 2001) |
| Trust Corpus | $28,410,542 | $28,895,086 (Dec 31, 2001) |
| Administration Expense | $75,730 | $65,593 |
Note: The filing does not provide specific debt figures as the trust structure relies on net profits interests rather than traditional corporate debt. Liquidity is represented by cash balances and receivables.
Material Changes vs. Prior Period
- Revenue Decline: Net profits income decreased 54% year-over-year, primarily driven by a 40% drop in average oil prices ($17.28 vs. $28.73 per Bbl) and a 58% drop in average gas prices ($2.54 vs. $6.11 per Mcf).
- Volume Trends: Underlying oil sales volumes remained flat (83,111 Bbls vs. 82,869 Bbls). Underlying gas sales volumes increased 18% (780,720 Mcf vs. 663,188 Mcf) due to timing of cash receipts.
- Cost Increases: Development costs rose 74% to $282,548 due to drilling activity on Texas properties. Production expenses increased 6% due to maintenance timing.
- Excess Costs: For the first time in the comparison period, costs exceeded revenues for the Texas 75% net profits interests by $66,867. This created a deficit that must be recovered from future proceeds before income can be generated from that specific interest.
Outlook, Risks, and Contingencies
- Price Volatility: Management notes that oil and gas prices remain volatile. While prices strengthened in early 2002 compared to late 2001 lows, they remain significantly below 2001 levels. Future income is highly sensitive to commodity prices.
- Excess Cost Recovery: Cumulative excess costs for the Texas 75% interest stand at $49,556 (plus accrued interest). These must be recovered before this segment contributes to net profits income again.
- Tax Credits: The trust benefits from Section 29 coal seam gas tax credits. The estimated credit for Q1 2002 is $0.025 per unit. Legislation regarding the extension of these credits beyond December 31, 2002, is pending and uncertain.
- Forward-Looking Statements: The filing includes standard disclaimers that future expectations regarding production, prices, and development costs are subject to risks and uncertainties.
Investor Verification Checklist
- Verify the current status of the $49,556 excess cost deficit for the Texas 75% interest and its impact on future distributions.
- Monitor oil and gas price trends relative to the trust's specific pricing basis (noting the trust's oil prices average ~$2.70 below NYMEX).
- Confirm the final calculation of the Section 29 coal seam tax credit for 2002 and any legislative changes affecting its expiration.
- Review the drilling activity on Texas properties to assess if development costs will remain elevated in subsequent quarters.