Cross Timbers Royalty Trust - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2001, for the Cross Timbers Royalty Trust. The Trust holds net profits interests in oil and gas properties located in Texas, Oklahoma, and New Mexico, managed by XTO Energy Inc. (formerly Cross Timbers Oil Company). As of August 1, 2001, there were 6,000,000 units of beneficial interest outstanding. The financial statements are prepared on a modified cash basis.
Key Financial Metrics
| Metric | Q2 2001 | Q2 2000 | YTD 6 Mo 2001 | YTD 6 Mo 2000 |
|---|---|---|---|---|
| Royalty Income | $4,221,331 | $2,477,134 | $8,328,790 | $4,830,014 |
| Total Income | $4,227,567 | $2,483,053 | $8,342,062 | $4,839,882 |
| Distributable Income | $4,178,970 | $2,424,630 | $8,227,872 | $4,725,426 |
| Income Per Unit | $0.696495 | $0.404105 | $1.371312 | $0.787571 |
| Administration Expense | $48,597 | $58,423 | $114,190 | $114,456 |
| Cash & Short-term Investments | $1,093,511 | $1,048,031 | (Balance Sheet Data) | |
| Net Profits Interests (Net) | $29,872,361 | $30,755,456 |
Liquidity and Debt: The Trust holds no debt. Cash and short-term investments totaled $1,093,511 as of June 30, 2001. Distributions payable to unitholders were $1,095,060.
Material Changes vs. Prior Period
- Revenue Surge: Royalty income increased 70% in Q2 2001 and 72% for the six-month period compared to 2000. This growth was driven primarily by a 136% increase in average natural gas sales prices (from $2.88 to $6.79 per Mcf in Q2).
- Volume Decline: Despite price increases, production volumes declined. Oil sales volumes from underlying properties dropped 2% in Q2 and 4% YTD. Gas sales volumes dropped 8% in Q2 and 13% YTD, attributed to natural production decline (particularly in coal seam properties) and timing of cash receipts.
- Cost Increases: Total costs rose 32% in Q2 and 19% YTD. Development costs increased significantly (203% in Q2) due to increased activity on Oklahoma working interest properties. Taxes and transportation costs rose 46% due to higher revenues.
- Excess Costs: There were no outstanding excess costs in 2001. All excess costs from prior periods were fully recovered by May 2000.
Outlook, Risks, and Management Commentary
- Market Conditions: Oil prices faced downward pressure due to a worldwide economic slowdown and lagging demand, though OPEC production cuts were announced to stabilize prices. Gas prices declined in the first half of 2001 due to milder weather reducing demand, though trust prices remained higher than NYMEX averages.
- Coal Seam Tax Credit: The Trust receives income from coal seam gas wells qualifying for federal tax credits. The estimated credit for the six months ended June 30, 2001, is $0.051 per unit.
- XTO Energy Unit Sale: On June 21, 2001, XTO Energy filed to sell 1,360,000 units (22.7% of outstanding units) held by the company. The Trust will not receive proceeds from this sale.
- Risks: The filing includes standard forward-looking statement disclaimers regarding market conditions, production volumes, and commodity prices. There have been no material changes in market risks since the 2000 10-K.
Investor Verification Checklist
- Price Sensitivity: Verify the correlation between current NYMEX gas prices and the Trust's realized prices, given the significant reliance on gas revenue growth.
- Production Decline: Monitor the rate of natural production decline in coal seam properties to assess long-term volume sustainability.
- Development Costs: Review the impact of increased development costs on Oklahoma working interests and whether these investments will yield future volume increases.
- XTO Energy Holdings: Confirm the status of the proposed sale of 1,360,000 units by XTO Energy and its potential impact on market liquidity.
- Tax Credit Finalization: Await final 2001 coal seam tax credit data to be provided with year-end tax information.