SJT

Business Context and Reporting Period

Company: San Juan Basin Royalty Trust (SJT)
Reporting Period: Quarter ended September 30, 2025 (Unaudited)
Trustee: Argent Trust Company
Business Model: The Trust holds a 75% net overriding royalty interest in oil and gas properties in the San Juan Basin, New Mexico, operated by Hilcorp San Juan L.P. The Trust distributes cash to Unit Holders based on Net Proceeds (Gross Proceeds minus Production Costs). The Trust has no employees or active management; the Trustee handles administration.

Key Financial Metrics

Material Changes vs. Prior Period

• Cessation of Distributions: The Trust reported zero Royalty Income for the three and nine months ended September 30, 2025, compared to $6.9 million in the prior year period. Consequently, no distributions were declared for the current period, whereas $0.110670 per Unit was distributed in the prior year.
• Excess Production Costs: Production costs (including capital expenditures for two new horizontal wells) exceeded Gross Proceeds. Net proceeds of $1,174,206 for the quarter and $7,654,275 for the nine months were applied to recover cumulative Excess Production Costs rather than being paid to the Trust. The remaining balance to be recovered is approximately $13.6 million gross ($10.2 million net to the Trust).
• Liquidity and Debt: Due to insufficient income to cover liabilities, the Trust established a $2.0 million Line of Credit in May 2025. As of September 30, 2025, $274,135 was utilized. Cash reserves dropped from $760,920 at year-end 2024 to $29,160.
• Production and Pricing: Despite a 21.6% increase in natural gas production volumes and a 41.6% increase in average natural gas prices ($2.11/Mcf vs $1.49/Mcf) for the quarter, these gains were offset by high capital expenditures and operating costs.

Outlook, Risks, and Management Commentary

• Going Concern Doubt: The filing explicitly states that the anticipated deficit in income raises "substantial doubt" about the Trust's ability to continue as a going concern within one year. The Trust is relying on the Line of Credit to pay administrative expenses.
• Conditions for Resuming Distributions: Distributions to Unit Holders will not resume until: (1) the balance of Excess Production Costs is fully repaid; (2) cash reserves are replenished to $2,000,000; and (3) the Line of Credit is repaid in full.
• Capital Expenditures: Hilcorp's 2025 capital plan is approximately $9.0 million. As of September 30, 2025, $7.7 million had been spent. Future capital spending will continue to impact Net Proceeds.
• Subsequent Event: On October 21, 2025, the Trust announced it would not declare a monthly cash distribution due to additional Excess Production Costs from August 2025 and continued low natural gas pricing.
• Risks: The Trust is heavily dependent on Hilcorp's reporting accuracy and the market price of natural gas. The Trust has no control over production costs or capital spending decisions made by the operator.

Investor Verification Checklist

• Excess Production Costs Balance: Verify the current gross and net balance of Excess Production Costs ($13.6M gross / $10.2M net) and the timeline for recovery.
• Line of Credit Status: Monitor the utilization of the $2.0 million Line of Credit and interest payments (Prime + 1%) to ensure the Trust does not default.
• Hilcorp Capital Spending: Track Hilcorp's actual capital expenditures against the $9.0 million 2025 budget to assess future impact on Net Proceeds.
• Commodity Prices: Monitor natural gas prices in the San Juan Basin, as the Trust's income is highly sensitive to price fluctuations.
• Trustee Actions: Watch for announcements regarding the replenishment of the $2.0 million cash reserve requirement before distributions can resume.