Cross Timbers Royalty Trust - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 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% interests in royalty/overriding royalty properties and 75% interests in working interest properties. As of July 15, 2004, there were 6,000,000 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2004 | Six Months Ended June 30, 2004 |
|---|---|---|
| Net Profits Income | $3,658,858 | $6,774,996 |
| Total Income | $3,659,971 | $6,776,537 |
| Distributable Income | $3,555,792 | $6,601,776 |
| Distributable Income Per Unit | $0.592632 | $1.100296 |
| Administration Expense | $104,179 | $174,761 |
| Cash and Short-Term Investments | $1,107,388 | (Balance Sheet Item) |
| Net Profits Interests (Net) | $23,815,899 | (Balance Sheet Item) |
| Distribution Payable | $1,107,822 | (Balance Sheet Item) |
Note: The filing does not explicitly state a "profit margin" percentage or "debt" figures, as the trust operates on a modified cash basis and holds royalty interests rather than traditional corporate debt.
Material Changes vs. Prior Period
- Quarterly Comparison (Q2 2004 vs. Q2 2003): Net profits income decreased 3% to $3.66 million. This decline was driven by a 244% increase in development costs due to drilling activity on Oklahoma properties, which offset revenue gains from higher oil prices.
- Semi-Annual Comparison (6 Months 2004 vs. 6 Months 2003): Net profits income increased 6% to $6.77 million. This growth was primarily due to higher oil and gas sales prices.
- Production Volumes: Oil sales volumes remained relatively flat for the quarter but declined 6% for the six-month period due to natural production decline. Gas sales volumes decreased 7% for both periods.
- Prices: Average oil prices increased 11% (to $33.13/Bbl for the quarter), and gas prices increased 3% (to $5.53/Mcf for the quarter).
- Expenses: Administration expenses increased 18% for the quarter and 11% for the six-month period, largely due to higher reporting costs associated with an increased number of unitholders.
Outlook, Risks, and Management Commentary
- Market Conditions: Management notes that oil prices are influenced by global supply/demand and OPEC production discipline. Gas prices remain volatile, affected by weather, storage levels, and demand.
- Development Activity: Increased drilling activity on specific properties contributed to higher development costs in the current period.
- Tax Contingency: Several states have enacted legislation requiring income tax withholding from nonresident recipients. While XTO Energy currently advises the trust is not subject to these requirements, regulations are subject to change. If withholding becomes required, distributions to unitholders would be reduced.
- Forward-Looking Statements: The filing includes standard disclaimers regarding uncertainties in oil and gas prices, production volumes, and development costs.
Key Facts for Investor Verification
- Revenue Sensitivity: Verify the impact of future oil and gas price fluctuations on net profits income, given the trust's reliance on commodity prices.
- Development Costs: Monitor future development costs, as the 244% quarterly increase significantly impacted distributable income despite higher revenues.
- Production Decline: Confirm the rate of natural production decline in underlying properties, which reduced gas volumes by 7% and oil volumes by 6% (six-month basis).
- Tax Withholding Risk: Assess the potential impact of state tax withholding legislation on future distribution amounts.
- Accounting Basis: Note that financial statements are prepared on a modified cash basis, not GAAP, meaning revenues are recognized when received rather than accrued.