Cross Timbers Royalty Trust - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2003. Cross Timbers Royalty Trust holds net profits interests in oil and gas properties operated by XTO Energy Inc. The trust is managed by Bank of America, N.A. As of October 1, 2003, there were 6,000,000 units of beneficial interest outstanding. On September 18, 2003, XTO Energy distributed all 1,360,000 trust units it owned to its common stockholders and is no longer a unitholder.
Key Financial Metrics
| Metric | Q3 2003 | Q3 2002 | 9 Months 2003 | 9 Months 2002 |
|---|---|---|---|---|
| Net Profits Income | $3,122,116 | $2,526,363 | $9,539,904 | $6,222,032 |
| Distributable Income | $3,069,612 | $2,494,434 | $9,332,976 | $6,022,728 |
| Distributable Income Per Unit | $0.511602 | $0.415739 | $1.555496 | $1.003788 |
| Cash and Short-Term Investments | $1,131,104 | $1,248,735 | $1,131,104 | $1,248,735 |
| Trust Corpus | $25,196,602 | $27,295,991 | $25,196,602 | $27,295,991 |
| Administration Expenses | $53,457 | $33,397 | $210,275 | $202,632 |
Note: The filing does not provide specific debt figures as the trust operates on a modified cash basis with no reported long-term debt liabilities.
Material Changes vs. Prior Period
- Revenue Growth: Net profits income increased 24% in Q3 2003 and 53% for the nine-month period compared to 2002. This growth was driven primarily by significantly higher oil and gas sales prices, which offset declines in production volumes.
- Production Volumes: Oil sales volumes from underlying properties decreased 16% in Q3 and 12% for the nine months due to natural production decline. Gas sales volumes decreased 16% in Q3 and 11% for the nine months.
- Price Increases: Average oil prices rose 13% (Q3) and 35% (9 months). Average gas prices surged 66% (Q3) and 76% (9 months).
- Costs: Development costs decreased significantly (65% in Q3, 75% for 9 months) due to reduced drilling activity. Production expenses increased 12% due to higher fuel costs.
Outlook, Risks, and Management Commentary
- Market Outlook: Management notes that oil prices remain relatively high due to the war in Iraq and low storage levels, though OPEC production cuts are in place. Natural gas prices are expected to remain volatile, influenced by weather, storage levels, and economic recovery.
- Contingencies: Several states have enacted legislation requiring state income tax withholding from nonresident royalty owners. While XTO Energy believes the trust is not currently subject to these requirements, final regulations are pending. If applicable, distributions could 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
- Ownership Change: Verify the impact of XTO Energy divesting its 1,360,000 trust units on September 18, 2003.
- Tax Withholding Risk: Monitor the status of state income tax withholding regulations for nonresident royalty owners, as this could reduce future distributions.
- Production Decline: Confirm the rate of natural production decline in underlying properties, as volumes are decreasing despite price increases.
- Price Volatility: Assess the sensitivity of future distributable income to fluctuations in NYMEX oil and gas futures prices.