CRT

Cross Timbers Royalty Trust (CRT) - 2025 10-K Summary

Business Context and Reporting Period

Cross Timbers Royalty Trust is an express trust created under Texas law, holding defined net profits interests in oil and gas properties owned by XTO Energy (a subsidiary of ExxonMobil). The Trust has no employees; administrative functions are performed by Argent Trust Company. The reporting period covers the fiscal year ended December 31, 2025. The Trust distributes monthly cash flows derived from 90% net profits interests (primarily royalty interests) and 75% net profits interests (working interests) in Texas, Oklahoma, and New Mexico.

Key Financial Metrics

Production & Pricing (2025): Average oil price was $65.85/Bbl (down 13% from 2024); average gas price was $4.40/Mcf (up 11% from 2024). Approximately 51% of net profits income was derived from natural gas.

Material Changes vs. Prior Period

• Income Decline: Net profits income decreased 13% to $5.74 million. This was primarily driven by lower oil prices ($1.3M impact), decreased oil production ($0.9M), and decreased gas production ($0.6M).
• Cost Reductions: The decline in income was partially offset by a significant 89% reduction in development costs ($1.0M savings), lower production expenses, and reduced taxes/transportation costs.
• Excess Costs: Cumulative excess costs for the Texas working interest conveyance increased to $5.5 million (including $1.5M accrued interest), meaning future net proceeds from this specific conveyance must recover these costs before generating income for the Trust. Oklahoma working interest excess costs were fully recovered in 2025.
• Reserves: Proved reserves for the net profits interests totaled 297,000 Bbls of oil and 9.431 Bcf of gas. The reserve-to-production index is approximately nine years.

Outlook, Risks, and Management Commentary

• Outlook: Management notes that oil and gas prices remain volatile. Future development costs are budgeted at approximately $0.09 million for 2026. The Trust expects natural production decline rates of 6-8% annually.
• Accounting Basis: Financial statements are prepared on a modified cash basis, not U.S. GAAP. Income is recognized when received, not when produced.
• Key Risks:
  • Commodity Prices: Distributions are highly sensitive to oil and gas price fluctuations.
  • Depleting Assets: The Trust holds interests in depleting assets; distributions include a return of capital component.
  • Excess Costs: If costs exceed revenues on working interest properties (specifically Texas), no income is paid until the deficit plus interest is recovered.
  • Regulatory/Tax: Potential impacts from GHG emissions regulations and the "One Big Beautiful Bill Act" (OBBBA) signed in July 2025, which modified federal tax provisions.
• Unusual Items: The Trust increased its expense reserve by $450,000 in 2025 to $1.45 million to cover potential future liabilities.

Investor Verification Checklist

• Excess Cost Recovery: Verify the timeline for recovering the $5.5 million cumulative excess costs on the Texas working interest, as this directly delays income from that portion of the portfolio.
• Production Decline: Monitor the 6-8% annual natural decline rate against actual production volumes to assess the longevity of cash flows.
• Commodity Price Sensitivity: Assess the impact of current NYMEX oil and gas prices against the 12-month average prices used for reserve valuation ($62.98/Bbl oil, $3.86/Mcf gas).
• Development Activity: Confirm if the low budgeted development costs for 2026 ($0.09M) indicate a lack of maintenance drilling, which could accelerate production decline.
• Tax Implications: Review the specific tax consequences of the OBBBA legislation for individual unitholders regarding depletion deductions and capital gains.