Cross Timbers Royalty Trust (CRT) - Q1 2025 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2025. Cross Timbers Royalty Trust is a fixed investment trust taxed as a grantor trust, holding net profits interests in oil and gas properties located in Texas, Oklahoma, and New Mexico. The Trust receives net profits income from XTO Energy Inc. (a wholly-owned subsidiary of Exxon Mobil Corporation) based on 90% and 75% net profits interests. As of May 14, 2025, there were 6,000,000 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Q1 2025 | Q1 2024 |
|---|---|---|
| Net Profits Income | $2,053,394 | $1,837,741 |
| Total Income (incl. interest) | $2,065,400 | $1,854,714 |
| Distributable Income | $1,783,938 | $1,493,214 |
| Distributable Income Per Unit | $0.297323 | $0.248869 |
| Administration Expense | $281,462 | $361,500 |
| Cash and Short-Term Investments | $1,936,621 | $1,369,379 |
| Net Profits Interests (Carrying Value) | $2,346,714 | $2,433,344 |
| Expense Reserve | $1,000,000 | $1,000,000 |
Material Changes vs. Prior Period
- Income Growth: Net profits income increased 12% year-over-year. Distributable income per unit rose from $0.248869 to $0.297323.
- Production Volumes: Underlying oil sales volumes increased 4% (44,370 Bbls vs. 42,662 Bbls), and gas sales volumes increased 19% (300,843 Mcf vs. 253,799 Mcf). Increases were primarily due to timing of cash receipts, partially offset by natural production decline.
- Commodity Prices: Average oil prices decreased 6% to $70.48/Bbl, and gas prices decreased 10% to $4.11/Mcf.
- Cost Reductions: Development costs dropped 88% ($131,242 vs. $1,113,069) due to the absence of drilling activity for the Hewitt Unit. Taxes, transportation, and other costs decreased 21%.
- Excess Costs: Net excess costs activity was $66,655 for the quarter. Cumulative excess costs remaining to be recovered (including accrued interest) totaled $4.4 million ($3.3 million net to the Trust).
Outlook, Risks, and Unusual Items
- Expense Reserve Strategy: The Trustee withheld $50,000 from the April 2025 distribution to increase the expense reserve. The Trustee intends to continue withholding $50,000 monthly until the reserve reaches $1,500,000.
- Impairment: No trigger events occurred in Q1 2025 requiring an impairment assessment of the net profits interests.
- Tax Contingencies: Several states have enacted legislation requiring income tax withholding from nonresident recipients. The Trustee currently believes withholding is not required, but regulations are subject to change, which could reduce distributions.
- Related Party Transactions: XTO Energy deducts monthly overhead charges for monitoring interests and operating the Hewitt Unit. As of March 31, 2025, these charges totaled approximately $84,863 gross ($63,647 net to the Trust).
- Forward-Looking Risks: Future performance depends on oil and gas prices, production volumes, development costs, and regulatory changes. The filing notes that actual results may differ materially from expectations.
Investor Verification Checklist
- Verify the impact of the $50,000 monthly withholding on future distributions until the expense reserve reaches $1.5 million.
- Monitor the cumulative excess costs balance ($4.4 million total) and the timeline for recovery from future net proceeds.
- Review the timing of cash receipts versus actual production, as Q1 2025 volumes were boosted by timing factors rather than new drilling.
- Assess the sensitivity of distributions to commodity price declines, given the 6% drop in oil and 10% drop in gas prices despite volume increases.
- Confirm the status of state tax withholding regulations in Texas, Oklahoma, and New Mexico to ensure no unexpected reductions in net proceeds.