Cross Timbers Royalty Trust (CRT) - 2021 Annual Report Summary
Business Context and Reporting Period
Cross Timbers Royalty Trust (CRT) is an express trust created under Texas law, holding defined net profits interests in oil and gas properties owned by XTO Energy Inc. (a subsidiary of Exxon Mobil Corporation). The Trust has no employees and is administered by Simmons Bank (Trustee), which announced in November 2021 a plan to be succeeded by Argent Trust Company, subject to unitholder approval. The reporting period covers the fiscal year ended December 31, 2021. The Trust holds 6,000,000 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Net Profits Income | $7,438,451 | $5,308,249 |
| Distributable Income | $6,673,302 | $4,674,672 |
| Distributable Income Per Unit | $1.112217 | $0.779112 |
| Administration Expense | $765,317 | $639,441 |
| Cash and Short-Term Investments | $1,822,750 | $1,372,799 |
| Net Profits Interests (Carrying Value) | $3,266,356 | $7,523,065 |
| Expense Reserve | $1,000,000 | $1,000,000 |
Production and Pricing (2021): Average oil sales price was $64.14 per Bbl (up 57% from 2020). Average gas sales price was $5.93 per Mcf (up 132% from 2020). Approximately 53% of net profits income was derived from natural gas.
Material Changes vs. Prior Period
- Income Growth: Net profits income increased 40% year-over-year, driven primarily by higher oil and gas prices ($7.6 million impact) and net excess costs activity ($2.1 million impact).
- Production Decline: Underlying oil sales volumes decreased 54% and gas sales volumes decreased 24% compared to 2020, attributed to natural production decline and a significant reversal of oil sales volumes in Q4 2021 related to the North Cowden Unit.
- Excess Costs: Cumulative excess costs for the Texas working interest conveyance increased to $6.3 million (including accrued interest) as of December 31, 2021. These costs must be recovered from future net proceeds before distributions resume for that specific conveyance.
- Asset Amortization: Significant amortization of $4.26 million was recorded in 2021 due to lower 2020 oil prices used in reserve calculations, resulting in the full amortization of the working interest net profits interests.
Outlook, Risks, and Contingencies
- Guidance: The Trust provides no formal financial guidance. Future distributions depend on commodity prices, production volumes, and the recovery of excess costs. Budgeted development costs for 2022 are approximately $1.4 million (underlying).
- Trustee Transition: Simmons Bank is resigning as Trustee to be replaced by Argent Trust Company, pending unitholder approval.
- Legal Contingency: A royalty class action settlement (Chieftain Royalty Company v. XTO Energy) is ongoing. XTO Energy has advised that approximately $40,000 may be allocated to the Trust as production costs. The Trustee has objected to similar claims in related arbitration, and the outcome remains uncertain.
- Risk Factors: Key risks include volatility in oil and gas prices, natural production decline of depleting assets, potential increases in development costs, and regulatory changes regarding greenhouse gas emissions. The Trust is not liable for production costs, but distributions are reduced if costs exceed revenues on specific conveyances.
Investor Verification Checklist
- Verify the status of the Trustee transition from Simmons Bank to Argent Trust Company and any required unitholder votes.
- Monitor the resolution of the Chieftain Royalty class action settlement and its potential impact on future net profits income.
- Track the recovery of the $6.3 million cumulative excess costs on the Texas working interest conveyance, which currently suppresses distributions from that asset class.
- Review quarterly production volumes to assess the rate of natural decline versus any new development activities.
- Confirm the impact of commodity price fluctuations on the Trust's allocated reserve quantities and future cash flow estimates.