Cross Timbers Royalty Trust - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2003, for the Cross Timbers Royalty Trust. The Trust holds net profits interests in oil and gas properties operated by XTO Energy Inc. in Texas, Oklahoma, and New Mexico. As of August 1, 2003, there were 6,000,000 units of beneficial interest outstanding. The Trustee is Bank of America, N.A.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2003 | Six Months Ended June 30, 2003 |
|---|---|---|
| Net Profits Income | $3,755,142 | $6,417,788 |
| Total Income | $3,756,545 | $6,420,182 |
| Distributable Income | $3,668,136 | $6,263,364 |
| Distributable Income Per Unit | $0.611356 | $1.043894 |
| Administration Expense | $88,409 | $156,818 |
| Cash and Short-Term Investments | $1,258,859 (as of June 30, 2003) | N/A |
| Trust Corpus | $25,612,459 (as of June 30, 2003) | N/A |
Note: The Trust has no debt. Liabilities consist solely of distributions payable to unitholders ($1,259,328 as of June 30, 2003).
Material Changes vs. Prior Period
- Revenue Growth: Net profits income increased 107% for the quarter and 74% for the six-month period compared to 2002. This surge is primarily attributed to significantly higher oil and gas sales prices.
- Oil Prices: Average oil sales price rose 45% to $29.82 per barrel for the quarter and 50% to $28.25 per barrel for the six-month period.
- Gas Prices: Average gas sales price rose 109% to $5.36 per Mcf for the quarter and 83% to $4.67 per Mcf for the six-month period.
- Production Volumes: Underlying oil sales volumes decreased 16% (quarter) and 10% (six months) due to natural production decline. Gas volumes increased 2% (quarter) but decreased 7% (six months).
- Costs: Total costs increased 16% for the quarter and 19% for the six months. Development costs decreased significantly (68% and 77% respectively) due to reduced drilling activity.
Outlook, Risks, and Commentary
- Price Volatility: Management notes that oil prices remain high due to the war in Iraq and low storage levels, while gas prices are expected to remain volatile based on weather, demand, and production levels.
- Production Decline: The Trust faces natural production decline in its underlying properties, which is partially offset by price increases.
- Market Risk: The Trust's income is directly tied to commodity prices and production volumes. There have been no material changes in market risks since the 2002 Annual Report.
- Controls: The Trustee concluded that disclosure controls and procedures are effective.
Investor Verification Checklist
- Verify the correlation between reported net profits income and current NYMEX oil and gas futures prices.
- Monitor the rate of natural production decline in the underlying Texas, Oklahoma, and New Mexico properties.
- Review XTO Energy's drilling activity reports to assess future development cost impacts on net proceeds.
- Confirm the timing of cash receipts, as income is recognized with a lag (approx. 2 months for oil, 3 months for gas) relative to production.
- Check for any new excess costs that may require recovery from future net proceeds, as occurred in Q1 2002.