Cross Timbers Royalty Trust - Form 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for the Cross Timbers Royalty Trust for the period ended March 31, 2001. The Trust holds net profits interests in oil and gas properties located in Texas, Oklahoma, and New Mexico. It receives 90% of net proceeds from royalty/overriding royalty interests and 75% of net proceeds from working interests. As of May 1, 2001, there were 6,000,000 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Q1 2001 | Q1 2000 |
|---|---|---|
| Royalty Income | $4,107,459 | $2,352,880 |
| Total Income | $4,114,495 | $2,356,829 |
| Distributable Income | $4,048,902 | $2,300,796 |
| Distributable Income Per Unit | $0.674817 | $0.383466 |
| Cash and Short-Term Investments | $1,651,214 | $1,048,031 (Dec 31, 2000) |
| Trust Corpus | $30,246,883 | $30,755,456 (Dec 31, 2000) |
| Amortization of Net Profits Interests | $(508,573) | $(497,738) |
Liquidity: The Trust held $1,651,214 in cash and short-term investments as of March 31, 2001. Distributions payable to unitholders were $1,653,738.
Material Changes vs. Prior Period
- Revenue Growth: Royalty income increased by 75% year-over-year, driven primarily by higher commodity prices rather than production volumes.
- Commodity Prices: Average oil prices rose 19% to $28.73 per barrel. Average gas prices surged 125% to $6.11 per Mcf.
- Production Volumes: Underlying oil sales volumes declined 6% and gas sales volumes declined 17% compared to Q1 2000, attributed to natural decline and timing of cash receipts.
- Costs: Total costs increased 6% to $1,717,568. Taxes and transportation costs rose 46% due to higher revenues, while development costs fell 24% due to decreased workover activity.
- Excess Costs: Unlike Q1 2000, there were no excess costs incurred in Q1 2001. Prior excess costs were fully recovered in April 2000.
Outlook, Risks, and Management Commentary
- Market Outlook: Management notes that while oil prices have declined due to a worldwide economic slowdown (with OPEC cutting production in April 2001), gas prices are expected to remain elevated due to sustained demand and lower storage levels.
- Tax Credits: The Trust receives income from coal seam gas wells qualifying for federal tax credits. The estimated credit for Q1 2001 is $0.024 per unit, down from $0.032 per unit in Q1 2000.
- Risks: The filing includes standard forward-looking statement disclaimers regarding market conditions, production decline, and commodity price volatility. There have been no material changes in market risks since the 2000 10-K.
- Accounting Basis: Financial statements are prepared on a modified cash basis, not GAAP. Revenues are recorded when received, and expenses when paid.
Investor Verification Checklist
- Verify the impact of the 17% decline in gas production volumes on future distributable income, given the heavy reliance on gas price increases for current revenue growth.
- Confirm the sustainability of the 125% increase in gas prices ($6.11/Mcf) against the forward-looking NYMEX price of $4.86/Mcf mentioned in the filing.
- Review the specific allocation formula for net profits interests, as changes in costs or prices can cause disproportionate fluctuations in volumes allocated to the Trust.
- Monitor the status of the coal seam tax credit, as the actual credit amount is finalized annually and may differ from the Q1 estimate.
- Check for any new excess costs that may arise in future quarters, as these can be carried forward with interest and reduce future distributions.