Cross Timbers Royalty Trust - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2000, for the Cross Timbers Royalty Trust, a Texas grantor trust. The Trust holds net profits interests in oil and gas properties in Texas, Oklahoma, and New Mexico. As of November 1, 2000, there were 6,000,000 units of beneficial interest outstanding. The Trustee is Bank of America, N.A.
Key Financial Metrics
| Metric | Q3 2000 | Q3 1999 | 9 Months 2000 | 9 Months 1999 |
|---|---|---|---|---|
| Royalty Income | $3,394,310 | $1,696,721 | $8,224,324 | $4,390,115 |
| Total Income | $3,402,751 | $1,699,597 | $8,242,633 | $4,396,790 |
| Distributable Income | $3,346,332 | $1,658,052 | $8,071,758 | $4,269,815 |
| Distributable Income Per Unit | $0.557722 | $0.276342 | $1.345293 | $0.711637 |
| Cash & Short-term Investments | $1,277,300 | $912,164 | $1,277,300 | $912,164 |
| Net Profits Interests (Net) | $31,304,846 | $33,005,334 | $31,304,846 | $33,005,334 |
| Trust Corpus | $31,304,846 | $33,005,334 | $31,304,846 | $33,005,334 |
Note: The filing does not explicitly list debt obligations or liquidity ratios beyond cash balances. The Trust is a grantor trust and is not subject to federal income tax at the trust level.
Material Changes vs. Prior Period
- Revenue Surge: Royalty income increased 100% in Q3 2000 compared to Q3 1999, and 87% for the nine-month period. This is primarily attributed to significantly higher oil and gas prices.
- Price Increases: Average oil sales prices rose 71% (Q3) and 104% (9 months). Average gas sales prices rose 72% (Q3) and 64% (9 months).
- Volume Trends: Oil sales volumes from underlying properties increased 17% (Q3) and 3% (9 months), aided by carbon dioxide injection projects. Gas sales volumes decreased 11% (Q3) and 10% (9 months) due to natural decline in coal seam gas production.
- Cost Recovery: All excess costs and accrued interest for the Texas 75% royalty trust interests were fully recovered in May 2000. There are no remaining excess costs as of September 30, 2000.
Outlook, Risks, and Unusual Items
- Overpayment Correction: Distributable income for Q3 2000 includes approximately $0.04 per unit related to revenues overpaid by Cross Timbers Oil. Management expects the correction of this overpayment to reduce distributable income in the fourth quarter of 2000.
- Market Risk: The Trust's income is highly sensitive to oil and gas prices. While prices have been sustained by demand and OPEC production cuts, future volatility remains a risk.
- Production Decline: Natural production decline in coal seam gas wells continues to offset volume gains, though higher prices have mitigated the financial impact.
- Tax Credits: Unitholders may be eligible for federal income tax credits for producing nonconventional fuels (coal seam gas). The estimated credit for the nine months ended September 30, 2000, is $0.095 per unit.
- Shareholder Activity: Cross Timbers Oil filed an amended registration statement to sell 1,360,000 units (22.7% of outstanding units) held by the company. The Trust will not receive proceeds from this sale.
Investor Verification Checklist
- Verify the impact of the Q3 revenue overpayment correction on Q4 2000 distributions.
- Monitor oil and gas price trends, as the Trust's income is directly correlated to commodity prices.
- Review the status of the Cross Timbers Oil unit sale (1,360,000 units) and its potential effect on market liquidity.
- Confirm the final 2000 coal seam gas tax credit calculation when year-end tax information is released.
- Assess the long-term production decline rates of the underlying coal seam gas properties.