Mesa Royalty Trust - 10-Q Summary (Q3 2001)
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2001, for Mesa Royalty Trust, a Texas trust holding a 90% net profits overriding royalty interest in oil and gas properties. The Trust's assets are located in the Hugoton field (Kansas), the San Juan Basin (New Mexico and Colorado), and the Yellow Creek field (Wyoming). As of November 13, 2001, there were 1,863,590 Units of Beneficial Interest outstanding. The Trustee is JPMorgan Chase Bank.
Key Financial Metrics
| Metric | Q3 2001 | Q3 2000 | 9 Months 2001 | 9 Months 2000 |
|---|---|---|---|---|
| Royalty Income | $1,960,706 | $2,261,759 | $9,317,940 | $5,306,743 |
| Distributable Income | $1,979,618 | $2,286,614 | $9,395,003 | $5,357,040 |
| Distributable Income Per Unit | $1.0623 | $1.2270 | $5.0413 | $2.8746 |
| Cash and Short-Term Investments | $1,952,506 | $2,658,110 (Dec 31, 2000) | N/A | N/A |
| Net Overriding Royalty Interest (Gross) | $42,498,034 | $42,498,034 | N/A | N/A |
| Accumulated Amortization | ($31,222,062) | ($30,636,131) | N/A | N/A |
| Total Assets | $13,255,590 | $14,545,212 (Dec 31, 2000) | N/A | N/A |
Note: The Trust has no debt. Liquidity is maintained through cash distributions and short-term investments.
Material Changes vs. Prior Period
- Quarterly Decline: Distributable income per unit decreased 13.4% in Q3 2001 ($1.0623) compared to Q3 2000 ($1.2270).
- Year-to-Date Growth: Distributable income per unit increased significantly by 75.4% for the nine months ended September 30, 2001 ($5.0413) compared to the same period in 2000 ($2.8746).
- Hugoton Field Performance: Royalty income from the Hugoton field increased in both Q3 and the nine-month period due to higher average sales prices for natural gas and liquids, despite lower production volumes in Q3.
- San Juan Basin Performance: Royalty income from New Mexico properties dropped sharply in Q3 2001 ($343,672 vs. $912,438 in Q3 2000) due to increased capital expenditures, plant maintenance shutdowns, and lower production volumes. However, the nine-month total for New Mexico increased due to higher prices.
- Colorado Properties: No royalty income was received from the Colorado San Juan Basin properties in either period due to unrecovered costs from the Fruitland Coal drilling program.
Outlook, Risks, and Management Commentary
- Market Prices: The Trust benefits from market-clearing prices for natural gas. Average prices for natural gas in the Hugoton field were higher in Q3 2001 ($4.58/Mcf) compared to Q3 2000 ($3.25/Mcf).
- Production Allowables: The Kansas Corporation Commission set allowable production rates for the Hugoton field at 156.2 Bcf for the period April 1 to September 30, 2001, a decrease from 170.5 Bcf in the same period the prior year.
- Operational Risks: Income from the San Juan Basin is volatile due to spot market sales and operational interruptions (e.g., plant maintenance). The Colorado portion remains non-producing until capital costs are recovered.
- Tax Credits: Production from the Fruitland Coal formation in Colorado may qualify for tax credits under Section 29 of the Internal Revenue Code, potentially benefiting unitholders.
- Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ from expectations due to market conditions and operational factors.
Key Facts for Investor Verification
- Cost Carryforward: Verify the status of the $377,116 cost carryforward related to the Fruitland Coal drilling program in Colorado, which delays income from that region.
- Production Volumes: Monitor the decline in net production volumes in the San Juan Basin (down significantly in Q3 2001) versus the price increases in the Hugoton field.
- Amortization Impact: Note that amortization of the net overriding royalty interest ($585,931 for the nine months) is charged directly to trust corpus and does not affect distributable income, but it reduces the net asset value of the trust over time.
- Contractual Terms: Review the Gas Transportation Agreement with Midcontinent Market Center (formerly WRI), which has been extended to June 1, 2002, and includes a fee of $0.06 per Mcf escalating 4% annually.