Cross Timbers Royalty Trust (CRT) - 2022 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; administrative functions are performed by the Trustee, Argent Trust Company, which succeeded Simmons Bank effective December 30, 2022. The reporting period covers the fiscal year ended December 31, 2022. The Trust distributes monthly cash payments to unitholders based on net profits income derived from underlying properties in Texas, Oklahoma, and New Mexico.
Key Financial Metrics
- Net Profits Income: $12,493,727 for 2022 (up from $7,438,451 in 2021).
- Distributable Income: $11,743,236 for 2022, or $1.957206 per unit.
- Interest Income: $15,464 for 2022.
- Administration Expense: $765,955 for 2022.
- Cash and Short-term Investments: $1,898,638 as of December 31, 2022.
- Trust Corpus: $2,961,955 as of December 31, 2022 (net of accumulated amortization).
- Proved Reserves (Net Profits Interests): 738,000 barrels of oil and 14,938,000 Mcf of gas.
- Standardized Measure of Discounted Future Net Cash Flows: $92,899,000 (10% discount rate).
Material Changes vs. Prior Period
Net profits income increased by 68% compared to 2021. This growth was driven primarily by:
- Higher Commodity Prices: Average oil price rose to $77.21 per Bbl (from $64.14) and gas price to $8.08 per Mcf (from $5.93).
- Increased Production Volumes: Underlying oil sales volumes increased 156% and gas sales volumes increased 47%, largely due to the reversal of a 2021 volume adjustment at the North Cowden Unit and timing of cash receipts.
- Cost Increases: Total costs deducted rose to $15.3 million from $2.9 million. This included a $2.5 million increase in development costs (primarily at the Hewitt Unit) and a $7.2 million net impact from excess cost recovery activity.
Outlook, Risks, and Contingencies
Outlook and Guidance: The Trust does not provide formal forward-looking guidance. Future distributions depend on oil and gas prices, production volumes, and development costs. Budgeted development costs for 2023 are approximately $1.4 million (underlying), with $1.1 million net to the Trust. The Trustee notes that natural production decline is estimated at 6-8% annually.
Risks: Key risks include volatility in oil and gas prices, depletion of reserves, and the potential for production costs to exceed revenues on working interest properties (75% net profits interests), which creates excess costs that must be recovered from future proceeds before distributions resume for those specific conveyances.
Contingencies: The Trust is involved in an arbitration regarding the allocation of settlement costs from the Chieftain Royalty Company v. XTO Energy Inc. class action lawsuit. XTO Energy has advised that approximately $40,000 may be allocated to the Trust as production costs, though the Trustee has objected to similar claims in related proceedings. The outcome could reduce net profits income.
Investor Verification Checklist
- Verify the current status of the Chieftain litigation arbitration and any potential impact on future net profits income.
- Monitor the balance of cumulative excess costs ($1.9 million net to Trust) on working interest properties, as these must be recovered before full distributions resume for those assets.
- Review the impact of commodity price volatility on the Trust's standardized measure of discounted future net cash flows.
- Confirm the Trustee's cash reserve level ($1.0 million) and its adequacy for administrative contingencies.
- Assess the natural decline rate of reserves (6-8%) against planned development activities in the Hewitt Unit and other working interest properties.