MTR

Mesa Royalty Trust (MTR) - Q2 2026 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2026, for Mesa Royalty Trust, a passive entity created in 1979. The Trust holds an overriding royalty interest equal to 11.44% of 90% of the Net Proceeds from oil and gas properties in the Hugoton field (Kansas) and the San Juan Basin (New Mexico and Colorado). The Trustee is The Bank of New York Mellon Trust Company, N.A. As of August 14, 2026, there were 1,863,590 Units of Beneficial Interest outstanding.

Key Financial Metrics

Note: The Trust has no debt. Liquidity is derived solely from royalty income and interest on cash reserves.

Material Changes vs. Prior Period

• Revenue Decline: Royalty income decreased 30% in Q2 2026 compared to Q2 2025 ($155,031 vs. $220,855). This was driven by lower natural gas and natural gas liquids pricing, decreased net production volumes, and increased operating and capital costs.
• Property Performance:
  • Hugoton Properties: Generated $0 royalty income in Q2 2026 due to operating costs exceeding revenues. Operator transitioned from Scout to Eiger effective July 1, 2026.
  • San Juan Basin - Colorado: Generated $0 royalty income due to prior period adjustments and withholding of Net Proceeds by Simcoe (now a subsidiary of Mach) for joint interest billing true-ups.
  • San Juan Basin - New Mexico: Remained the sole source of royalty income ($155,031), though down 30% year-over-year due to higher severance taxes, lease operating expenses, and capital expenditures for new well drilling.
• Expense Increases: Operating costs for the San Juan Basin - New Mexico properties increased 25% quarter-over-quarter. Capital expenditures doubled to $63,931 in Q2 2026 due to new well drilling and joint venture true-up adjustments.

Guidance, Outlook, and Risks

• Contingent Reserve: The Trustee intends to increase the Contingent Reserve to $2.0 million. As of June 30, 2026, the balance was $1.946 million. Further additions to this reserve will reduce Net Proceeds available for distribution to unitholders.
• Interest Rate Environment: The Trust Indenture requires cash to earn interest at 1.5% below the prime rate (5.25% annualized for the period). Due to market conditions, the Trustee could not secure this rate and instead allocated a portion of Trustee fees ($10,462 in Q2) to offset the shortfall.
• Legal Proceedings: A pending lawsuit, Cooper-Clark Foundation v. Scout Energy Management, LLC, seeks to increase royalty calculations for Hugoton wells. While currently no material adverse effect is expected, an adverse ruling could require recalculation of prior royalties.
• True-Up Uncertainty: Simcoe (San Juan Basin - Colorado) completed a true-up for periods 2020–2026 in July 2026. The final reconciliation is under review, and the outcome may impact future Net Proceeds.
• Market Risks: Distributions are heavily dependent on volatile commodity prices (natural gas and oil) and the operational decisions of Working Interest Owners, over whom the Trust has no control.

Investor Verification Checklist

• Reserve Adequacy: Verify the Trustee's plan to fund the remaining $54,000 to reach the $2.0 million Contingent Reserve target and its impact on future distributions.
• Simcoe True-Up: Monitor the final reconciliation results of the Simcoe true-up (2020–2026) to determine if it results in a net credit or deficit for the Trust.
• Operator Transition: Assess the impact of the operator change for Hugoton properties from Scout to Eiger (effective July 1, 2026) on future production costs and revenues.
• Commodity Exposure: Review current natural gas and NGL pricing trends, as the Trust's income is almost entirely derived from the San Juan Basin - New Mexico properties, which are sensitive to these prices.
• Legal Exposure: Track the status of the Cooper-Clark Foundation litigation regarding Hugoton royalty calculations.