Cross Timbers Royalty Trust (CRT) - 2024 Annual Report Summary
Business Context and Reporting Period
Cross Timbers Royalty Trust 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 Argent Trust Company. The reporting period covers the fiscal year ended December 31, 2024. The Trust distributes monthly cash payments to unitholders based on net profits income received from underlying properties in Texas, Oklahoma, and New Mexico.
Key Financial Metrics
| Metric | 2024 | 2023 |
|---|---|---|
| Net Profits Income | $6,563,177 | $12,300,176 |
| Total Income (Net Profits + Interest) | $6,623,430 | $12,364,073 |
| Distributable Income | $5,677,818 | $11,547,888 |
| Distributable Income Per Unit | $0.946303 | $1.924648 |
| Administration Expense | $945,612 | $816,185 |
| Cash and Short-Term Investments (Dec 31) | $1,369,379 | $1,852,320 |
| Trust Corpus (Dec 31) | $2,433,344 | $2,671,583 |
| Expense Reserve | $1,000,000 | $1,000,000 |
Production and Pricing (2024 vs 2023):
- Oil Sales Volume: 164,996 Bbls (2024) vs 192,119 Bbls (2023); Average Price: $75.68/Bbl vs $77.05/Bbl.
- Gas Sales Volume: 1,216,905 Mcf (2024) vs 1,773,864 Mcf (2023); Average Price: $3.97/Mcf vs $6.00/Mcf.
- Development Costs: $1,509,510 (2024) vs $1,061,887 (2023).
Material Changes Versus Prior Period
Net profits income decreased by 47% in 2024 compared to 2023. The primary drivers for this decline were:
- Decreased Production: Underlying oil sales volumes dropped 14% and gas sales volumes dropped 31%, attributed to natural production decline and timing of cash receipts.
- Lower Commodity Prices: Average gas prices fell 34% year-over-year, significantly impacting revenue given that gas comprised 46% of net profits income in 2024.
- Increased Costs: Development costs rose 42% to $1.51 million, primarily due to the timing of costs for drilling activity in the second half of 2023.
- Excess Costs: Cumulative excess costs for the Texas working interest conveyance increased to $4.3 million (including accrued interest), which must be recovered from future net proceeds before distributions can resume from that specific conveyance.
Guidance, Outlook, and Risks
Outlook and Commentary:
- Reserves: The average reserve-to-production index for underlying properties is approximately 11 years. Proved reserves consist of 469,000 Bbls of oil and 7,076 Mcf of gas allocated to the net profits interests.
- Development Plans: XTO Energy has no plans to drill in 2025 on the Hewitt Unit. Budgeted development costs for 2025 are approximately $0.75 million.
- Price Volatility: Management notes that oil and gas prices are expected to remain volatile. Future distributions are highly dependent on these prices and production volumes.
Risks and Contingencies:
- Depleting Assets: The Trust holds interests in depleting assets; distributions may include a return of capital. The Trust will terminate if gross revenue falls below $1 million for two successive years.
- Excess Cost Recovery: If costs exceed revenues on specific conveyances (as seen in Texas working interests), no net profits income is paid until the deficit plus interest is recovered.
- Regulatory and Environmental: Potential increases in operating costs due to greenhouse gas emissions regulations or sustainability policies could reduce net proceeds.
- Cybersecurity: The Trust relies on XTO Energy and the Trustee for cybersecurity; disruptions could impact operations or data integrity.
Key Facts for Investor Verification
- Income Decline: Verify the sustainability of the 47% drop in net profits income and the impact of the 34% decline in natural gas prices on future distributions.
- Excess Cost Balance: Confirm the status of the $4.3 million cumulative excess costs (including interest) on the Texas working interest conveyance and the timeline for recovery.
- Production Decline: Assess the natural production decline rate (estimated 6-8% annually) and the lack of new drilling plans in 2025.
- Accounting Basis: Note that financial statements are prepared on a modified cash basis, not U.S. GAAP, meaning income is recognized when received, not when produced.
- Termination Triggers: Monitor gross revenue levels to ensure they remain above the $1 million annual threshold required to avoid Trust termination.