Cross Timbers Royalty Trust - Form 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended March 31, 2000. Cross Timbers Royalty Trust is a grantor trust holding net profits interests in oil and gas properties located in Texas, Oklahoma, and New Mexico. The trust receives royalty income based on net proceeds from underlying properties, calculated at 90% for royalty/overriding royalty interests and 75% for working interests. As of May 1, 2000, there were 6,000,000 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Q1 2000 | Q1 1999 |
|---|---|---|
| Royalty Income | $2,352,880 | $1,479,855 |
| Total Income | $2,356,829 | $1,481,883 |
| Distributable Income | $2,300,796 | $1,440,388 |
| Distributable Income Per Unit | $0.383466 | $0.240065 |
| Administration Expense | $56,033 | $41,495 |
| Cash and Short-Term Investments | $713,563 | $912,164 |
| Trust Corpus (Net Profits Interests) | $32,507,596 | $33,005,334 |
Material Changes vs. Prior Period
- Revenue Growth: Royalty income increased 59% year-over-year, driven primarily by a 132% increase in average oil prices ($24.20/Bbl vs. $10.44/Bbl) and a 57% increase in average gas prices ($2.72/Mcf vs. $1.73/Mcf).
- Production Volumes: Oil sales volumes from underlying properties remained relatively flat (1% increase), while gas sales volumes declined 13% due to timing of cash receipts and natural production decline.
- Cost Structure: Total costs increased 87% to $1.62 million. This was largely due to a change in accounting for purchaser deductions (now recorded as costs rather than netted against gas prices) and higher production taxes. Conversely, development costs dropped 40% following the completion of a carbon dioxide injection project in late 1999.
- Excess Costs: The trust recovered $236,633 of excess costs and accrued interest in Q1 2000. As of April 2000, approximately $29,000 in excess costs remained for the Texas 75% interests, which must be recovered before those interests contribute further to royalty income.
Outlook, Risks, and Management Commentary
- Price Outlook: Oil prices reached a high of $31.25 in March 2000 but declined to an average of $22.77 in April following an OPEC decision to increase production quotas. Gas prices are expected to remain strong due to lower storage levels.
- Excess Cost Recovery: Management anticipates full recovery of the remaining excess costs on the Texas 75% royalty trust interests during the second quarter of 2000.
- Tax Credits: Unitholders may be eligible for a federal income tax credit for producing nonconventional fuels (coal seam gas). The estimated credit for Q1 2000 is $0.032 per unit, compared to $0.042 per unit in Q1 1999.
- Risks: The trust's income is highly sensitive to oil and gas commodity prices and production volumes. The filing includes standard forward-looking statement disclaimers regarding industry conditions and expectations.
Investor Verification Checklist
- Verify the impact of the April 2000 OPEC production quota increase on future oil prices and Q2 2000 royalty income.
- Confirm the timeline for the full recovery of the remaining $29,000 in excess costs for the Texas 75% interests.
- Review the specific allocation of purchaser deductions between gas sales prices and operating costs to understand margin compression.
- Monitor the natural production decline rate (estimated at 5% for gas) against any new development activities.
- Check the final 2000 coal seam tax credit calculation when year-end tax information is released.