Cross Timbers Royalty Trust 10-K Summary (Year Ended Dec 31, 2004)
Business Context and Reporting Period
Cross Timbers Royalty Trust is an express trust created under Texas law, holding defined net profits interests (90% and 75%) in oil and gas properties owned by XTO Energy Inc. The trust has no employees; Bank of America, N.A. serves as the trustee. The reporting period covers the fiscal year ended December 31, 2004. As of February 28, 2005, there were 6,000,000 units of beneficial interest outstanding, traded on the NYSE under the symbol "CRT."
Key Financial Metrics
| Metric | 2004 | 2003 | 2002 |
|---|---|---|---|
| Net Profits Income | $15,222,417 | $12,944,047 | $9,049,271 |
| Distributable Income | $14,924,058 | $12,688,746 | $8,822,310 |
| Distributions per Unit | $2.49 | $2.11 | $1.47 |
| Total Assets (Year-End) | $24,284,184 | $25,660,147 | $27,805,823 |
| Standardized Measure of Discounted Future Net Cash Flows | $100,591,000 | $93,855,000 | $79,991,000 |
Production and Pricing (2004): Total oil sales were 275,792 barrels (average price $35.68/Bbl) and gas sales were 2,584,814 Mcf (average price $5.73/Mcf). Approximately 69% of net profits income and 68% of estimated proved reserves are attributable to natural gas.
Material Changes vs. Prior Period
- Income Growth: Net profits income increased 17.6% from 2003 to 2004, driven primarily by higher average sales prices for both oil and gas.
- Price Increases: Average oil sales price rose from $28.04/Bbl in 2003 to $35.68/Bbl in 2004. Average gas sales price increased from $4.86/Mcf to $5.73/Mcf.
- Production Decline: Despite higher prices, total oil production volumes decreased slightly (from 298,869 Bbls in 2003 to 275,792 Bbls in 2004), and gas production volumes also declined (from 2,677,460 Mcf to 2,584,814 Mcf), reflecting the depleting nature of the underlying assets.
- Reserve Revisions: Upward revisions to proved gas reserves in 2004 were primarily due to development in the Mesaverde formation of the San Juan Basin.
Outlook, Risks, and Management Commentary
Outlook and Operations: The trust is a passive entity with no control over the operation or development of underlying properties. XTO Energy, the owner of the underlying properties, may sell or abandon properties. The trust's income is highly dependent on oil and gas prices and production volumes.
Risks and Contingencies:
- Price Volatility: Distributions are highly sensitive to fluctuations in oil and gas prices, which are subject to global economic conditions and supply/demand factors.
- Depleting Assets: The trust holds depleting assets; future production declines are expected unless operators implement maintenance or development projects.
- Reversion Agreement: Certain royalties are subject to a reversion agreement where XTO Energy must transfer 25% of its interest to a third party upon payout. Payout is not projected to occur for at least nine years based on 2004 data.
- Regulatory: While natural gas prices are currently unregulated, future legislation could impact operations. State income tax withholding requirements remain a potential risk.
Unusual Items: The filing notes no unusual items for 2004. The trust has no debt, off-balance sheet arrangements, or equity compensation plans.
Investor Verification Checklist
- Verify the current market prices for oil and natural gas to assess immediate impact on future monthly distributions.
- Confirm XTO Energy's development plans for the San Juan Basin (Mesaverde formation) and coal seam gas wells, as these drive reserve extensions.
- Monitor the status of the reversion agreement payout timeline, as a transfer of interest would reduce trust income.
- Review the annual adjustment of overhead charges deducted by XTO Energy, which directly reduces net proceeds to the trust.
- Check for any changes in state tax withholding laws that could reduce net distributions to unitholders.