CRT

Cross Timbers Royalty Trust (CRT) - 10-Q Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2026, for Cross Timbers Royalty Trust, a Texas-based fixed investment trust. The Trust holds net profits interests in oil and gas properties located in Texas, Oklahoma, and New Mexico, operated primarily by XTO Energy (a subsidiary of Exxon Mobil Corporation). As of August 13, 2026, there were 6,000,000 units of beneficial interest outstanding. The Trust is classified as a non-accelerated filer and a smaller reporting company.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Net profits income decreased 16% in Q2 2026 compared to Q2 2025, and 44% for the six-month period. The YTD decline is primarily attributed to a 19% decrease in oil sales volumes and a 26% decrease in gas sales volumes due to natural production decline and timing of cash receipts.
• Price Impact: Average oil prices increased 7% in Q2 ($71.54/Bbl) but decreased 5% YTD ($65.07/Bbl). Gas prices decreased 14% in Q2 ($4.79/Mcf) and 4% YTD ($4.53/Mcf).
• Cost Dynamics: Production expenses increased 19% YTD due to higher overhead and power/fuel costs. However, development costs decreased 101% YTD due to the absence of recompletion costs for the Hewitt Unit.
• Excess Costs: Cumulative excess costs remaining to be recovered (including accrued interest) totaled $6.8 million ($5.1 million net to the Trust) as of June 30, 2026. These costs must be recovered from future net proceeds of specific conveyances before distributions can be made from those properties.
• Operator Change: Effective May 1, 2026, XTO Energy transferred operatorship of the Hewitt Unit (underlying Oklahoma 75% interests) to Scout Energy Management LLC.

Outlook, Risks, and Contingencies

• Production Decline: The estimated rate of natural production decline on underlying properties is approximately 6% to 8% annually.
• Tax Legislation: The "One Big Beautiful Bill Act" (OBBBA) signed in July 2025 introduced federal tax changes. While the Trust remains a grantor trust (taxed at the unitholder level), unitholders are advised to consult tax advisors regarding potential impacts.
• State Tax Withholding: Several states have enacted legislation requiring withholding on oil and gas proceeds for nonresidents. The Trustee currently believes withholding is not required, but regulatory changes could reduce distributions if withholding becomes mandatory.
• Impairment: No impairment trigger events occurred in Q2 2026. The Trustee continues to monitor commodity prices and production estimates.
• Forward-Looking Statements: Future performance depends on volatile oil and gas prices, production levels, and regulatory environments. Actual results may differ materially from expectations.

Investor Verification Checklist

• Excess Cost Recovery: Verify the impact of the $6.8 million cumulative excess costs on future cash flows from Texas and Oklahoma working interests.
• Production Volumes: Monitor the 19% YTD decline in oil volumes and 26% decline in gas volumes to assess the sustainability of the 6-8% annual decline rate.
• Operator Transition: Review the impact of the Hewitt Unit operatorship transfer to Scout Energy Management LLC on future overhead charges and production efficiency.
• Commodity Price Sensitivity: Assess exposure to further declines in natural gas prices, which dropped 14% in Q2 2026.
• Tax Compliance: Confirm state-specific tax withholding requirements for nonresident unitholders in light of recent legislative changes.