Cross Timbers Royalty Trust - Form 10-Q Summary
Business Context and Reporting Period
This filing covers the quarterly period ended June 30, 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, distributed to 6,000,000 outstanding units of beneficial interest. The Trustee is Bank of America, N.A.
Key Financial Metrics
| Metric | Q2 2000 | Q2 1999 | YTD 2000 | YTD 1999 |
|---|---|---|---|---|
| Royalty Income | $2,477,134 | $1,213,539 | $4,830,014 | $2,693,394 |
| Total Income | $2,483,053 | $1,215,310 | $4,839,882 | $2,697,193 |
| Distributable Income | $2,424,630 | $1,171,375 | $4,725,426 | $2,611,763 |
| Distributable Income Per Unit | $0.404105 | $0.195230 | $0.787571 | $0.435295 |
| Cash and Short-Term Investments | $839,395 | $912,164 | $839,395 | $912,164 |
| Trust Corpus (Net Profits Interests) | $31,983,302 | $33,005,334 | $31,983,302 | $33,005,334 |
| Distributions Payable | $841,932 | $914,004 | $841,932 | $914,004 |
Note: The filing does not provide specific debt figures as the trust structure generally does not incur debt; liabilities consist primarily of distributions payable.
Material Changes vs. Prior Period
- Revenue Surge: Royalty income increased 104% in Q2 2000 and 79% year-to-date compared to 1999. This is primarily driven by significantly higher oil and gas prices.
- Price Increases: Average oil sales prices rose 119% (Q2) and 124% (YTD). Average gas sales prices rose 61% (Q2) and 59% (YTD).
- Volume Trends: Underlying oil sales volumes decreased slightly (7% Q2, 3% YTD) due to timing of cash receipts and natural decline, though offset by increased production from a Texas working interest property. Gas volumes decreased 5% (Q2) and 10% (YTD) due to natural decline in coal seam gas.
- Excess Cost Recovery: A critical operational change occurred in May 2000 when all excess costs and accrued interest for the Texas 75% royalty trust interests were fully recovered. These interests began contributing to royalty income for the first time since March 1998.
Outlook, Risks, and Commentary
- Market Conditions: Management notes that increased demand in 2000 has sustained higher oil prices despite OPEC production increases. Gas prices remain strong due to lower storage levels compared to the prior year.
- Cost Structure: Development costs decreased 21% YTD due to the completion of a carbon dioxide injection project in late 1999. Taxes and transportation costs increased due to higher revenues and a change in accounting for purchaser deductions.
- Tax Credits: The trust receives income from coal seam gas wells qualifying for federal tax credits (Section 29). The estimated credit is $0.031 per unit for Q2 2000 and $0.063 per unit YTD 2000.
- Risks: The filing includes standard forward-looking statement disclaimers. Primary risks include volatility in oil and gas prices and natural production decline. There are no remaining excess costs to be recovered as of June 30, 2000.
Investor Verification Checklist
- Verify the sustainability of current oil and gas prices, which drove the 100%+ revenue increase.
- Confirm the status of the Texas 75% royalty trust interests now that excess costs are recovered.
- Monitor natural production decline rates in coal seam gas wells, which contributed to volume decreases.
- Review the calculation of the Section 29 tax credit for unitholders, as final data is provided at year-end.
- Check for any future development costs that could impact net proceeds, particularly regarding the completed carbon dioxide injection project.