Business Context and Reporting Period
Company: San Juan Basin Royalty Trust (SJT)
Reporting Period: Quarter ended March 31, 2026
Structure: Express trust holding a 75% net overriding royalty interest in oil and gas properties in the San Juan Basin, New Mexico. Hilcorp San Juan L.P. is the operator of the underlying properties.
Trustee: Argent Trust Company (succeeded PNC Bank in February 2024).
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Royalty Income | $0 | $0 |
| Interest Income | $201 | $8,238 |
| Total Income | $201 | $8,238 |
| General & Administrative Expenses | $(371,825) | $(510,636) |
| Distributable Income (Loss) | $(362,706) | $0 |
| Distributable Income per Unit | $(0.007782) | $0 |
| Cash and Short-term Investments | $14,380 | $23,298 |
| Line of Credit Utilization | $750,514 | $387,808 |
| Trust Corpus | $1,927,103 | $2,289,809 |
Material Changes vs. Prior Period
- Zero Royalty Income: The Trust received no royalty income for the third consecutive year (since May 2024) due to "Excess Production Costs" where operating and capital costs exceeded gross proceeds.
- Excess Production Costs: Net proceeds of $2,251,717 generated in Q1 2026 were applied entirely to reduce the cumulative Excess Production Costs balance. The remaining balance to be recovered is $6,186,819 gross ($4,640,115 net to the Trust).
- Production Volumes: Natural gas production from Subject Interests decreased 17% to 6,351,787 Mcf compared to the prior year, attributed to the leveling of production from two new horizontal wells drilled in 2024.
- Commodity Prices: Average natural gas price decreased to $2.85 per Mcf from $2.99 per Mcf in Q1 2025.
- Capital Expenditures: Hilcorp's capital expenditures dropped significantly to $758,570 in Q1 2026 from $14,047,360 in Q1 2025, reflecting a lower spending budget for the period.
- Prior Period Adjustment: A negative prior period adjustment of $3,472,228 gross ($2,604,171 net) was applied in February 2026 related to a 2017-2020 joint venture audit review.
Outlook, Risks, and Management Commentary
- Going Concern Warning: The filing explicitly states that the anticipated deficit in income to pay liabilities raises "substantial doubt" about the Trust's ability to continue as a going concern within one year.
- Liquidity Strategy: The Trust is utilizing a $2,000,000 line of credit (currently $750,514 utilized) to pay administrative expenses. Distributions to Unit Holders will not resume until Excess Production Costs are extinguished, liabilities are paid, and cash reserves are replenished to at least $2,000,000.
- Capital Plan: Hilcorp's 2026 capital plan estimates $14.0 million in expenditures, including 9 new vertical wells and 6 new horizontal wells. Completion costs for horizontal wells are deferred to 2027.
- Audit Disputes: The Trust's joint interest auditors are currently reviewing the negative prior period adjustment applied by Hilcorp. The Trust continues to audit Hilcorp's pricing, rates, and cost allocations.
- Termination Risk: The Trust Indenture provides for termination if gross revenue is less than $1.0 million for two successive years. The Trust has received zero royalty income since May 2024.
Investor Verification Checklist
- Excess Production Costs Recovery: Verify the timeline and feasibility of recovering the $4.64 million net Excess Production Costs given current low gas prices and production levels.
- Line of Credit Status: Monitor the utilization of the $2 million credit line and the Trust's ability to service interest payments without depleting remaining cash reserves.
- 2026 Capital Expenditure Impact: Assess how the planned $14 million in capital spending will impact Net Proceeds and the timeline for resuming distributions.
- Prior Period Adjustment: Confirm the outcome of the audit review regarding the $3.47 million negative adjustment from 2017-2020.
- Termination Threshold: Track gross revenue to determine if the Trust approaches the $1.0 million annual threshold that could trigger termination.