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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
March
31, 2023
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
.
Cross Timbers Royalty Trust
(Exact name of registrant as specified in its charter)
Texas 1-10982 75-6415930
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification No.)
incorporation or organization)
c/o The Corporate Trustee:
Argent Trust Company
2911 Turtle Creek Blvd, Suite 850
Dallas, Texas 75219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(855)
588-7839
(Former name, former address and former fiscal year, if change since last
report)
NONE
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol Name of each exchange on whichregistered
Units of Beneficial Interest CRT New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed bySection 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically
every Interactive DataFile required to be submitted pursuant to Rule 405 of
Regulation
S-T
((s)232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit suchfiles). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the
definitions of "large accelerated filer," "accelerated filer," "smaller
reporting company," and"emerging growth company" in Rule
12b-2
of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated Smaller reporting company
filer
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extendedtransition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of
the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule
12b-2
of theExchange Act). Yes No
Indicate the number of units of beneficial interest outstanding, as of the
latest practicable date:
Outstanding as of May 2, 2023
6,000,000
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CROSS TIMBERS ROYALTY TRUST
FORM
10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023
Table of Contents
Glossary of Terms 3
PART I - FINANCIAL INFORMATION 4
Item 1. 4
Financial Statements (Unaudited)
Condensed Statements of Assets, Liabilities and Trust Corpus at March 31, 2023 and December 31, 2022 5
Condensed Statements of Distributable Income for the Three Months Ended March 31, 2023 and 2022 6
Condensed Statements of Changes in Trust Corpus for the Three Months Ended March 31, 2023 and 2022 7
Notes to Condensed Financial Statements 8
Item 2. 12
Trustee's Discussion and Analysis
Item 3. 16
Quantitative and Qualitative Disclosures about Market Risk
Item 4. 17
Controls and Procedures
PART II - OTHER INFORMATION 18
Item 1A. 18
Risk Factors
Item 6. 18
Exhibits
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Signatures
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CROSS TIMBERS ROYALTY TRUST
GLOSSARY OF TERMS
The following are definitions of significant terms used in this Form
10-Q:
Bbl Barrel (of oil)
Mcf Thousand cubic feet (of natural gas)
MMBtu One million British Thermal Units,
a common energy measurement
net proceeds Gross proceeds received by XTO Energy from
sale of production from the underlying
properties, less applicable costs, asdefined
in the net profits interest conveyances.
net profits income Net proceeds multiplied by the applicable net profits
percentage of 75% or 90%, which is paid to the
Trust by XTO Energy."Net profits income" is referred
to as "royalty income" for income tax purposes.
net profits interest An interest in an oil and gas property measured by net profits
from the sale of production, rather than a specific portion
ofproduction. The following defined net profits interests
were conveyed to the Trust from the underlying properties:
90% net profits interests
- interests that entitle the Trust to receive 90%
of the net proceeds from the underlying properties
that aresubstantially all royalty or overriding
royalty interests in Texas, Oklahoma and New Mexico.
75% net profits interests
- interests that entitle the Trust to
receive 75% of the net proceeds from
the underlying properties that areworking
interests in Texas and Oklahoma.
royalty interest A
(and overriding non-operating
royaltyinterest) interest in an oil and gas property
that provides the owner aspecified
share of production without any
production expense or development costs.
underlying properties XTO Energy's interest in certain oil and gas properties from which the net profits
interests were conveyed. Theunderlying properties include royalty and overriding royalty
interests in producing and nonproducing properties in Texas, Oklahoma and New Mexico,
and working interests in producing properties located in Texas and Oklahoma.
working interest An operating interest in an oil and gas
property that provides the owner a specified
share of production that is subject toall
production expense and development costs.
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CROSS TIMBERS ROYALTY TRUST
PART I
-
FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed financial statements included herein are presented, without
audit, pursuant to the rules and regulations of the Securities andExchange
Commission. Unless specified otherwise, all amounts included herein are
presented in U.S. dollars. Certain information and footnote disclosures
normally included in annual financial statements have been condensed or
omitted pursuant to suchrules and regulations, although the Trustee believes
that the disclosures are adequate to make the information presented not
misleading. These condensed financial statements should be read in conjunction
with the financial statements and the notesthereto included in the Trust's
latest Annual Report on Form
10-K.
In the opinion of the Trustee, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of theassets,
liabilities and trust corpus of the Cross Timbers Royalty Trust at March 31,
2023, and the distributable income and changes in trust corpus for the
three-month periods ended March 31, 2023 and 2022, have been included.Distributa
ble income for such interim periods is not necessarily indicative of the
distributable income for the full year.
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CROSS TIMBERS ROYALTY TRUST
Condensed Statements ofAssets, Liabilities and Trust Corpus
(Unaudited)
March 31, December 31,
2023 2022
ASSETS
Cash and short-term investments $ 2,070,031 $ 1,898,638
Interest to be received 5,505 3,372
Net profits interests in oil and gas properties - net (Note 1) 2,832,930 2,961,955
$ 4,908,466 $ 4,863,965
LIABILITIES AND TRUST CORPUS
Distribution payable to unitholders $ 1,075,536 $ 902,010
Expense reserve (a) 1,000,000 1,000,000
Trust corpus (6,000,000 units of beneficial interest 2,832,930 2,961,955
authorized and outstanding)
$ 4,908,466 $ 4,863,965
(a) Expense reserve allows the Trustee to pay its obligations should it be unable to pay
them out of the netprofits income. The reserve is currently funded at $1,000,000.
The accompanying notes to condensed financial statements are an integralpart
of these statements.
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CROSS TIMBERS ROYALTY TRUST
Condensed Statements ofDistributable Income
(Unaudited)
Three Months Ended
March 31
2023 2022
Net profits income $ 3,912,704 $ 1,951,672
Interest income 14,338 34
Total income 3,927,042 1,951,706
Administration expense 287,844 266,774
Distributable income $ 3,639,198 $ 1,684,932
Distributable income per unit (6,000,000 units) $ 0.606533 $ 0.280822
The accompanying notes to condensed financial statements are an integral part
of these statements.
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CROSS TIMBERS ROYALTY TRUST
Condensed Statements ofChanges in Trust Corpus
(Unaudited)
Three Months Ended
March 31
2023 2022
Trust corpus, beginning of period $ 2,961,955 $ 3,266,356
Amortization of net profits interests (129,025 ) (53,565 )
Distributable income 3,639,198 1,684,932
Distributions declared (3,639,198 ) (1,684,932 )
Trust corpus, end of period $ 2,832,930 $ 3,212,791
The accompanying notes to condensed financial statements are an integral part
of these statements.
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CROSS TIMBERS ROYALTY TRUST
Notes to CondensedFinancial Statements
(Unaudited)
1. Basis of Accounting
The financial statements of Cross Timbers Royalty Trust (the "Trust") are
prepared on the following basis and arenot intended to present financial
position and results of operations in conformity with U.S. generally accepted
accounting principles ("GAAP"):
- Net profits income recorded for a month is the amount computed and
paid by XTO Energy Inc. ("XTOEnergy"), the owner of the underlying
properties, to Argent Trust Company, as trustee (the "Trustee")
for the Trust. XTO Energy is a wholly owned subsidiary of Exxon
Mobil Corporation. Net profits income consists of net proceedsreceived
by XTO Energy from the underlying properties in the prior
month, multiplied by net profit percentages of 90% for the 90% net
profits interests, and 75% for the 75% net profits interests.
- Costs deducted in the calculation of net proceeds for the 90% net profits interests
generally includeapplicable taxes, transportation, marketing and legal costs.
In addition to those costs, the 75% net profits interests include deductions
for production expense, development costs, operating charges and other costs.
- Net profits income is computed separately for each of the five conveyances under which the
net profitsinterests were conveyed to the Trust. If monthly costs exceed revenues for
any conveyance, such excess costs must be recovered, with accrued interest, from future
net proceeds of that conveyance and cannot reduce net proceeds from the otherconveyances.
- Interest income and distribution payable to unitholders include interest earned on the previous month'sinvestment.
- Trust expenses are recorded based on liabilities paid and cash
reserves established by the Trustee forliabilities and contingencies.
- Distributions to unitholders are recorded when declared by the Trustee.
The Trust's financial statements differ from those prepared in conformity with
U.S. GAAP because revenues are recognizedwhen received rather than accrued in
the month of production, expenses are recognized when paid rather than when
incurred, and certain cash reserves may be established by the Trustee for
contingencies which would not be recorded under U.S. GAAP.This comprehensive
basis of accounting other than U.S. GAAP corresponds to the accounting
permitted for royalty trusts by the U.S. Securities and Exchange Commission,
as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements
ofRoyalty Trusts.
Most accounting pronouncements apply to entities whose financial statements
are prepared in accordancewith U.S. GAAP, directing such entities to accrue or
defer revenues and expenses in a period other than when such revenues were
received or expenses were paid. Because the Trust's financial statements are
prepared on the modified cash basis, asdescribed above, most accounting
pronouncements are not applicable to the Trust's financial statements.
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Impairment of Net Profits Interests
The Trustee reviews the Trust's net profits interests ("NPI") in oil and gas
properties for impairment wheneverevents or circumstances indicate that the
carrying value of the NPI may not be recoverable. In general, the Trustee does
not view temporarily low prices as an indication of impairment. The markets
for crude oil and natural gas have a history ofsignificant price volatility
and though prices will occasionally drop significantly, industry prices over
the long term will continue to be driven by market supply and demand. If
events and circumstances indicate the carrying value may not berecoverable,
the Trustee would use the estimated undiscounted future net cash flows from
the NPI to evaluate the recoverability of the Trust assets. If the
undiscounted future net cash flows from the NPI are less than the NPI carrying
value, theTrust would recognize an impairment loss for the difference between
the NPI carrying value and the estimated fair value of the NPI. The
determination as to whether the NPI is impaired requires a significant amount
of judgment by the Trustee and isbased on the best information available to
the Trustee at the time of the evaluation, including commodity pricing and
other information provided by XTO Energy such as estimates of future
production and development and operating expenses.
During the first quarter of 2023, no trigger event occurred that would
indicate a need for an impairment assessment.Accordingly, there was no
impairment of the NPI as of March 31, 2023. Any impairment recorded for book
purposes would not result in a loss for tax purposes for the unitholders until
the loss is recognized.
Net profits interests in oil and gas properties
The initial carrying value of the net profits interests of $61,100,449
represents XTO Energy's historical net book valuefor the interests on February
12, 1991, the creation date of the Trust. Amortization of the net profits
interests is calculated on a
unit-of-production
basis usingproved reserves and is charged directly to trust corpus.
Accumulated amortization was $58,267,519 as of March 31, 2023, and $58,138,494
as of December 31, 2022. Amortization of the NPI does not impact unitholder
distributions.
2. Income Taxes
For federal income tax purposes, the Trust constitutes a fixed investment
trust that is taxed as a grantor trust. A grantortrust is not subject to tax
at the trust level. Accordingly, no provision for income taxes has been made
in the financial statements. The unitholders are considered to own the Trust's
income and principal as though no trust were in existence.The income of the
Trust is deemed to have been received or accrued by each unitholder at the
time such income is received or accrued by the Trust and not when distributed
by the Trust. Impairments recorded for book purposes will not result in
adeductible loss by the unitholders for tax purposes until the loss is
recognized.
All revenues from the Trust are fromsources within Texas, Oklahoma or New
Mexico. Because it distributes all of its net income to unitholders, the Trust
has not been taxed at the trust level in New Mexico or Oklahoma. While the
Trust has not owed tax, the Trustee is required to filean Oklahoma income tax
return reflecting the income and deductions of the Trust attributable to
properties located in that state, along with a schedule that includes
information regarding distributions to unitholders. Oklahoma and New Mexico
tax theincome of nonresidents from real property located within those states,
and the Trust has been advised by counsel that such states will tax
nonresidents on income from the net profits interests located in those states.
Oklahoma and New Mexico alsoimpose a corporate income tax that may apply to
unitholders organized as corporations (subject to certain exceptions for S
corporations and limited liability companies, depending on their treatment for
federal income tax purposes).
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Texas imposes a franchise tax at a rate of 0.75% on gross revenues lesscertain
deductions, as specifically set forth in the Texas franchise tax statutes.
Entities subject to tax generally include trusts and most other types of
entities that provide limited liability protection, unless otherwise exempt.
Trusts thatreceive at least 90% of their federal gross income from certain
passive sources, including royalties from mineral properties and other
non-operated
mineral interest income, and do not receive more than 10% oftheir income from
operating an active trade or business, generally are exempt from the Texas
franchise tax as "passive entities." The Trust has been and expects to
continue to be exempt from Texas franchise tax as a passive entity. Becausethe
Trust should be exempt from Texas franchise tax at the trust level as a
passive entity, each unitholder that is a taxable entity under the Texas
franchise tax will generally be required to include its Texas portion of Trust
revenues in its ownTexas franchise tax computation. This revenue is sourced to
Texas under provisions of the Texas Administrative Code providing that such
income is sourced according to the principal place of business of the Trust,
which is Texas.
The Trust may be required to bear a portion of the settlement costs arising
from the
Chieftain
royalty classaction settlement. For information on contingencies, see Note 3
to Condensed Financial Statements. In the event that the Trust is determined
to be responsible for such costs, XTO Energy will deduct the costs in its
calculation of the net profitsincome payable to the Trust from the applicable
net profits interests. Thus, for unitholders, the portion of the settlement
payment to the
Chieftain
royalty owner class for which the Trust is determined to be responsible will
be reflectedthrough a reduction in net profits income received from the Trust
and thus in a reduction in the gross royalty income reported by and taxable to
the unitholders. In the event that the Trustee objects to such claimed
reductions, the Trustee may alsoincur legal fees in representing the Trust's
interests. For unitholders, such costs would be reflected through an increase
in the Trust's administrative expenses, which would be deductible by
unitholders in determining the net royaltyincome from the Trust.
Each unitholder should consult their own tax advisor regarding income tax
requirements, if any,applicable to such person's ownership of Trust units.
Unitholders should consult the Trust's latest annualreport on Form
10-K
for a more detailed discussion of federal and state tax matters.
3. Contingencies
Litigation
A federal district court approved the settlement of a royalty class action
lawsuit against XTO Energy Inc. (
ChieftainRoyalty Company v. XTO Energy Inc.)
in March 2018. In July 2018, the class plaintiffs submitted their plan to
allocate the settlement funds among members of the class. After that plan of
allocation was approved, XTO Energy advised the Trusteethat, based upon that
plan, approximately $40,000 should be allocated to the Trust as additional
production costs.
TheTrustee has objected to similar claims relating to the
Chieftain
settlement with respect to another trust for which it serves as trustee (the
Hugoton Royalty Trust) in an arbitration styled
Simmons Bank (successor to Southwest Bank andBank of America, N.A.) vs. XTO
Energy Inc.
through the American Arbitration Association. In that arbitration, the Trustee
requested a declaratory judgment that the
Chieftain
settlement is not a production cost and that XTO Energy isprohibited from
charging the settlement as a production cost under the conveyance or otherwise
reducing the Hugoton Royalty Trust's payments now or in the future as a result
of the
Chieftain
litigation. Similar issues have arisen asbetween XTO Energy and the Trust, but
it was agreed those issues would be considered once the Panel issued its
decisions with respect to the Hugoton Royalty Trust. On January 20, 2021, the
Panel issued its
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Corrected Interim Final Award (i) "reject[ing] the Trust's contention that XTO
has no right under the Conveyance to charge the [Hugoton Royalty] Trust with
amounts XTO paid undersection 1.18(a)(i) as royalty obligations to settle the
Chieftain
litigation" and (ii) stating "[t]he next phase will determine how much of the
Chieftain
settlement can be so charged, if any of it can be, in the exerciseof the right
found by the Panel." Following briefing by both parties, on May 18, 2021, the
Panel issued its second interim final award over the amount of XTO Energy's
settlement in the
Chieftain
class action lawsuit that can becharged to the Hugoton Royalty Trust as a
production cost. The allocation of a portion of the
Chieftain
settlement to the Trust will be considered in the now
re-commenced
arbitration.
Other
Several states have enacted legislation requiring state income tax withholding
from payments made to nonresident recipients ofoil and gas proceeds. After
consultation with its tax counsel, the Trustee believes that it is not
required to withhold on payments made to the unitholders. However, regulations
are subject to change by the various states, which could change thisconclusion.
Should amounts be withheld on payments made to the Trust or the unitholders,
distributions to the unitholders would be reduced by the required amount,
subject to the filing of a claim for refund by the Trust or unitholders for
suchamount.
4. Excess Costs
If monthly costs exceed revenues for any conveyance, such excess costs must be
recovered, with accrued interest, from futurenet proceeds of that conveyance
and cannot reduce net proceeds from other conveyances.
The following summarizes excesscosts activity, cumulative excess costs
balances and accrued interest to be recovered by conveyance as calculated by
XTO Energy:
Underlying
TX WI OK WI Total
Cumulative excess costs remaining at 12/31/22 $ 1,130,627 $ 741,687 $ 1,872,314
Net excess costs (recovery) for the quarter ended 3/31/23 39,834 (151,450 ) (111,616 )
Cumulative excess costs remaining at 3/31/23 1,170,461 590,237 1,760,698
Accrued interest at 3/31/23 676,143 21,731 697,874
Total remaining to be recovered at 3/31/23 $ 1,846,604 $ 611,968 $ 2,458,572
NPI
TX WI OK WI Total
Cumulative excess costs remaining at 12/31/22 $ 847,970 $ 556,265 $ 1,404,235
Net excess costs (recovery) for the quarter ended 3/31/23 29,876 (113,587 ) (83,711 )
Cumulative excess costs remaining at 3/31/23 877,846 442,678 1,320,524
Accrued interest at 3/31/23 507,107 16,298 523,405
Total remaining to be recovered at 3/31/23 $ 1,384,953 $ 458,976 $ 1,843,929
For the quarter ended March 31, 2023, excess costs were $39,834 ($29,876 net
to theTrust) on properties underlying the Texas working interest net profits
interests.
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For the quarter ended March 31, 2023, excess costs of $151,450($113,587 net to
the Trust) were recovered on properties underlying the Oklahoma working
interest net profits interests.
Underlying cumulative excess costs for the Texas and Oklahoma working interest
conveyances remaining as of March 31,2023, totaled $2.5 million ($1.8 million
net to the Trust), including accrued interest of $0.7 million ($0.5 million
net to the Trust).
5. Related Party Transactions
In computing net proceeds for the 75% net profits interests, XTO Energy
deducts an overhead charge as reimbursement for costsassociated with
monitoring these interests. This monthly overhead charge as of March 31, 2023,
was $44,445 ($33,334 net to the Trust) and is subject to annual adjustment
based on an oil and gas industry index.
XTO Energy deducts a monthly overhead charge for reimbursement of
administrative expenses as operator of the Hewitt Unit,which is one of the
properties underlying the Oklahoma 75% net profits interests. As of March 31,
2023, this monthly charge was approximately $30,823 ($23,118 net to the Trust)
and is subject to annual adjustment based on an oil and gasindustry index.
Other than this property, XTO Energy and ExxonMobil do not operate or control
any of the properties underlying the 75% net profits interests.
6. Administration Expense
Administrative expenses are incurred so that the Trustee may meet its
reporting obligations to the unitholders and regulatoryentities and otherwise
manage the administrative functions of the Trust. These obligations include,
but are not limited to, all expenses, taxes, compensation to the Trustee for
managing the Trust, fees to consultants, accountants, attorneys,transfer
agents, other professional and expert persons, expenses for clerical and other
administrative assistance, and fees and expenses for all other services.
Item 2. Trustee's Discussion and Analysis
The following discussion should be read in conjunction with the Trustee's
discussion and analysis contained in the Trust's 2022Annual Report on Form
10-K,
as well as the condensed financial statements and notes thereto included in
this Quarterly Report on Form
10-Q.
The Trust's AnnualReport on Form
10-K,
quarterly reports on Form
10-Q,
current reports on Form
8-K
and all amendments to those reports areavailable on the Trust's website at
www.crt-crosstimbers.com
.
Distributable Income
For the quarter ended March 31, 2023, net profits income was $3,912,704
compared to $1,951,672 for first quarter 2022. This100 percent increase in net
profits income is primarily the result of net excess costs activity ($2.8
million), increased gas production ($2.7 million), higher oil prices ($1.6
million), and decreased development costs ($0.3 million), partiallyoffset by
decreased oil production ($4.2 million), increased taxes, transportation and
other costs ($0.6 million), increased production expenses ($0.3 million), and
lower gas prices ($0.3 million). See "Net Profits Income" below.
After considering interest income of $14,338 and administration expense of
$287,844, distributable income for the quarter ended March 31,2023, was
$3,639,198, or $0.606533 per unit of beneficial interest. Administration
expense for the quarter increased $21,070 from the prior year quarter,
primarily related to the timing of receipt and payment of Trust expenses and
terms ofprofessional services. Changes in interest income are attributable to
fluctuations in net profits income, expense reserve, and interest rates. For
first quarter 2022, distributable income was $1,684,932, or $0.280822 per unit.
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Distributions to unitholders for the quarter ended March 31, 2023, were:
Record Date PaymentDate Distribution
per Unit
January 31, 2023 February 14, 2023 $ 0.312668
February 28, 2023 March 14, 2023 0.114609
March 31, 2023 April 14, 2023 0.179256
$ 0.606533
Net Profits Income
Net profits income is recorded when received by the Trust, which is the month
following receipt by XTO Energy, and generally two months afteroil production
and three months after gas production. Net profits income is generally
affected by three major factors:
1. oil and gas sales volumes;
2. oil and gas sales prices; and
3. costs deducted in the calculation of net profits income.
Because properties underlying the 90% net profits interests are primarily
royalty and overriding royalty interests, the calculation of netprofits income
from these interests includes deductions for production and property taxes,
legal costs, and marketing and transportation charges. In addition to these
costs, the calculation of net profits income from the 75% net profits
interestsincludes deductions for production expense, development costs and
overhead since the related underlying properties are working interests.
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The following is a summary of the calculation of net profits incomereceived by
the Trust:
Three Months
Ended March 31 (a) Increase
2023 2022 (Decrease)
Sales Volumes
Oil (Bbls) (b)
Underlying properties 43,158 116,295 (63%)
Average per day 469 1,264 (63%)
Net profits interests 13,851 11,471 21%
Gas (Mcf) (b)
Underlying properties 811,264 248,673 226%
Average per day 8,818 2,703 226%
Net profits interests 645,042 205,807 213%
Average Sales Prices
Oil (per Bbl) $ 80.49 $ 60.25 34%
Gas (per Mcf) $ 5.43 $ 6.88 (21%)
Revenues
Oil sales $ 3,474,032 $ 7,006,631 (50%)
Gas sales 4,403,962 1,710,399 157%
Total Revenues 7,877,994 8,717,030 (10%)
Costs
Taxes, transportation and other 1,232,816 559,502 120%
Production expense (c) 1,592,149 1,178,382 35%
Development costs 593,964 992,067 (40%)
Excess costs (d) 111,616 3,812,006 (97%)
Total Costs 3,530,545 6,541,957 (46%)
Net Proceeds $ 4,347,449 $ 2,175,073 100%
Net Profits Income $ 3,912,704 $ 1,951,672 100%
(a) Because of the interval between time of production and receipt of royalty
income by the Trust, oil and gassales for the quarter ended March
31 generally represent oil production for the period November through
January and gas production for the period October through December.
(b) Oil and gas sales volumes are allocated to the net profits interests
by dividing Trust net cash inflows byaverage sales prices. As oil
and gas prices change, the Trust's allocated production volumes are
impacted as the quantity of production necessary to cover expenses
changes inversely with price. As such, the underlying property
production volumechanges may not correlate with the Trust's allocated
production volumes in any given period. Therefore, comparative discussion
of oil and gas sales volumes is based on the underlying properties.
(c) Production expense includes an overhead charge which is deducted and retained by the operator. XTO Energydeducts an overhead
charge as reimbursement for costs associated with monitoring these interests. See Note 5 to Condensed Financial Statements.
(d) See Note 4 to Condensed Financial Statements.
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The following are explanations of significant variances on the underlying
properties fromfirst quarter 2022 to first quarter 2023:
Sales Volumes
Oil
Oil sales volumes decreased63 percent from first quarter 2022 to first quarter
2023 primarily due to the absence of North Cowden Unit adjustment in first
quarter 2022 and natural production decline.
Gas
Gas sales volumes increased226 percent from first quarter 2022 to first
quarter 2023 primarily due to timing of receipts for the New Mexico royalty
interest net profits interests related to March 2018 to December 2020
production, partially offset by natural productiondecline.
The estimated rate of natural production decline on the underlying oil and gas
properties is approximately 6 to 8 percent ayear.
Sales Prices
Oil
The average oil price increased 34 percent to $80.49 per Bbl for first quarter
2023. The first quarter 2023 oil price is primarilyrelated to production from
November 2022 through January 2023, when the average NYMEX price was $79.78
per Bbl.
Gas
The average gas price decreased 21 percent to $5.43 per Mcf for first quarter
2023. The first quarter 2023 gas price is primarily relatedto production from
October through December 2022, when the average NYMEX price was $6.26 per
MMBtu.
Costs
Taxes, Transportation and Other
Taxes, transportation and other costs increased 120 percent for first quarter
2023 primarily because of increased gas deductions and gasseverance taxes on
higher revenues driven by timing of receipts.
Production Expense
Production expense increased 35 percent for first quarter 2023 primarily
because of higher processing costs driven by timing of receipts andincreased
power and fuel costs.
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Development Costs
Development costs related to properties underlying the 75% net profits
interests decreased 40 percent for first quarter 2023 primarilybecause of
decreased drilling activity in the Hewitt Unit.
Excess Costs
If monthly costs exceed revenues for any conveyance, such excess costs must be
recovered, with accrued interest, from future net proceeds ofthat conveyance
and cannot reduce net proceeds from any other conveyance. Underlying
cumulative excess costs for the Texas and Oklahoma working interest
conveyances remaining as of March 31, 2023, totaled $2.5 million ($1.8
millionnet to the Trust), including accrued interest of $0.7 million ($0.5
million net to the Trust). For further information on excess costs, see Note 4
to Condensed Financial Statements.
Contingencies
For information oncontingencies, see Note 3 to Condensed Financial Statements.
Forward-Looking Statements
Certain information included in this quarterly report and other materials
filed, or to be filed, by the Trust with the Securities and ExchangeCommission
(as well as information included in oral statements or other written
statements made or to be made by XTO Energy or the Trustee) contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of1934, as amended, and Section 27A of the Securities Act of
1933, as amended, relating to the Trust, operations of the underlying
properties and the oil and gas industry. Such forward-looking statements are
based on XTO Energy's and theTrustee's current plans, expectations,
assumptions, projections and estimates and are identified by words such as
"may," "expects," "intends," "plans," "believes," "estimates,""should,"
"could," "would," and similar words that convey the uncertainty of future
events. Such forward-looking statements may concern, among other things,
development activities, future development plans by area,increased density
drilling,
reserve-to-production
ratios, future production, future net cash flows, maintenance projects,
development, production, regulatory and othercosts, oil and gas prices and
expectations for future demand, the impact of inflation and economic downturns
on economic activity, government policy and its impact on oil and gas prices
and future demand, the development and competitiveness ofalternative energy
sources, pricing differentials, proved reserves, production levels, expense
reserve budgets, availability of financing, arbitration, litigation,
liquidity, financing, political and regulatory matters, such as tax and
environmentalpolicy, climate policy, trade barriers, sanctions, competition,
war and other political or security disturbances. These statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficultto predict, including those detailed in Part I,
Item 1A of the Trust's Annual Report on Form
10-K
for the year ended December 31, 2022, which is incorporated by this reference
as though fully setforth herein. Therefore, actual financial and operational
results may differ materially from expectations, estimates or assumptions
expressed in, implied in, or forecasted in such forward-looking statements.
XTO Energy and the Trustee assume no dutyto update these statements as of any
future date.
Item 3. Quantitative and Qualitative Disclosures aboutMarket Risk
Not applicable. Upon qualifying as a smaller reporting company, this
information is no longer required.
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Item 4. Controls and Procedures
As of the end of the period covered by this report, the Trustee carried out an
evaluation of the effectiveness of the Trust's disclosurecontrols and
procedures pursuant to Exchange Act Rules
13a-15
and
15d-15.
Based upon that evaluation, the Trustee concluded that the Trust's disclosure
controls andprocedures are effective in recording, processing, summarizing and
reporting, on a timely basis, information required to be disclosed by the
Trust in the reports that it files or submits under the Securities Exchange
Act of 1934 and are effective inensuring that information required to be
disclosed by the Trust in the reports that it files or submits under the
Securities Exchange Act of 1934 is accumulated and communicated to the Trustee
to allow timely decisions regarding required disclosure.In its evaluation of
disclosure controls and procedures, the Trustee has relied, to the extent
considered reasonable, on information provided by XTO Energy. There has not
been any change in the Trust's internal control over financial reportingduring
the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Trust's internal control over
financial reporting.
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PART II - OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes in the risk factors disclosed under Part
I, Item 1A of the Trust's Annual Report on Form
10-K
for the year ended December 31, 2022.
Item 6. Exhibits
(31) Rule
13a-14(a)/15d-14(a)
Certification
(32) Section 1350 Certification
(99) Items 1A, 7 and 7A to the
Annual Report on Form
10-K
for Cross Timbers Royalty Trust filed with the Securities and Exchange
Commission on March 30, 2023 (incorporated herein by reference)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf bythe
undersigned thereunto duly authorized.
CROSS TIMBERS ROYALTY TRUST
By ARGENT TRUST COMPANY, TRUSTEE
By /
S
/ NANCY WILLIS
Nancy Willis
Vice President
EXXON MOBIL CORPORATION
Date: May 12, 2023 By /
S
/ WENDI POWELL
Wendi Powell
Upstream Controller
19
EXHIBIT 31
CERTIFICATIONS
I, NancyWillis, certify that:
1. I have reviewed this report on Form
10-Q
of Cross Timbers RoyaltyTrust, for which Argent Trust Company acts as Trustee;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to statea material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report,fairly present in all material respects
the financial condition, distributable income and changes in trust corpus
of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules
13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)
and
15d-15(f)),
or for causing such controls and procedures to be established and maintained, for the registrant and I have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to bedesigned under my supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to me by others
within those entities, particularly during the period in which this report is beingprepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financialreporting to be designed under my supervision,
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented inthis report my conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
thatoccurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internalcontrol over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to theregistrant's auditors:
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control overfinancial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who
have a significant rolein the registrant's internal control over financial reporting.
In giving the certifications in paragraphs 4 and 5above, I have relied to the
extent I consider reasonable on information provided to me by XTO Energy Inc.
Date: May 12, 2023 By /
S
/ NANCY WILLIS
Nancy Willis
Vice President
Argent Trust Company
EXHIBIT 32
Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Cross Timbers Royalty Trust (the
"Trust") on Form
10-Q
for the quarterly period ended March 31, 2023, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned,
not in its individual capacity butsolely as the Trustee of the Trust,
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that to its knowledge:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities ExchangeAct of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial conditionand results of operations of the Trust.
Argent Trust Company,
Trustee for Cross Timbers Royalty Trust
May 12, 2023 By /
S
/ NANCY WILLIS
Nancy Willis
Vice President