What changed in this filing

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Item 1A. Risk Factors

2020-03-19 compared with 2019-03-22 · 52 added, 43 removed, 349 unchanged (21% of the section changed)

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weather conditions;

changes in the level of consumer and industrial demand;

changes in the level of consumer and industrial demand, including impacts from global or national health epidemics and concerns, such as the recent coronavirus;

the price and availability of alternative fuels;

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the nature and extent of domestic and foreign governmental regulations and taxes;

the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;

the ability of the members of the Organization of Petroleum Exporting Countries and others to agree to and maintain oil price and production controls;

increased use of competing energy products, including alternative energy sources;

political instability or armed conflict in oil and natural gas producing regions;

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domestic and global economic conditions.

These factors and the volatility of the energy markets make it extremely difficult to predict future oil, natural gas and NGL price movements with any certainty.

These factors and the volatility of the energy markets make it extremely difficult to predict future oil, natural gas and NGL price movements.

Lower oil, natural gas and NGL prices have reduced, and could continue to reduce, proceeds to which the Trust is entitled and may ultimately reduce the amount of oil, natural gas and NGL that is economic to produce from the Underlying Properties.

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Prices on the date of estimate are calculated as the average oil and natural gas price, as applicable, during the 12 months ending in the current reporting period, determined as the unweighted arithmetic average of prices on the first day of each month within the 12-month period.

The December 31, 2018 present value is based on $65.56 per bbl of oil and $3.10 per mcf of natural gas before basis differential adjustments.

The December 31, 2019 present value is based on a $55.69 per bbl of oil price and a $2.58 per mcf of natural gas price, before considering basis differential adjustments.

Actual future prices and costs may be materially higher or lower than the prices and costs as of the date of an estimate.

The timing of both the production and the expenses from the development and production of oil and natural gas properties will affect both the timing of actual future net cash flows from our proved reserves and their present value.

Any changes in consumption or in governmental regulations will also affect the actual future net cash flows from our production.

In addition, the 10% discount factor which is required by the SEC to be used in calculating discounted future net cash flows for reporting purposes is not necessarily the most appropriate discount factor.

The timing of both the production and the expenses from the development and production of oil and natural gas properties will affect both the timing of future net cash flows from our proved reserves and their present value.

Any changes in demand for oil and natural gas, governmental regulations, or taxation will also affect the future net cash flows from our production.

In addition, the 10% discount factor that is required by the SEC to be used in calculating discounted future net cash flows for reporting purposes is not necessarily the most appropriate discount factor.

Interest rates in effect from time to time and the risks associated with our business or the oil and gas industry in general will affect the appropriateness of the 10% discount factor.

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The lack of operational history for horizontal wells in the Colony Granite Wash may also contribute to the inaccuracy of estimates of proved reserves.

During 2019, the Trust recorded downward reserve revisions primarily attributable to lower production and commodity prices in forecasts.

During 2018, the Trust recorded downward reserve revisions primarily attributable to lower production in forecasts.

During 2017, the Trust recorded downward reserve revisions primarily due to a decrease in production offset by higher oil and gas prices.

Future negative well performance or lower expected ultimate recovery could lead to further downward adjustments to our reserve estimates.

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In addition, during any bankruptcy of Chesapeake, it is possible that payments of the royalties may be delayed or deferred.

During the pendency of any Chesapeake bankruptcy proceedings, the ability to collect cash payments being held in Chesapeake's accounts that are attributable to production from the Trust properties, and even its ability to demand any of these remedies, may be stayed or prohibited by the bankruptcy proceeding.

During the pendency of any Chesapeake bankruptcy proceedings, the ability to collect cash payments

being held in Chesapeake's accounts that are attributable to production from the Trust properties, and even its ability to demand any of these remedies, may be stayed or prohibited by the bankruptcy proceeding.

In the event of a bankruptcy of Chesapeake or the wholly owned subsidiaries of Chesapeake that conveyed the Royalty Interests to the Trust, the Trust could lose the value of all of the Royalty Interests if a bankruptcy court were to hold that the Royalty Interests constitute an asset of the bankruptcy estate.

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This concentration could disproportionately expose the Trust's interests to operational and regulatory risk in that area.

Due to the lack of diversification in industry type and location of the Trust's interests, adverse developments in the oil, natural gas and NGL markets or the area of the Underlying Properties, including, for example, transportation or treatment capacity constraints, curtailment of production or treatment plant closures for scheduled maintenance, could have a significantly greater impact on the Trust's financial condition, results of operations and cash flows than if the Royalty Interests were more diversified.

greater impact on the Trust's financial condition, results of operations and cash flows than if the Royalty Interests were more diversified.

The generation of proceeds for distribution by the Trust depends in part on access to and the operation of gathering, transportation and processing facilities.

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Future maintenance may affect the quantity of proved reserves that can be economically produced from the Underlying Properties to which the wells relate.

The timing and size of these projects will depend on, among other

factors, the market prices of oil, natural gas and NGL.

The timing and size of these projects will depend on, among other factors, the market prices of oil, natural gas and NGL.

Chesapeake has no contractual obligation to the Trust to make capital expenditures on the Underlying Properties in the future.

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In addition, the amount of funds available for distribution to unitholders will be reduced by the amount of any cash reserves maintained by the Trustee in respect of anticipated future Trust expenses.

Commencing with the distribution to unitholders payable in the first quarter of 2019, the Trustee intends to begin withholding the greater of $70,000 or 3.5% of the funds otherwise available for distribution each quarter to gradually increase existing cash reserves by a total of approximately $850,000.

Commencing with the distribution to unitholders payable in the first quarter of 2019, the Trustee began withholding the greater of $70,000 or 3.5% of the funds otherwise available for distribution each quarter to gradually increase existing cash reserves by a total of approximately $850,000.

The Trustee may increase or decrease the targeted amount at any time, and may increase or decrease the rate at which it is withholding funds to build the cash reserve at any time, without advance notice to the unitholders.

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The extent by which the costs and expenses of the Trust are higher or lower in any quarter will directly decrease or increase the amount received by the Trust and available for distribution to the unitholders.

Historical post-production expenses and taxes, however, may not be indicative of future post-production expenses and taxes.In March 2019, the Trust's cash on hand (including cash reserves) was insufficient to pay the Trust's ordinary course expenses as they became due.

Historical post-production expenses and

taxes, however, may not be indicative of future post-production expenses and taxes.

In March 2019, the Trust's cash on hand (including cash reserves) was insufficient to pay the Trust's ordinary course expenses as they became due.

Chesapeake loaned $275,000 to the Trust necessary to pay such expenses and agreed to permit the Trust to continue making distributions while the loan was outstanding.

The Trust intends to repay the loan in May 2019.

The Trust repaid the loan in the second quarter of 2019.

The Trustee may, under certain circumstances, sell the Royalty Interests and dissolve the Trust;

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For example, the Trustee must sell the Royalty Interests if unitholders approve the sale or vote to dissolve the Trust.

The Trustee must also sell the Royalty Interests if cash available for distribution is less than $1.0 million in each of any four consecutive quarters.

The Trustee must also sell the Royalty Interests if cash available for distribution is less than $1.0 million, in the aggregate, for any four consecutive quarters.

The sale of all of the Royalty Interests will result in the dissolution of the Trust.

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As a result, Trust unitholders will not be able to sue Chesapeake or any future owner of the Underlying Properties to enforce the Trust's rights under the conveyances.

Furthermore, the Royalty Interest conveyances prohibit recovery of certain types of damages, such as consequential and punitive damages, and provide that, except as set forth in the conveyances, Chesapeake will not be liable to the Trust for the manner in which it performs its duties in operating the Underlying Properties as long as it acts in good faith and in accordance with the Reasonably Prudent Operator Standard under the development agreement and, to the fullest extent permitted by law, will owe no fiduciary duties to the Trust or the unitholders.

Operator Standard under the development agreement and, to the fullest extent permitted by law, will owe no fiduciary duties to the Trust or the unitholders.

Courts outside of Delaware may not recognize the limited liability of the Trust unitholders provided under Delaware law.

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In addition, Chesapeake has agreed that, if at any time the Trust's cash on hand (including available cash reserves) is not sufficient to pay the Trust's ordinary course expenses as they become due, it will lend funds to the Trust necessary to pay such expenses.

Any such loan will be on an unsecured basis, and the terms of such loan will be substantially the same as those which would be obtained in an arms' length transaction between Chesapeake and an unaffiliated third party.

Any such loan will be on an unsecured basis.

If Chesapeake provides such funds to the Trust, it would become a creditor of the Trust and its interests as a creditor could conflict with the interests of unitholders.

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Trust unitholders will not be entitled to vote on any sale by Chesapeake of its retained interest in the Underlying Properties and the Trust will not receive any proceeds from any such sale.

The purchaser would be responsible for all

of Chesapeake's obligations relating to the Royalty Interests on the portion of the Underlying Properties sold, including Chesapeake's obligation to operate the Underlying Properties sold in accordance with the Reasonably Prudent Operator Standard under the development agreement and Chesapeake's true-up obligations with respect to the Underlying Properties sold, and Chesapeake would have no continuing obligation to the Trust for those properties.

The purchaser would be responsible for all of Chesapeake's obligations relating to the Royalty Interests on the portion of the Underlying Properties sold, including Chesapeake's obligation to operate the Underlying Properties sold in accordance with the Reasonably Prudent Operator Standard under the development agreement and Chesapeake's true-up obligations with respect to the Underlying Properties sold, and Chesapeake would have no continuing obligation to the Trust for those properties.

Additionally, Chesapeake may enter into farmout or participation arrangements with respect to the wells burdened by the Royalty Interests.

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Chesapeake's inability to secure sufficient amounts of water, or to dispose of or recycle the water used in its operations, could adversely impact the development of the Underlying Properties.

The imposition of new environmental initiatives and regulations could further restrict Chesapeake's ability to conduct certain operations such as hydraulic fracturing by restricting the disposal of materials such as produced water and drilling fluids.

Chesapeake is subject to extensive governmental regulation and ongoing regulatory changes, which could adversely impact Chesapeake's business.

The imposition of new environmental

initiatives and regulations could further restrict Chesapeake's ability to conduct certain operations such as hydraulic fracturing by restricting the disposal of materials such as produced water and drilling fluids.

Chesapeake is subject to extensive governmental regulation, which can change and could adversely impact Chesapeake's business.

Chesapeake's operations are subject to extensive federal, state, tribal, local and other laws, rules and regulations, including with respect to environmental matters, worker health and safety, wildlife conservation, the gathering and transportation of oil, gas and NGLs, conservation policies, reporting obligations, royalty payments, unclaimed property and the imposition of taxes.

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In addition, changes in public policy have affected, and in the future could further affect, Chesapeake's operations.

Regulatory changes could, among other things, restrict production levels, impose price controls, alter environmental protection requirements and increase taxes, royalties and other amounts payable to the government.

Regulatory developments could, among other things, restrict production levels, impose price controls, change environmental protection requirements and increase taxes, royalties and other amounts payable to the government.

Operating and compliance costs could increase further if existing laws and regulations are revised or reinterpreted or if new laws and regulations become applicable to Chesapeake's operations.

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Although Chesapeake is unable to predict changes to existing laws and regulations, such changes could significantly impact profitability, financial condition and liquidity.

This is particularly true of changes related to pipeline safety, seismic activity, hydraulic fracturing, climate change and endangered species designations.

This is particularly true of changes related to pipeline safety, seismic activity, and climate change, as discussed below.

Continuing political and social attention to the issue of climate change has resulted in legislative, regulatory and other initiatives to reduce greenhouse gas emissions, such as carbon dioxide and methane.

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federal and state levels have introduced legislation and proposed new regulations designed to quantify and limit the emission of greenhouse gases through inventories, limitations and/or taxes on greenhouse gas emissions.

EPA and BLM have issued regulations for the control of methane emissions, which also include leak detection and repair requirements, for the oil and gas industry;

however, following the change in presidential administrations, both agencies took actions to rescind or revise the rules.

In September 2018, BLM issued a final rule that rescinded certain requirements of its venting and flaring rule.

Similarly, in October 2018, EPA published a proposed rule that amends certain requirements of its methane rule.

The EPA rule remains in effect.

Nevertheless, several states where Chesapeake operates have imposed venting and flaring limitations designed to reduce methane emissions from oil and gas exploration and production activities.

Legislative and state initiatives to date have generally focused on the development of cap and trade and/or carbon tax programs.

Cap and trade programs offer greenhouse gas emission allowances that are gradually reduced over time.

EPA and the BLM have issued regulations for the control of methane emissions, which also include leak detection and repair requirements, for the oil and gas industry;

however, in September 2018, BLM published a final rule to repeal certain requirements of these regulations.

Similarly, in September 2018, EPA published a rule proposing to reconsider certain aspects of its regulations for the control of methane emissions.

Nevertheless, several states where Chesapeake operates, including Wyoming, have imposed venting and flaring limitations designed to reduce methane emissions from oil and gas exploration and production activities.

Legislative and state initiatives to date have generally focused on the development of renewable energy standards and/or cap-and-trade and/or carbon tax programs.

A cap-and-trade program generally would cap overall greenhouse gas emissions on an economy-wide basis and require major sources of greenhouse gas emissions or major fuel producers to acquire and surrender emission allowances.

A cap-and-trade program could impose direct costs on Chesapeake through the purchase of allowances and could impose indirect costs by incentivizing consumers to shift away from fossil fuels.

A carbon tax could directly increase costs of operation and similarly incentivize consumers to shift away from fossil fuels.

In addition, activists concerned about the potential effects of climate change have directed their attention at sources of funding for fossil-fuel energy companies, which has resulted in certain financial institutions, funds and other sources of capital restricting or eliminating their investment in oil and natural gas activities.

Ultimately, this could make it more difficult to secure funding for exploration and production activities.

In addition, activists concerned about the potential effects of climate change have directed their attention at sources of funding for fossil-fuel energy companies, which has resulted in an increasing number of financial institutions, funds and other sources of capital restricting or eliminating their investment in oil and natural gas activities.

Ultimately, this would make it more difficult and expensive to secure funding for exploration and production activities.

These various legislative, regulatory and other activities addressing greenhouse gas emissions could adversely affect Chesapeake, including by imposing reporting obligations on, or limiting emissions of greenhouse gases from, equipment and operations, which could require Chesapeake to incur costs to reduce emissions of greenhouse gases associated with its operations.

Limitations on greenhouse gas emissions could also adversely affect demand for oil and gas, which could lower the value of reserves and have a material adverse effect on Chesapeake's profitability, financial condition and liquidity.

Furthermore, increasing attention to climate change risks has resulted in increased likelihood of governmental investigations and private litigation, which could increase costs or otherwise adversely affect Chesapeake.

Because we have been unable to meet the continued listing requirements of the NYSE, the NYSE is entitled to delist our common units.

On August 28, 2019, the Trust received written notification from the New York Stock Exchange ("NYSE") that the Trust was not in compliance with the continued listing standards set forth in Rule 802.01C of the NYSE Listed Company Manual because the average closing price of the Trust’s common units was less than $1.00 over a consecutive 30 trading-day period.

Because the Trust was unable to regain compliance with the applicable standards within a six-month cure period concluded February 28, 2020, the NYSE announced the suspension of trading of the Trust's common units due to non-compliance with Rule 802.01C of the NYSE Listed Company Manual, effective as of the close of trading on February 28, 2020, and announced that it intended to initiate proceedings to delist the Trust's common units.

As a result of the suspension and delisting, the Trust's common units began trading on March 2, 2020 under the symbol "CHKR" on the OTC Pink Market, which is operated by OTC Markets Group Inc.

(the "OTC Pink").

Subscribing broker-dealers view and publish quotes and negotiate trades in the OTC Pink securities on the OTC Pink's SEC registered Alternative Trading System, OTC Link® ATS, an interdealer quotation and trade messaging system.

The OTC Pink is a significantly more limited market than the NYSE, and the quotation of the Trust's common units on the OTC Pink may result in a reduction in demand for and the market price of the Trust's common units, and could diminish interest in the Trust from investors, analysts and other market participants.

No assurance can be given that an active market in the Trust's common units will develop on the OTC Pink, that broker-dealers will continue to provide public quotes of the Trust's common units on the market, that the trading volume of the Trust's common units will be sufficient to provide for an efficient trading market, that OTC Pink will not block quotes for the Trust's common units in the future or that the Trust's common units will continue to trade on the OTC Pink.

Tax Risks Related to the Units

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federal income tax purposes, it would pay federal income tax on its taxable income at the corporate tax rate, which for tax years beginning after 2017 is 21%, and would likely be required to pay state income tax on its taxable income at the corporate tax rate in Oklahoma.

Distributions to Trust unitholders would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits would flow through to Trust unitholders without first being subjected to taxation at the entity level.

Distributions to Trust unitholders would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits would flow through to Trust unitholders.

Because a tax would be imposed upon the Trust as a corporation, its cash available for distribution to Trust unitholders would be substantially reduced.

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However, such deduction will not be available after 2025 unless Congress extends it.

In addition, an individual having adjusted gross income in excess of $200,000 (or $250,000 for married taxpayers filing joint returns) is subject to the Net Investment Income Tax of 3.8% on the lesser of such excess or the individual's net

investment income.

For these purposes, net investment income generally includes interest income and royalty income derived from the Trust units as well as any net gain from the disposition of Trust units.

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federal income tax purposes or any other matter affecting the Trust.

The IRS may adopt positions that differ from the conclusions of the Trust's counsel expressed in the federal income tax considerations section in the prospectus or form the positions the Trust takes.

The IRS may adopt positions that differ from the conclusions of the Trust's counsel expressed in the federal income tax considerations section in the prospectus or from the positions the Trust takes.

It may be necessary to resort to administrative or court proceedings to attempt to sustain some or all of the conclusions of the Trust's counsel or the positions the Trust takes.

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Any contest with the IRS may materially and adversely impact the market for the Trust units and the price at which they trade.

In addition, the Trust's costs of any contest with the IRS will be borne indirectly by the Trust unitholders because the costs will reduce the Trust's cash available for distribution.

In addition, the Trust's costs of any contest with

the IRS will be borne indirectly by the Trust unitholders because the costs will reduce the Trust's cash available for distribution.

For tax years beginning after December 31, 2017, if the IRS makes audit adjustments to the Trust’s income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from the Trust.

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Because distributions in excess of the Trust unitholders allocable share of the Trust's net taxable income decrease the tax basis in such Trust unitholders' Trust units, the amount, if any, of such prior excess distributions with respect to the Trust units sold will, in effect, become taxable income if Trust units are sold at a price greater than the tax basis in those Trust units, even if the price received is less than the original cost of the Trust units.

Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depletion recapture.

Furthermore, a substantial portion of the amount realized, whether or not there is a net taxable gain on the sale, may be taxed as ordinary income due to potential recapture items, including depletion recapture.

Tax-exempt entities and non-U.S.

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The Trust's counsel has not rendered an opinion regarding the treatment of a unitholder where Trust units are loaned to a short seller to cover a short sale of Trust units;

therefore, Trust unitholders desiring to assure their status as partners and avoid the risk of

gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from loaning their Trust units.

therefore, Trust unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from loaning their Trust units.

The Trust has adopted certain valuation methodologies that may affect the income, gain, loss and deduction allocable to the Trust unitholders.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors