What changed in this filing

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Item 1. Financial Statements

2024-05-13 compared with 2023-11-14 · 54 added, 64 removed, 248 unchanged (32% of the section changed)

2 unchanged sentences

STATEMENTS OF ASSETS AND TRUST CORPUS

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

($ in thousands)

13 unchanged sentences

STATEMENTS OF DISTRIBUTABLE INCOME

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

($ in thousands, except unit and per unit data) ($ in thousands, except unit and per unit data)

Three Months Ended March 31,

($ in thousands, except unit and per unit data)

Royalty income $ 1,894 $ 3,969

8 unchanged sentences

STATEMENTS OF CHANGES IN TRUST CORPUS

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

($ in thousands) ($ in thousands)

Three Months Ended March 31,

($ in thousands)

TRUST CORPUS:

1 unchanged sentence

$ 10,204 $ 10,822

Increase in cash and cash equivalents 273 (127) 201 166

Increase (decrease) in cash and cash equivalents 412 (136)

Amortization of Investment in Royalty Interests (165) (176)

6 unchanged sentences

CHESAPEAKE GRANITE WASH TRUST

NOTES TO FINANCIAL STATEMENTS - (Continued)

NOTES TO FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS

32 unchanged sentences

Basis of Accounting .

The accompanying unaudited Statements of Assets and Trust Corpus as of September 30, 2023 and December 31, 2022 and the unaudited interim Statements of Distributable Income and of Changes in Trust Corpus of the Trust for the three and nine months ended September 30, 2023 (the “Current Quarter” and the "Current Period", respectively) and the three and nine months ended September 30, 2022 (the “Prior Quarter” and the "Prior Period", respectively) have been presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (the "SEC") and includes normal recurring adjustments and reflects all adjustments which are, in the opinion of the Trustee, necessary to fairly state the Trust's financial position and results of operations for the periods presented.

The accompanying unaudited Statements of Assets and Trust Corpus as of March 31, 2024 and December 31, 2023 and the unaudited interim Statements of Distributable Income and of Changes in Trust Corpus of the Trust as of and for the three months ended March 31, 2024 (the “Current Quarter") and the three months ended March 31, 2023 (the “Prior Quarter") have been presented in accordance with the rules and regulations of the United States Securities and Exchange Commission (the "SEC") and include all adjustments which are, in the opinion of the Trustee, necessary to fairly state the Trust's financial position and results of operations for the periods presented.

The accompanying unaudited interim financial statements should be read in conjunction with the December 31, 2023 audited financial statements and notes of the Trust, included in the Trust’s 2023 Form 10-K.

6 unchanged sentences

The preparation of financial statements requires the Trust to make estimates and assumptions that affect the reported amounts of assets, liabilities and Trust corpus during the reporting period.

Management applies significant judgment in developing the estimates of reserve volumes including estimates of oil, natural gas and NGL reserves and their values, future production rates and commodity pricing differentials.

Management applies significant judgement in developing the estimates of reserve volumes including estimates of oil, natural gas and NGL reserves and their values, future production rates and commodity pricing differentials.

The estimates of proved oil, natural gas and NGL reserves have been developed by specialists, specifically petroleum engineers.

20 unchanged sentences

Under the ceiling test, the carrying value of the Investment in Royalty Interests may not exceed an amount equal to the sum of the present value (using a 10% discount rate) of the estimated future net revenues from proved reserves.

The Trust recognized no impairment of the Royalty Interests in the Current Quarter or the Current Period.

The Trust recognized no impairment of the Royalty Interests in the Current Quarter.

Revenues and Expenses.

1 unchanged sentence

The Trust’s revenues with respect to the Royalty Interests in the Underlying Properties are net of existing royalties and overriding royalties associated with Diversified's interests and are determined after deducting certain post-production expenses and any applicable taxes associated with the Royalty Interests.

Royalty Income (and associated Production Taxes and post-production costs) for the three and nine months ended September 30, 2023 generally includes royalties attributable to sales of oil, natural gas and NGL related to production from March 1, 2023 to May 31, 2023 and September 1, 2022 to May 31, 2023, respectively.

Royalty Income (and associated Production Taxes and post-production costs) for the three months ended March 31, 2024 generally includes royalties attributable to sales of oil, natural gas and NGL related to production from September 1, 2023 to November 30, 2023.

Post-production expenses generally consist of costs incurred to gather, store, compress, transport, process, treat, dehydrate and market the oil, natural gas and NGL produced.

1 unchanged sentence

Cash distributions to unitholders are reduced by the Trust's administrative expenses.

Trust administrative expenses for the three and nine months ended September 30, 2023 generally include administrative expense related to invoices paid between the periods of May 1, 2023 to July 31, 2023 and November 1, 2022 to July 31, 2023, respectively.

Trust administrative expenses for the three months ended March 31, 2024 generally include administrative expense related to invoices paid between the periods of November 1, 2023 to January 31, 2024.

Trust administrative expenses also includes a change in cash advance that estimates three months of subsequent Trust administration expense payments each quarter.

19 unchanged sentences

Diversified is also entitled to receive reimbursement for its actual out-of-pocket fees, costs and expenses incurred in connection with the provision of any of the services under the administrative services agreement.

The administrative services agreement will terminate upon the earliest to occur of (a) the date the Trust shall have dissolved and wound up its business and affairs in accordance with the Trust Agreement, (b) the date that all of the Royalty Interests have been terminated or are no longer held by the Trust, (c) with respect to services to be provided to any Underlying Properties transferred by Diversified to a third party, the date that either Diversified or the Trustee may designate by delivering 90-days prior written notice, provided that the drilling obligation has been completed and the transferee of such Underlying Properties assumes responsibility to perform the services in place of Diversified, or (d) a date mutually agreed upon by Diversified and the Trustee.

The administrative services agreement will terminate upon the earliest to occur of (a) the date the Trust shall have dissolved and wound up its business and affairs in accordance with the Trust Agreement, (b) the date that all of the Royalty Interests have been terminated or are no longer held by the Trust, (c) with respect to services to be provided with respect to any Underlying Properties transferred by Diversified to a third party, the date that either Diversified or the Trustee may designate by delivering 90-days prior written notice, provided that the drilling obligation has been completed and the transferee of such Underlying Properties assumes responsibility to perform the services in place of Diversified, or (d) a date mutually agreed upon by Diversified and the Trustee.

The Trust also entered into a registration rights agreement for the benefit of Diversified (a “holder”).

5 unchanged sentences

If Diversified loans funds pursuant to this commitment, no further distributions will be made to unitholders (except in respect of any previously determined quarterly cash distribution amount and unless Diversified otherwise consents in writing) until such loan is repaid.

There were no loans outstanding as of September 30, 2023 and December 31, 2022.

There were no loans outstanding as of March 31, 2024 and December 31, 2023.

Distributions to Unitholders

The Trust makes quarterly cash distributions of substantially all of its cash receipts, after deducting the Trust’s expenses, approximately 60 days following the completion of each quarter, and is required to do so under the Trust Agreement through (and including) the quarter ending June 30, 2031.

CHESAPEAKE GRANITE WASH TRUST

NOTES TO FINANCIAL STATEMENTS - (Continued)

For the nine months ended September 30, 2023 and 2022, the Trust declared and paid the following cash distributions:

For the three months ended March 31, 2024 and 2023, the Trust declared and paid the following cash distributions:

Production Period

Distribution Date Cash Distribution per

September 2022 - November 2022 March 1, 2023 $0.0757

December 2022 - February 2023 June 1, 2023 $0.0487

March 2023 - May 2023 August 31, 2023 $0.0178

September 2023 - November 2023 February 29, 2024 $0.0214

September 2022 - November 2022 March 1, 2023 $0.0757

December 2021 - February 2022 May 31, 2022 $0.0540

March 2022 - May 2022 August 29, 2022 $0.0849

CHESAPEAKE GRANITE WASH TRUST

NOTES TO FINANCIAL STATEMENTS - (Continued)

Subsequent Events

The Trust's quarterly income available for distribution was $0.0336 per common unit for the production period from June 1, 2023 to August 31, 2023 (net of administrative expenses incurred between August 1, 2023 to October 31, 2023).

On November 6, 2023, the Trust declared the November 2023 Distribution attributable to such production period.

The distribution will be paid on November 30, 2023 to common unitholders of record as of November 20, 2023.

On May 3, 2024, the Trust declared the May 2024 Distribution in the amount of $0.0098 attributable to the production period from December 1, 2023 to February 29, 2024 (net of administrative expenses incurred between February 1, 2024 to April 30, 2024).

At the time the Trust declared the May 2024 Distribution, the Trust calculated quarterly income available for distribution as being $0.0098 per common unit for such production period.

In the course of finalizing the unaudited interim financial statements contained herein, it was determined that the Trust's quarterly income available for distribution was actually $0.0185 per common unit for such production period.

In connection with the determination of an increase in the quarterly income available for distribution, on May 9, 2024, the Trust declared an additional distribution of $0.0087.

The distributions will be paid on May 30, 2024 to common unitholders of record as of May 20, 2024.

All Trust unitholders share on a pro rata basis in the Trust's distributable income.

4 unchanged sentences

Geopolitical Events

We are actively monitoring the military conflict in Ukraine and Israel, and assessing its impact on the Trust’s business.

To date, we have not experienced any material interruptions to our business given our properties are exclusively located within the United States.

We are actively monitoring the military conflicts in Ukraine and in Israel and surrounding countries, and assessing their impact on the Trust’s business.

To date, we have not experienced any material interruptions to our business given that the Underlying Properties are exclusively located within the United States.

The extent and duration of the military action, sanctions and resulting market disruptions could be significant, including significant volatility in commodity prices, supply of energy resources, instability in financial markets, including inflation, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increases in cyberattacks and espionage, each of which could have a substantial impact on the global economy and consequently our business for an unknown period of time.

We currently do not expect any material impact on the Trust’s business, cash flows, liquidity or financial condition;

however, we have no way to predict the progress or outcome of the military conflict in Ukraine and Israel as the conflict, and any resulting government reactions, are rapidly developing and beyond our control.

however, we have no way to predict the progress or outcome of the military conflicts in Ukraine and Israel as the conflicts, and any resulting government reactions, are rapidly developing and beyond our control.

The Trust is a statutory trust formed in June 2011 under the Delaware Statutory Trust Act.

9 unchanged sentences

The Trust is required to make quarterly cash distributions of substantially all of its cash receipts, after deducting the Trust’s administrative expenses, on or about 60 days following the completion of each calendar quarter through (and including) the quarter ending June 30, 2031.

During the nine months ended September 30, 2023, a distribution was paid on March 1, 2023, June 1, 2023 and August 31, 2023.

During the three months ended March 31, 2024, a distribution was paid on February 29, 2024.

See Liquidity and Capital Resources below and Note 5 to the financial statements contained in Item 1 of Part I of this Quarterly Report for more information regarding these distributions.

10 unchanged sentences

Diversified is required to make the Royalty Interest payments to the Trust within 35 days after the end of each calendar quarter.

During the nine months ended September 30, 2023, the Trust received payments on the Royalty Interests representing royalties attributable to proceeds from sales of oil, natural gas and NGL for September 1, 2022 to May 31, 2023.

The Trust's revenues and distributable income available to unitholders were favorably affected throughout 2022 and the three months ended March 31, 2023 by higher commodity prices, which have since decreased to date in 2023.

Due to natural declines, the Trust expects production to decline and expects distributable income to continue to be adversely affected.

During the three months ended March 31, 2024, the Trust received payments on the Royalty Interests representing royalties attributable to proceeds from sales of oil, natural gas and NGL for the period from September 1, 2023 to November 30, 2023.

The Trust's revenues and distributable income available to unitholders have been adversely affected throughout 2023 and to date in 2024 by a decrease in production and a decrease in commodity prices.

Due to natural declines, the Trust expects production to continue to decline and expects distributable income to continue to be adversely affected.

The Trust's Investment in Royalty Interests is subject to a quarterly full cost ceiling test.

In the three and nine months ended September 30, 2023 and 2022, the Trust recognized no impairments of the Royalty Interests.

The Trust recognized no impairment of the Royalty Interests in the Current or Prior Quarter.

Distributable Income

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 Change 2023 2022 Change

Three Months Ended March 31,

($ in thousands, except per unit data)

2 unchanged sentences

$ 0.0250 $ 0.0757 (67) %

The $3.14 million decrease in distributable income during the Current Quarter as compared to the Prior Quarter was primarily due to a decrease in the average realized price per barrel of oil equivalent ("boe") received in the production period from March 1, 2023 to May 31, 2023 (the "Current Production Quarter") as compared to the production period from March 1, 2022 to May 31, 2022 (the "Prior Production Quarter"), combined with a decrease in total sales volumes in the Current Production Quarter.

The $2.97 million decrease in distributable income during the Current Period was primarily due to a decrease in the average realized price per boe in the production period as compared to the Prior Period, combined with a decrease in total sales volumes during the Current Period.

The $2.37 million decrease in distributable income during the Current Quarter was primarily due to an increase in trust administrative expenses and a decrease in the average realized price per barrel of oil equivalent ("boe") in the production period from September 1, 2023 to November 30, 2023 (the "Current Production Quarter") as compared to the production period from September 1, 2022 to November 30, 2022 (the "Prior Production Quarter").

Royalty Income

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 Change 2023 2022 Change

Three Months Ended March 31,

($ in thousands, except per unit data)

13 unchanged sentences

(b) Includes the impact of certain post-production expenses but excludes production taxes

The decrease in royalty income in the Current Production Quarter is primarily attributable to a decrease in commodity pricing and natural declines in production from the Producing and Development Wells.

The decrease in royalty income is primarily attributable to a decrease in commodity pricing, as well as a decrease in production from the Producing and Development Wells.

The decrease in the average price received per boe in the Current Production Quarter compared to the Prior Production Quarter resulted in a decrease of approximately $1.1 million in royalty income.

Additionally, lower sales volumes in the

Current Production Quarter decreased royalty income by approximately $0.58 million, for a total decrease in royalty income of approximately $2.55 million in the Current Production Quarter compared to the Prior Production Quarter.

The decrease in royalty income in the Current Period compared to the Prior Period is also primarily attributable to a decrease in commodity pricing and natural declines in production.

The decrease in the average price received per boe in the Current Period compared to the Prior Period resulted in a decrease of approximately $1.69 million in royalty income.

Additionally, lower sales volumes in the Current Period decreased royalty income by approximately $0.90 million, for a total decrease in royalty income of approximately $2.59 million in the Current Period compared to the Prior Period.

Additionally, slightly lower sales volumes in the Current Production Quarter decreased royalty income by approximately $1.0 million, for a total decrease in royalty income of approximately $2.1 million in the Current Production Quarter compared to the Prior Production Quarter.

Production Taxes

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 Change 2023 2022 Change

Three Months Ended March 31,

($ in thousands, except per unit data)

3 unchanged sentences

Production taxes are calculated as a percentage of oil, natural gas and NGL revenues, net of any applicable tax credits.

The decrease in production taxes in the Current Quarter and Current Period compared to the Prior Quarter and Prior Period relates primarily to a decrease in royalty income.

The decrease in production taxes in the Current Quarter compared to the Prior Quarter relates primarily to a decrease in royalty income.

Trust Administrative Expenses

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 Change 2023 2022 Change

Three Months Ended March 31,

($ in thousands)

1 unchanged sentence

$ 500 $ 65 669 %

(a) Includes a change in cash advances resulting in a $350,000 increase and a $300,000 increase in administrative expenses for both the three and nine months ended September 30, 2023, respectively.

(a) Includes a change in cash advances resulting in a $25,000 increase in administrative expenses for the three months ended March 31, 2024.

Trust administrative expenses primarily consist of the administrative fees paid to the Trustees and Diversified, as well as costs for accounting and legal services.

The increase in expenses in the Current Quarter is primarily related to the net increase in the cash advance.

The increase in expenses in the Current Period is primarily related to the net increase in the cash advance and increased accounting and administrative expenses.

The increase in expenses in the Current Quarter is primarily related to an increase in accounting, tax preparation, and regulatory compliance expenses.

Liquidity and Capital Resources

7 unchanged sentences

The Trust’s revenue and distributions are substantially dependent upon the prevailing and future prices for oil, natural gas and NGL, each of which depends on numerous factors beyond the Trust’s control such as economic conditions, regulatory developments and competition from other energy sources.

Oil, natural gas and NGL prices

historically have been volatile and may be subject to significant fluctuations in the future.

Oil, natural gas and NGL prices historically have been volatile and may be subject to significant fluctuations in the future.

We expect to see continued volatility in oil and natural gas prices for the foreseeable future, and such volatility has impacted and is expected to continue to impact Diversified’s business, financial condition and results of operations and proceeds to the Trust and the Trust’s reserves and quarterly cash distributions to unitholders .

4 unchanged sentences

Any cash reserved in excess of the amount necessary to pay or provide for the payment of future known, anticipated or contingent expenses or liabilities eventually will be distributed to unitholders, together with interest earned on the funds.

As of September 30, 2023, $1,562,078 has been so withheld to increase cash reserves.

As of March 31, 2024, $1,759,578 has been so withheld to increase cash reserves.

The 2023 third quarter distribution of $0.0178 per common unit, consisting of proceeds attributable to production from March 1, 2023 through May 31, 2023, (net of administrative expenses) was made on August 31, 2023 to record unitholders as of August 21, 2023.

On November 6, 2023, the Trust declared the November 2023 Distribution.

The Trust's quarterly income available for distribution was $0.0336 per common unit consisting of proceeds attributable to production from June 1, 2023 to August 31, 2023 (net of administrative expenses).

The distribution will be paid on November 30, 2023 to common unitholders of record as of November 20, 2023.

The 2024 first quarter distribution of $0.0250 per common unit, consisting of proceeds attributable to production from September 1, 2023 through November 30, 2023, (net of administrative expenses) was made on February 29, 2024 to record unitholders as of February 19, 2024.

On May 3, 2024, the Trust declared the May 2024 Distribution.

At the time the Trust declared the May 2024 Distribution, the Trust calculated quarterly income available for distribution as being $0.0098 per common unit for the production period from December 1, 2023 to February 29, 2024 (net of administrative expenses).

In the course of finalizing the unaudited interim financial statements herein, it was determined that the Trust's quarterly income available for distribution was actually $0.0185 per common unit for such production period.

In connection with the determination of an increase in the quarterly income available for distribution, on May 9, 2024, the Trust declared an additional distribution of $0.0087 for the period.

The distributions will be paid on May 30, 2024 to common unitholders of record as of May 20, 2024.

All Trust unitholders share on a pro rata basis in the Trust's distributable income.

6 unchanged sentences

If Diversified loans funds pursuant to this commitment, unless Diversified agrees otherwise in writing, no further distributions may be made to unitholders (except in respect of any previously determined quarterly cash distribution amount) until such loan is repaid.

There were no loans outstanding as of September 30, 2023 and December 31, 2022.

There were no loans outstanding as of March 31, 2024 and December 31, 2023.

Critical Accounting Policies and Estimates

1 unchanged sentence

Critical accounting policies and estimates relating to the Trust are contained in Item 7 of Part II of the 2023 Form 10-K.

There have been no material changes to these critical accounting policies during the nine months ended September 30, 2023.

There have been no material changes to these critical accounting policies during the three months ended March 31, 2024.

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

11 unchanged sentences

The Trust undertakes no obligation to publicly update or revise any forward-looking statements and expressly disclaims any obligation to do so, except as required by applicable law.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk relating to the Trust are contained in Item 7A of Part II of the 2023 Form 10-K.

There have been no material changes to these risks during the three months ended March 31, 2024.

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-Q

Item 1. Financial Statements