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Item 1. Financial Statements

2024-08-12 compared with 2024-05-13 · 57 added, 46 removed, 256 unchanged (29% of the section changed)

2 unchanged sentences

STATEMENTS OF ASSETS AND TRUST CORPUS

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

($ in thousands)

13 unchanged sentences

STATEMENTS OF DISTRIBUTABLE INCOME

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

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

9 unchanged sentences

STATEMENTS OF CHANGES IN TRUST CORPUS

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

($ in thousands)

28 unchanged sentences

The Royalty Interests in the Development Wells entitle the Trust to receive 50% of the proceeds (exclusive of any production or development costs but after deducting certain post-production expenses and any applicable taxes) from the sales of oil, natural gas and NGL production attributable to Diversified’s net revenue interest in the Development Wells.

The Trust will dissolve and begin to liquidate on June 30, 2031, or earlier upon the first to occur of the below events (the "Termination Date"):

The Trust will dissolve and begin to liquidate on June 30, 2031 (the "Termination Date"), or earlier upon the first to occur of the below events:

• The Trust sells all of the Royalty Interests;

15 unchanged sentences

Basis of Accounting .

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 Statements of Assets and Trust Corpus as of June 30, 2024 and December 31, 2023 and the unaudited interim Statements of Distributable Income and of Changes in Trust Corpus of the Trust for the three and six months ended June 30, 2024 (the “Current Quarter" and the "Current Period", respectively) and the three and six months ended June 30, 2023 (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 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.

29 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.

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

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 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.

Royalty Income (and associated Production Taxes and post-production costs) for the three and six months ended June 30, 2024 generally includes royalties attributable to sales of oil, natural gas and NGL related to production from December 1, 2023 to February 29, 2024 and September 1, 2023 to February 29, 2024, respectively.

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 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 for the three and six months ended June 30, 2024 generally include administrative expense related to invoices paid between the periods of February 1, 2024 to April 30, 2024 and November 1, 2023 to April 30, 2024, respectively.

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

27 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 March 31, 2024 and December 31, 2023.

There were no loans outstanding as of June 30, 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.

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 2023 - November 2023 February 29, 2024 $0.0214

September 2022 - November 2022 March 1, 2023 $0.0757

For the six months ended June 30, 2024 and 2023, the Trust declared and paid the following cash distributions:

CHESAPEAKE GRANITE WASH TRUST

NOTES TO FINANCIAL STATEMENTS - (Continued)

Production Period

Distribution Date Cash Distribution per

September 2023 - November 2023

February 29, 2024 $0.0214

December 2023 - February 2024

May 30, 2024 $0.0185

September 2022 - November 2022

March 1, 2023 $0.0757

December 2022 - February 2023

June 1, 2023 $0.0487

Subsequent Events

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.

The Trust's quarterly income available for distribution was $0.0202 per common unit for the production period from March 1, 2024 to May 31, 2024 (net of administrative expenses incurred between May 1, 2024 to July 31, 2024).

On August 2, 2024, the Trust declared the August 2024 Distribution attributable to such production period.

The distribution will be paid on August 29, 2024 to common unitholders of record as of August 19, 2024.

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

16 unchanged sentences

federal income tax purposes.

The Royalty Interests entitle the Trust to receive 90% of the proceeds (after deducting certain post-production expenses and any applicable taxes) from the sales of production of oil, natural gas and NGL attributable to Diversified’s net revenue interest in the Producing Wells and 50% of the proceeds (after deducting certain post-production expenses and any applicable taxes) from the sales of oil, natural gas and natural gas liquids ("NGL") production attributable to Diversified’s net revenue interest in the Development Wells.

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.

The Royalty Interests entitle the Trust to receive 90% of the proceeds (after deducting certain post-production expenses and any applicable taxes) from the sales of production of oil, natural gas and natural gas liquids ("NGL") attributable to Diversified’s net revenue interest in the Producing Wells and 50% of the proceeds (after deducting certain post-production expenses and any applicable taxes) from the sales of oil, natural gas and NGL production attributable to Diversified’s net revenue interest in the Development Wells.

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.

However, the Trust is not responsible for costs of marketing services provided by Diversified or Diversified affiliates.

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

During the six months ended June 30, 2024, a distribution was paid on February 29, 2024 and May 30, 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 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.

During the six months ended June 30, 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 February 29, 2024.

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.

1 unchanged sentence

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

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

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

Distributable Income

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in thousands, except per unit data)

2 unchanged sentences

$ 0.0185 $ 0.0487 (62) % $ 0.0435 $ 0.1243 (65) %

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").

The $1.41 million decrease in distributable income during the Current Quarter was primarily due to a decrease in the average realized price per barrel of oil equivalent (boe) in the production period from December 1, 2023 to February 29, 2024 (the "Current Production Quarter") as compared to the production period from December 1, 2022 to February 28, 2023 (the "Prior Production Quarter"), combined with a decrease in total sales volumes in the Current Production Quarter.

The $3.78 million decrease in distributable income during the Current Period was primarily due to a decrease in total sales volumes as compared to the Prior Period, combined with a decrease in the average realized price per boe during the Current Production Quarter.

Royalty Income

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ 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 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, 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.

The decrease in royalty income in the Current Production Quarter is primarily attributable to decreases in commodity pricing, natural production declines and a deep freeze during January 2024 in Oklahoma.

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 $782,000 in royalty income.

Additionally, lower sales volumes in the Current Production Quarter decreased royalty income by approximately $880,000, for a total decrease in royalty income of approximately $1.66 million in the Current Production Quarter compared to the Prior Production Quarter.

The decrease in royalty income in the Current Period is primarily attributable to decreases in commodity pricing and production declines which were exacerbated by the deep freeze during January 2024 in Oklahoma, as noted above.

The decrease in the average price received per boe in the Current Period compared to the Prior Period resulted in a decrease of approximately $1.90 million in royalty income.

Lower sales volumes in the Current Period decreased royalty income by approximately $1.84 million, for a total decrease in royalty income of approximately $3.74 million in the Current Period compared to the Prior Period.

Production Taxes

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ 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 compared to the Prior Quarter relates primarily to a decrease in royalty income.

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.

Trust Administrative Expenses

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in thousands)

1 unchanged sentence

$ 192 $ 399 (52) % $ 692 $ 464 49 %

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

(a) Includes a change in cash advances resulting in a $125,000 increase and a $150,000 increase in administrative expenses for the three and six months ended June 30, 2024, respectively.

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 an increase in accounting, tax preparation, and regulatory compliance expenses.

The decrease in expenses in the Current Quarter is primarily related to decreased accounting and insurance expenses.

The increase in expenses in the Current Period is primarily related to increased accounting and legal expenses.

Liquidity and Capital Resources

10 unchanged sentences

The Trust does not have the ability to enter into derivative contracts to mitigate the effect of this price volatility.

The Trustee may increase or decrease the targeted amount of the cash reserve 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.

the unitholders.

Without limiting the foregoing, the Trustee has reviewed the adequacy and sufficiency of the existing cash reserve and determined that, commencing with the distribution to unitholders for the fourth quarter 2021, which was paid in March 2022, the Trustee began withholding the funds otherwise available for distribution to the unitholders each quarter to increase existing cash reserves by a total of approximately $3,200,000 over a period of several quarters.

1 unchanged sentence

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

As of June 30, 2024, $1,858,328 has been so withheld to increase cash reserves.

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.

The 2024 second quarter distribution of $0.0185 per common unit, consisting of proceeds attributable to production from December 1, 2023 through February 29, 2024, (net of administrative expenses) was made on May 30, 2024 to record unitholders as of May 20, 2024.

On August 2, 2024, the Trust announced the August 2024 Distribution.

The Trust's quarterly income available for distribution was $0.0202 per common unit consisting of proceeds attributable to production from March 1, 2024 to May 31, 2024 (net of administrative expenses).

The distribution will be paid on August 29, 2024 to common unitholders of record as of August 19, 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 March 31, 2024 and December 31, 2023.

There were no loans outstanding as of June 30, 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 three months ended March 31, 2024.

There have been no material changes to these critical accounting policies during the six months ended June 30, 2024.

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

13 unchanged sentences

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.

There have been no material changes to these risks during the six months ended June 30, 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