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Item 1. Financial Statements

2023-11-15 compared with 2023-08-11 · 432 added, 206 removed, 60 unchanged (91% of the section changed)

Financial Statements .

GULF COAST ULTRA DEEP ROYALTY TRUST

STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS

June 30, December 31,

ASSETS (unaudited) (audited)

COAST ULTRA DEEP ROYALTY TRUST

OF ASSETS, LIABILITIES AND TRUST CORPUS

September 30, 2023

December 31, 2022

Operating cash

1 unchanged sentence

Overriding royalty interests in subject interests, net

Total assets $ 1,237,958 $ 2,310,845

LIABILITIES AND TRUST CORPUS

1 unchanged sentence

Trust corpus (230,172,696 royalty trust units authorized, issued and

outstanding as of June 30, 2023 and December 31, 2022) 149,830 1,245,494

outstanding as of September 30, 2023 and December 31, 2022)

Total liabilities and trust corpus

The accompanying notes are an integral part of these financial statements.

GULF COAST ULTRA DEEP ROYALTY TRUST

STATEMENTS OF DISTRIBUTABLE INCOME (Unaudited)

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

accompanying notes are an integral part of these financial statements.

COAST ULTRA DEEP ROYALTY TRUST

OF DISTRIBUTABLE INCOME (Unaudited)

Three Months Ended

Nine Months Ended

September 30,

Royalty income

5 unchanged sentences

Royalty trust units outstanding at end of period

The accompanying notes are an integral part of these financial statements.

GULF COAST ULTRA DEEP ROYALTY TRUST

STATEMENTS OF CHANGES IN TRUST CORPUS (Unaudited)

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

accompanying notes are an integral part of these financial statements.

COAST ULTRA DEEP ROYALTY TRUST

OF CHANGES IN TRUST CORPUS (Unaudited)

Three Months Ended

Nine Months Ended

September 30,

Trust corpus, beginning of period

4 unchanged sentences

Trust corpus, end of period

The accompanying notes are an integral part of these financial statements.

GULF COAST ULTRA DEEP ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS (Unaudited)

accompanying notes are an integral part of these financial statements.

COAST ULTRA DEEP ROYALTY TRUST

TO FINANCIAL STATEMENTS (Unaudited)

BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES

The financial statements of Gulf Coast Ultra Deep Royalty Trust (the Royalty Trust) are prepared on the modified cash basis of accounting and are not intended to present the Royalty Trust ’ s financial position and results of operations in conformity with United States (U.S.) generally accepted accounting principles (GAAP).

This other comprehensive basis of accounting corresponds to the accounting permitted for royalty trusts by the U.S.

Securities and Exchange Commission (SEC), as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts .

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all required information and disclosures.

Therefore, this information should be read in conjunction with the Royalty Trust’s financial statements and notes contained in its annual report on Form 10-K for the year ended December 31, 2022.

The information furnished herein reflects all adjustments that are, in the opinion of The Bank of New York Mellon Trust Company, N.A.

(the Trustee), necessary for a fair statement of the results for the interim periods reported.

All such adjustments are, in the opinion of the Trustee, of a normal recurring nature.

Operating results for the three- and six-month periods ended June 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

The Royalty Trust was created to hold a 5% gross overriding royalty interest (collectively, the overriding royalty interests) in future production from specified Inboard Lower Tertiary/Cretaceous exploration prospects, located in the shallow waters of the Gulf of Mexico and onshore in South Louisiana that existed as of December 5, 2012 (collectively, the subject interests).

Royalties are recorded in royalty income on the statements of distributable income when received under the modified cash basis of accounting.

Significant accounting policies are consistent with Note 1 - Summary of Significant Accounting Policies in Part II, Item VIII of the 2022 Form 10-K.

The Royalty Trust evaluates the carrying values of the overriding royalty interests in the subject interests for impairment if conditions indicate that potential uncertainty exists regarding the Royalty Trust’s ability to recover its recorded amounts related to the overriding royalty interests.

Indications of potential impairment with respect to the overriding royalty interests can include, among other things, subject interest lease expirations, reductions in estimated reserve quantities or resource potential, changes in estimated future oil and natural gas prices, exploration costs, and/or drilling plans, and other matters that arise that could negatively impact the carrying values of the overriding royalty interests.

If an impairment event occurs and it is determined that the carrying value of the Royalty Trust's overriding royalty interests in the subject interests may not be recoverable, an impairment will be recognized as measured by the amount by which the carrying amount of the overriding royalty interests in the subject interests exceeds the fair value of these assets, which would be measured by discounting projected cash flows.

The related impairment amounts are recorded as a reduction to the overriding royalty interest with an offsetting reduction to the Trust Corpus in the period such impairment is determined.

Impairment of the carrying values of the overriding royalty interests in the subject interests involves a significant amount of judgment and may be subject to changes over time based on drilling plans and results, geophysical evaluations, the assignment of proved natural gas reserves, availability of capital and other factors.

Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3).

When indicators of impairment are present and it is determined that the carrying value of the Royalty Trust's overriding royalty interests in the subject interests exceeds the estimated undiscounted cash flows of the subject interest, fair value estimates utilized in the impairment assessment are determined based on inputs not observable in the market and thus represent Level 3 measurements.

financial statements of Gulf Coast Ultra Deep Royalty Trust (the Royalty Trust) are prepared on the modified cash basis of accounting

and are not intended to present the Royalty Trust’s financial position and results of operations in conformity with United States

(U.S.) generally accepted accounting principles (GAAP).

This other comprehensive basis of accounting corresponds to the accounting permitted

for royalty trusts by the U.S.

Securities and Exchange Commission (SEC), as specified by Staff Accounting Bulletin Topic 12:E, Financial

Statements of Royalty Trusts .

accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all

required information and disclosures.

Therefore, this information should be read in conjunction with the Royalty Trust’s financial

statements and notes contained in its annual report on Form 10-K for the year ended December 31, 2022.

The information furnished herein

reflects all adjustments that are, in the opinion of The Bank of New York Mellon Trust Company, N.A.

(the Trustee), necessary for a fair

statement of the results for the interim periods reported.

All such adjustments are, in the opinion of the Trustee, of a normal recurring

Operating results for the three- and nine-month periods ended September 30, 2023, are not necessarily indicative of the results

that may be expected for the year ending December 31, 2023.

Royalty Trust was created to hold a 5% gross overriding royalty interest (collectively, the overriding royalty interests) in future production

from specified Inboard Lower Tertiary/Cretaceous exploration prospects, located in the shallow waters of the Gulf of Mexico and onshore

in South Louisiana that existed as of December 5, 2012 (collectively, the subject interests).

are recorded in royalty income on the statements of distributable income when received under the modified cash basis of accounting.

accounting policies are consistent with Note 1 - Summary of Significant Accounting Policies in Part II, Item 8 of the 2022 Form 10-K.

Royalty Trust evaluates the carrying values of the overriding royalty interests in the subject interests for impairment if conditions

indicate that potential uncertainty exists regarding the Royalty Trust’s ability to recover its recorded amounts related to the

overriding royalty interests.

The onshore Highlander subject interest is the only producing subject interest in which the Royalty Trust holds an overriding royalty interest.

Amortization charges related to production volumes associated with the onshore Highlander subject interest reduced the carrying value of the overriding royalty interests by $0 and $21,780 during the three- and six-month periods ended June 30, 2023, respectively, and $35,346 and $73,467 during the three- and six-month periods ended June 30, 2022, respectively.

Highlander Oil & Gas Assets LLC (HOGA) has a 72 percent working interest and an approximate 48 percent net revenue interest in the onshore Highlander subject interest.

Indications of potential impairment with respect to the overriding royalty interests can include, among

other things, subject interest lease expirations, reductions in estimated reserve quantities or resource potential, changes in estimated

future oil and natural gas prices, exploration costs, and/or drilling plans, and other matters that arise that could negatively impact

the carrying values of the overriding royalty interests.

If an impairment event occurs and it is determined that the carrying value of

the Royalty Trust’s overriding royalty interests in the subject interests may not be recoverable, an impairment will be recognized

as measured by the amount by which the carrying amount of the overriding royalty interests in the subject interests exceeds the fair

value of these assets, which would be measured by discounting projected cash flows.

The related impairment amounts are recorded as a

reduction to the overriding royalty interest with an offsetting reduction to the Trust Corpus in the period such impairment is determined.

Impairment of the carrying values of the overriding royalty interests in the subject interests involves a significant amount of judgment

and may be subject to changes over time based on drilling plans and results, geophysical evaluations, the assignment of proved natural

gas reserves, availability of capital and other factors.

Fair value accounting guidance includes a hierarchy that prioritizes the inputs

to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets

for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3).

When indicators of impairment

are present and it is determined that the carrying value of the Royalty Trust’s overriding royalty interests in the subject interests

exceeds the estimated undiscounted cash flows of the subject interest, fair value estimates utilized in the impairment assessment are

determined based on inputs not observable in the market and thus represent Level 3 measurements.

OVERRIDING ROYALTY INTERESTS

onshore Highlander subject interest is the only subject interest in which the Royalty Trust holds an overriding royalty interest.

charges related to production volumes associated with the onshore Highlander subject interest reduced the carrying value of the overriding

royalty interests by $0 and $21,780 during the three- and nine-month periods ended September 30, 2023, respectively, and $34,634 and

$108,101 during the three- and nine-month periods ended September 30, 2022, respectively.

Oil & Gas Assets LLC (HOGA) has a 72 percent working interest and an approximate 48 percent net revenue interest in the onshore Highlander

subject interest.

The Royalty Trust holds a 3.6 percent overriding royalty interest in the onshore Highlander subject interest.

HOGA is the operator of the onshore Highlander subject interest.

As previously disclosed, the sole well producing from the onshore Highlander subject interest experienced an operational issue on January 19, 2023, resulting in substantial amounts of water entering the well, which caused a shut in of the well before production resumed at significantly reduced levels.

Following an evaluation by HOGA’s field operations team, HOGA determined that it would be necessary to commence operations to control the water production, in expectation of eventually initiating “kill” operations on the well.

is the operator of the onshore Highlander subject interest.

previously disclosed, the sole well producing from the onshore Highlander subject interest experienced an operational issue on January

19, 2023, resulting in substantial amounts of water entering the well, which caused a shut in of the well before production resumed at

significantly reduced levels.

Following an evaluation by HOGA’s field operations team, HOGA determined that it would be necessary

to commence operations to control the water production, in expectation of eventually initiating “kill”

operations on the

HOGA has informed the Trustee that the well was shut in effective March 31, 2023 and production from the well has ceased.

Since that time the well has flowed intermittently but not on a continuous basis.

HOGA currently is evaluating its options with respect to the well.

Shutting in the well for an extended period of time will eliminate any production from the onshore Highlander subject interest during such period, which will also eliminate any proceeds to which the Royalty Trust would be entitled pursuant to its overriding royalty interest during the same period.

Therefore, while the well remains shut in, the Royalty Trust will not receive significant income attributable to its overriding royalty interest.

Unless the operational issues with the well can be rectified, the well is redrilled or another well is drilled on the onshore Highlander subject interest, the Royalty Trust does not expect to receive any significant income attributable to its overriding royalty interests and accordingly, does not expect to have any cash available to distribute to Royalty Trust unitholders in future periods.

The Royalty Trust fully impaired the carrying value of the onshore Highlander subject interest by $308,071 on March 31, 2023.

The Royalty Trust determined the fair value of the onshore Highlander subject interest to be zero using Level 3 measurements under the fair value hierarchy of ASC 820 Fair Value Measurement .

Therefore, the Royalty Trust recognized the remaining carrying value of the onshore Highlander subject interest as of March 31, 2023 as an impairment loss.

Accumulated amortization was $6,756,701 and $6,426,850 at June 30, 2023 and December 31, 2022, respectively.

that time the well has flowed intermittently but not on a continuous basis.

HOGA has informed the Trustee that due to the underground

flow of fluids into the wellbore, the well cannot be salvaged and must be plugged and abandoned.

Abandoning the well will eliminate any

production from the onshore Highlander subject interest, which also will eliminate any proceeds to which the Royalty Trust would be entitled

pursuant to its overriding royalty interests.

Unless another well is drilled on the onshore Highlander subject interest, the Royalty

Trust does not expect to receive any significant income attributable to its overriding royalty interests and accordingly, does not expect

to have any cash available to distribute to Royalty Trust unitholders in future periods.

HOGA currently is evaluating its options regarding

a future drilling of a new well on the Highlander subject interest.

Royalty Trust fully impaired the carrying value of the onshore Highlander subject interest by $308,071 on March 31, 2023.

Trust determined the fair value of the onshore Highlander subject interest to be zero using Level 3 measurements under the fair value

hierarchy of ASC 820 Fair Value Measurement .

Therefore, the Royalty Trust recognized the remaining carrying value of the onshore

Highlander subject interest as of March 31, 2023 as an impairment loss.

Accumulated amortization was $6,756,701 and $6,426,850 at September

30, 2023 and December 31, 2022, respectively.

RELATED PARTY TRANSACTIONS

Royalty Income.

In accordance with the terms of the master conveyance, royalties are paid to the Royalty Trust on the last day of the month following the month in which production payments are received by HOGA.

The Royalty Trust received royalties of $14,331 and $401,278 during the three- and six-month periods ended June 30, 2023, respectively, and $525,689 and $976,719 during the three- and six-month periods ended June 30, 2022, respectively.

Royalties received by the Royalty Trust must first be used to (i) satisfy Royalty Trust administrative expenses and (ii) reduce Royalty Trust indebtedness.

The Royalty Trust had no indebtedness outstanding as of June 30, 2023 and December 31, 2022.

Each quarter, the trustee will determine the amount of funds available for distribution to the Royalty Trust unitholders.

Available funds will equal the excess cash received by the Royalty Trust from the royalty interests and other sources during that quarter over the Royalty Trust’s liabilities for that quarter.

In accordance with the terms of the master conveyance, royalties are paid to the Royalty Trust on the last day of the month

following the month in which production payments are received by HOGA.

The Royalty Trust received royalties of $0 and $401,278 during

the three- and nine-month periods ended September 30, 2023, respectively, and $791,065 and $1,767,784 during the three- and nine-month

periods ended September 30, 2022, respectively.

Royalties received by the Royalty Trust must first be used to (i) satisfy Royalty Trust

administrative expenses and (ii) reduce Royalty Trust indebtedness.

The Royalty Trust had no indebtedness outstanding as of September

30, 2023 and December 31, 2022.

quarter, the Trustee will determine the amount of funds available for distribution to the Royalty Trust unitholders.

Available funds

will equal the excess cash received by the Royalty Trust from the royalty interests and other sources during that quarter over the Royalty

Trust’s liabilities for that quarter.

Available funds will be reduced by any cash the Trustee reserves against future liabilities.

As of June 30, 2023, the Trustee has established a minimum cash reserve of $302,500.

Commencing with the distribution to unitholders in the first quarter of 2022, the Royalty Trust has been withholding, and in the future intends to withhold, $8,750 from the funds otherwise available for distribution each quarter to gradually build a cash reserve of approximately $350,000.

As no proceeds were available for distribution, the Royalty Trust did not withhold any funds for the cash reserve in the second quarter of 2023.

This cash is reserved for the payment of future known, anticipated or contingent expenses or liabilities of the Royalty Trust.

The Trustee may increase or decrease the targeted cash reserve 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.

As of September 30, 2023, the Trustee has established a minimum cash reserve of $302,500.

The minimum cash reserve is not reflective

of the Royalty Trust’s operating cash balance as of September 30, 2023.

with the distribution to unitholders in the first quarter of 2022, the Royalty Trust withheld $8,750 from the funds otherwise available

for distribution each quarter through the first quarter of 2023, with the intent of gradually building a cash reserve of approximately

As no proceeds were available for distribution in the second and third quarters of 2023, the Royalty Trust did not withhold

any funds for the cash reserve.

Unless another well is drilled on the onshore Highlander subject interest as discussed in Note 2 above,

the Royalty Trust does not intend to withhold funds for the cash reserve in the future, as the Royalty Trust does not expect to have

any cash available to distribute to unitholders in future periods.

This cash is reserved for the payment of future known, anticipated

or contingent expenses or liabilities of the Royalty Trust.

The Trustee may increase or decrease the targeted cash reserve amount at

any time, and may increase or decrease the rate at which it withholds funds to build the cash reserve at any time, without advance notice

to the unitholders.

Cash held in reserve will be invested as required by the royalty trust agreement.

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.

For additional information regarding distributions to Royalty Trust unitholders, see Note 4.

Funding of Administrative Expenses.

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.

For additional information regarding distributions to

Royalty Trust unitholders, see Note 4.

of Administrative Expenses.

Pursuant to the royalty trust agreement, Freeport-McMoRan Inc.

(FCX) has agreed to pay annual trust expenses up to a maximum amount of $350,000, with no right of repayment or interest due, to the extent the Royalty Trust lacks sufficient funds to pay administrative expenses.

No such contributions were made during the three-month periods ended June 30, 2023 or 2022.

In addition to such annual contributions, FCX has agreed to lend money, on an unsecured, interest-free basis, to the Royalty Trust to fund the Royalty Trust's

ordinary administrative expenses as set forth in the royalty trust agreement.

No loans were outstanding at June 30, 2023 or December 31, 2022.

Pursuant to the royalty trust agreement, FCX agreed to provide and maintain a $1.0 million stand-by reserve account or an equivalent letter of credit for the benefit of the Royalty Trust to enable the Trustee to draw on such reserve account or letter of credit to pay obligations of the Royalty Trust if its funds are inadequate to pay its obligations at any time.

Currently, with the consent of the Trustee, FCX may reduce the reserve account or substitute a letter of credit with a different face amount for the original letter of credit or any substitute letter of credit.

(FCX) has agreed to pay annual trust expenses

up to a maximum amount of $350,000, with no right of repayment or interest due, to the extent the Royalty Trust lacks sufficient funds

to pay administrative expenses.

No such contributions were made during the three-month periods ended September 30, 2023 or 2022.

in light of the shut-in of the sole well on the Highlander subject interest and the cessation of production from the well as described

above, has confirmed to the Trustee that FCX plans to provide funds for the payment of such expenses as they become payable, in accordance

with the provisions of the royalty trust agreement.

In addition to such annual contributions, FCX has agreed to lend money, on an unsecured,

interest-free basis, to the Royalty Trust to fund the Royalty Trust’s ordinary administrative expenses as set forth in the royalty

trust agreement.

No loans were outstanding at September 30, 2023 or December 31, 2022.

to the royalty trust agreement, FCX agreed to provide and maintain a $1.0 million stand-by reserve account or an equivalent letter of

credit for the benefit of the Royalty Trust to enable the Trustee to draw on such reserve account or letter of credit to pay obligations

of the Royalty Trust if its funds are inadequate to pay its obligations at any time.

Currently, with the consent of the Trustee, FCX

may reduce the reserve account or substitute a letter of credit with a different face amount for the original letter of credit or any

substitute letter of credit.

In connection with this arrangement, FCX provided $1.0 million to the Royalty Trust.

The $1.0 million, plus interest collected thereon, is reflected as reserve fund cash, with a corresponding reserve fund liability in the accompanying Statements of Assets, Liabilities and Trust Corpus.

As of June 30, 2023, the Royalty Trust had not drawn any funds from the reserve account, and FCX had not requested a reduction of such reserve account.

The $1.0 million, plus

interest collected thereon, is reflected as reserve fund cash, with a corresponding reserve fund liability in the accompanying Statements

of Assets, Liabilities and Trust Corpus.

As of September 30, 2023, the Royalty Trust had not drawn any funds from the reserve account,

and FCX had not requested a reduction of such reserve account.

Administration.

HOGA performs all administrative and reporting responsibilities with respect to the Royalty Trust, including those described in Article III of the royalty trust agreement.

Compensation of the Trustee.

HOGA performs all administrative and reporting responsibilities with respect to the Royalty Trust, including those described in Article

III of the royalty trust agreement.

of the Trustee.

The Trustee receives annual compensation of $200,000.

Additionally, the Trustee receives reimbursement for its reasonable out-of-pocket expenses incurred in connection with the administration of the Royalty Trust.

The Trustee’s compensation is paid out of the Royalty Trust's assets.

The Trustee has a lien on the Royalty Trust’s assets to secure payment of its compensation and any indemnification expenses and other amounts to which it is entitled under the royalty trust agreement.

Additionally, the Trustee receives reimbursement for its reasonable

out-of-pocket expenses incurred in connection with the administration of the Royalty Trust.

The Trustee’s compensation is paid

out of the Royalty Trust’s assets.

The Trustee has a lien on the Royalty Trust’s assets to secure payment of its compensation

and any indemnification expenses and other amounts to which it is entitled under the royalty trust agreement.

DISTRIBUTIONS

Natural gas sales volumes (measured in thousands of cubic feet, or Mcf), average sales price and net cash proceeds available for distribution for the three- and six-month periods ended June 30, 2023 and 2022, are set forth in the table below.

Three Months Ended Six Months Ended

June 30, June 30,

2023 2022 2023 2022

gas sales volumes (measured in thousands of cubic feet, or Mcf), average sales price and net cash proceeds available for distribution

for the three- and nine-month periods ended September 30, 2023 and 2022, are set forth in the table below.

Three Months Ended

Nine Months Ended

September 30,

Natural gas sales volumes (Mcf)

9 unchanged sentences

Net cash proceeds available for distribution

A summary of quarterly per unit distributions for the three- and six-month periods ended June 30, 2023 and 2022, is set forth in the table below.

Amount Per Unit Amount Record Date Payment Date Amount Per Unit Amount Record Date Payment Date

$ 197,331 $ 0.000857 4/28/2023 5/12/2023 $ 258,130 $ 0.001121 4/29/2022 5/13/2022

$ — $ — — — $ 305,382 $ 0.001327 7/29/2022 8/12/2022

These distributions are not necessarily indicative of future distributions.

summary of quarterly per unit distributions for the three-month periods ended March 31, 2023 and 2022, the three-month periods ended

June 30, 2023 and 2022, and the three-month periods ended September 30, 2023 and 2022, is set forth in the table below.

Per Unit Amount

distributions are not necessarily indicative of future distributions.

CONTINGENCIES AND OTHER COMMITMENTS

1 unchanged sentence

SUBSEQUENT EVENTS

As discussed in Note 3 above, pursuant to the royalty trust agreement, FCX has agreed to pay annual trust expenses up to a maximum amount of $350,000, with no right of repayment or interest due, to the extent the Royalty Trust lacks sufficient funds to pay administrative expenses.

In July 2023, the Trustee requested FCX to contribute $350,000 to the Royalty Trust pursuant to this arrangement, in light of the shut-in of the sole well on the Highlander subject interest, and the cessation of production from the well, as described in Note 2 above.

Trustee's Discussion and Analysis of Financial Condition and Results of Operations .

You should read the following discussion in conjunction with the financial statements of Gulf Coast Ultra Deep Royalty Trust (the Royalty Trust) and the related Trustee’s Discussion and Analysis of Financial Condition and Results of Operations and the discussion of its Business and Properties in the Royalty Trust's Annual Report on Form 10-K for the year ended December 31, 2022 (2022 Form 10-K), filed with the United States (U.S.) Securities and Exchange Commission (SEC).

The results of operations reported and summarized below are not necessarily indicative of future operating results.

Unless otherwise specified, all references to “Notes” refer to the Notes to Financial Statements located in Part I, Item I.

“Financial Statements” of this Form 10-Q.

Also see the 2022 Form 10-K for a glossary of definitions for some of the oil and gas industry terms used in this Form 10-Q.

Additionally, please refer to the section entitled “Cautionary Statement” on page 14 of this Form 10-Q.

The information below has been furnished to the Trustee by Highlander Oil & Gas Assets LLC (HOGA).

Business Overview

On June 3, 2013, Freeport-McMoRan Inc.

Royalty Trust evaluated all other events subsequent to September 30, 2023, and through the date the Royalty Trust’s financial statements

were issued, and determined that all events or transactions occurring during this period requiring recognition or disclosure were appropriately

addressed in these financial statements.

Trustee’s Discussion and Analysis of Financial Condition and Results of Operations .

should read the following discussion in conjunction with the financial statements of Gulf Coast Ultra Deep Royalty Trust (the Royalty

Trust) and the related Trustee’s Discussion and Analysis of Financial Condition and Results of Operations and the discussion of

its Business and Properties in the Royalty Trust’s Annual Report on Form 10-K for the year ended December 31, 2022 (2022 Form 10-K),

filed with the United States (U.S.) Securities and Exchange Commission (SEC).

The results of operations reported and summarized below

are not necessarily indicative of future operating results.

Unless otherwise specified, all references to “Notes”

the Notes to Financial Statements located in Part I, Item 1.

“Financial Statements”

of this Form 10-Q.

Also see the 2022

Form 10-K for a glossary of definitions for some of the oil and gas industry terms used in this Form 10-Q.

Additionally, please refer

to the section entitled “Cautionary Statement”

on page 13 of this Form 10-Q.

The information below has been furnished

to the Trustee by Highlander Oil & Gas Assets LLC (HOGA).

June 3, 2013, Freeport-McMoRan Inc.

(FCX) and McMoRan Exploration Co.

(MMR) completed the transactions contemplated by the Agreement and Plan of Merger, dated as of December 5, 2012 (the merger agreement), by and among MMR, FCX, and INAVN Corp., a Delaware corporation and indirect wholly owned subsidiary of FCX (Merger Sub).

Pursuant to the merger agreement, Merger Sub merged with and into MMR, with MMR surviving the merger as an indirect wholly owned subsidiary of FCX (the merger).

FCX's oil and gas assets are held through its wholly owned subsidiary, FCX Oil & Gas LLC (FM O&G).

As a result of the merger, MMR and McMoRan Oil & Gas LLC (McMoRan) are both indirect wholly owned subsidiaries of FM O&G.

The Royalty Trust is a statutory trust created as contemplated by the merger agreement by FCX under the Delaware Statutory Trust Act pursuant to a trust agreement entered into on December 18, 2012 (inception), by and among FCX, as depositor, Wilmington Trust, National Association, as Delaware trustee, and certain officers of FCX, as regular trustees.

On May 29, 2013, Wilmington Trust, National Association, was replaced by BNY Trust of Delaware, as Delaware trustee (the Delaware Trustee), through an action of the depositor.

Effective June 3, 2013, the regular trustees were replaced by The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee (the Trustee).

The Royalty Trust was created to hold a 5% gross overriding royalty interest (collectively, the overriding royalty interests) in future production from specified Inboard Lower Tertiary/Cretaceous exploration prospects located in the shallow waters of the Gulf of Mexico and onshore in South Louisiana that existed as of December 5, 2012, the date of the merger agreement (collectively, the subject interests).

The subject interests were “carved out” of the mineral interests that were acquired by FCX pursuant to the merger and were not considered part of FCX's purchase consideration of MMR.

McMoRan has informed the Trustee that it has no plans to pursue, has relinquished, has allowed to expire or has sold all of its subject interests.

In connection with the merger, on June 3, 2013, (1) FCX, as depositor, McMoRan, as grantor, the Trustee and the Delaware Trustee entered into the amended and restated royalty trust agreement to govern the Royalty Trust and the respective rights and obligations of FCX, the Trustee, the Delaware Trustee, and the Royalty Trust unitholders with respect to the Royalty Trust (the royalty trust agreement);

and (2) McMoRan, as grantor, and the Royalty Trust, as grantee, entered into the master conveyance of overriding royalty interests (the master conveyance) pursuant to which McMoRan conveyed to the Royalty Trust the overriding royalty interests in future production from the subject interests.

Other than (a) its formation, (b) its receipt of contributions and loans from FCX for administrative and other expenses as provided for in the royalty trust agreement, (c) its payment of such administrative and other expenses, (d) its repayment of loans from FCX, (e) its receipt of the conveyance of the overriding royalty interests from McMoRan pursuant to the master conveyance, (f) its receipt of royalties from McMoRan and HOGA, and (g) its cash distributions to Royalty Trust unitholders, if any, the Royalty Trust has not conducted any activities.

The Trustee has no involvement with, control over, or responsibility for, any aspect of any operations on or relating to the subject interests.

The Trustee receives annual compensation of $200,000.

Additionally, the Trustee receives reimbursement for its reasonable out-of-pocket expenses incurred in connection with the administration of the Royalty Trust.

The Trustee’s compensation is paid out of the Royalty Trust's assets.

As of June 30, 2023, only the onshore Highlander subject interest had established commercial production.

On February 5, 2019, McMoRan completed the sale of all of its rights, title and interest in and to the onshore Highlander subject interest pursuant to a purchase and sale agreement with HOGA (the Highlander Sale).

The onshore Highlander subject interest was sold subject to the overriding royalty interest in future production held by the Royalty Trust.

As a result of the Highlander Sale, HOGA has a 72 percent working interest and an approximate 48 percent net revenue interest in the onshore Highlander subject interest.

The Royalty Trust continues to hold a 3.6 percent overriding royalty interest in the onshore Highlander subject interest.

HOGA is the operator of the onshore Highlander subject interest.

McMoRan has informed the Trustee that it has no plans to pursue, has relinquished, has allowed to expire or has sold all of its subject interests.

In connection with the Highlander Sale, McMoRan sold its interests in substantially all of its oil and gas leases associated with the Highlander subject interest to HOGA.

At June 30, 2023, HOGA owned interests in approximately 131 gas leases onshore in South Louisiana, covering approximately 9,000 gross acres (6,476 acres net to HOGA's interest) associated with the onshore Highlander subject interest.

Whether or not HOGA maintains the acreage associated with the onshore Highlander subject interest is determined by HOGA's current and future plans, over which the Royalty Trust has no control.

Status of the Onshore Highlander Subject Interest

(MMR) completed the transactions contemplated by the Agreement

and Plan of Merger, dated as of December 5, 2012 (the merger agreement), by and among MMR, FCX, and INAVN Corp., a Delaware corporation

and indirect wholly owned subsidiary of FCX (Merger Sub).

Pursuant to the merger agreement, Merger Sub merged with and into MMR, with

MMR surviving the merger as an indirect wholly owned subsidiary of FCX (the merger).

oil and gas assets are held through its wholly owned subsidiary, FCX Oil & Gas LLC (FM O&G).

As a result of the merger, MMR and

McMoRan Oil & Gas LLC (McMoRan) are both indirect wholly owned subsidiaries of FM O&G.

Royalty Trust is a statutory trust created as contemplated by the merger agreement by FCX under the Delaware Statutory Trust Act pursuant

to a trust agreement entered into on December 18, 2012 (inception), by and among FCX, as depositor, Wilmington Trust, National Association,

as Delaware trustee, and certain officers of FCX, as regular trustees.

On May 29, 2013, Wilmington Trust, National Association, was replaced

by BNY Trust of Delaware, as Delaware trustee (the Delaware Trustee), through an action of the depositor.

Effective June 3, 2013, the

regular trustees were replaced by The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee (the Trustee).

Royalty Trust was created to hold a 5% gross overriding royalty interest (collectively, the overriding royalty interests) in future production

from specified Inboard Lower Tertiary/Cretaceous exploration prospects located in the shallow waters of the Gulf of Mexico and onshore

in South Louisiana that existed as of December 5, 2012, the date of the merger agreement (collectively, the subject interests).

interests were “carved out”

of the mineral interests that were acquired by FCX pursuant to the merger and were not considered

part of FCX’s purchase consideration of MMR.

McMoRan has informed the Trustee that it has no plans to pursue, has relinquished,

has allowed to expire or has sold all of its subject interests.

connection with the merger, on June 3, 2013, (1) FCX, as depositor, McMoRan, as grantor, the Trustee and the Delaware Trustee entered

into the amended and restated royalty trust agreement to govern the Royalty Trust and the respective rights and obligations of FCX, the

Trustee, the Delaware Trustee, and the Royalty Trust unitholders with respect to the Royalty Trust (the royalty trust agreement);

(2) McMoRan, as grantor, and the Royalty Trust, as grantee, entered into the master conveyance of overriding royalty interests (the master

conveyance) pursuant to which McMoRan conveyed to the Royalty Trust the overriding royalty interests in future production from the subject

Other than (a) its formation, (b) its receipt of contributions and loans from FCX for administrative and other expenses as

provided for in the royalty trust agreement, (c) its payment of such administrative and other expenses, (d) its repayment of loans from

FCX, (e) its receipt of the conveyance of the overriding royalty interests from McMoRan pursuant to the master conveyance, (f) its receipt

of royalties from McMoRan and HOGA, and (g) its cash distributions to Royalty Trust unitholders, if any, the Royalty Trust has not conducted

any activities.

The Trustee has no involvement with, control over, or responsibility for, any aspect of any operations on or relating

to the subject interests.

Trustee receives annual compensation of $200,000.

Additionally, the Trustee receives reimbursement for its reasonable out-of-pocket expenses

incurred in connection with the administration of the Royalty Trust.

The Trustee’s compensation is paid out of the Royalty Trust’s

The Trustee has a lien on the Royalty Trust’s assets to secure payment of its compensation and any indemnification expenses

and other amounts to which it is entitled under the royalty trust agreement.

February 5, 2019, McMoRan completed the sale of all of its rights, title and interest in and to the onshore Highlander subject interest

pursuant to a purchase and sale agreement with HOGA (the Highlander Sale).

The onshore Highlander subject interest was sold subject to

the overriding royalty interest in future production held by the Royalty Trust.

As a result of the Highlander Sale, HOGA has a 72 percent

working interest and an approximate 48 percent net revenue interest in the onshore Highlander subject interest.

The Royalty Trust continues

to hold a 3.6 percent overriding royalty interest in the onshore Highlander subject interest.

HOGA is the operator of the onshore Highlander

subject interest.

McMoRan has informed the Trustee that it has no plans to pursue, has relinquished, has allowed to expire or has sold

all of its subject interests.

connection with the Highlander Sale, McMoRan sold its interests in substantially all of its oil and gas leases associated with the Highlander

subject interest to HOGA.

At September 30, 2023, HOGA owned interests in approximately 131 gas leases onshore in South Louisiana, covering

approximately 9,000 gross acres (6,476 acres net to HOGA’s interest) associated with the onshore Highlander subject interest.

or not HOGA maintains the acreage associated with the onshore Highlander subject interest is determined by HOGA’s current and future

plans, over which the Royalty Trust has no control.

As of September 30, 2023, the onshore Highlander subject interest had minimal production,

prompting HOGA to shut-in the well.

of the Onshore Highlander Subject Interest

previously disclosed, the sole well producing from the onshore Highlander subject interest experienced an operational issue on January

19, 2023, resulting in substantial amounts of water entering the well, which caused a shut in of the well before production resumed at

significantly reduced levels.

Following an evaluation by HOGA’s field operations team, HOGA determined that it would be necessary

to commence operations to control the water production, in expectation of eventually initiating “kill”

operations on the

HOGA has informed the Trustee that the well was shut in effective March 31, 2023 and production from the well has ceased.

Since that time the well has flowed intermittently but not on a continuous basis.

Therefore, while the well remains shut in, the Royalty Trust will not receive significant income attributable to its overriding royalty interest.

LIQUIDITY AND CAPITAL RESOURCES

Pursuant to the royalty trust agreement, FCX has agreed to pay annual trust expenses up to a maximum amount of $350,000, with no right of repayment or interest due, to the extent the Royalty Trust lacks sufficient funds to pay administrative expenses.

No such contributions by FCX were made during the six-month periods ended June 30, 2023 or 2022.

In addition to such annual contributions, FCX has agreed to lend money, on an unsecured, interest-free basis, to the Royalty Trust to fund the Royalty Trust's ordinary administrative expenses as set forth in the royalty trust agreement.

No loans were outstanding as of June 30, 2023, or December 31, 2022.

All funds the Trustee borrows to cover expenses or liabilities, whether from FCX or from any other source, must be repaid before the Royalty Trust unitholders receive any distributions.

that time the well has flowed intermittently but not on a continuous basis.

HOGA has informed the Trustee that due to the underground

flow of fluids into the wellbore, the well cannot be salvaged and must be plugged and abandoned.

Abandoning the well will eliminate any

production from the onshore Highlander subject interest, which also will eliminate any proceeds to which the Royalty Trust would be entitled

pursuant to its overriding royalty interests.

Unless another well is drilled on the onshore Highlander subject interest, the Royalty

Trust does not expect to receive any significant income attributable to its overriding royalty interests and accordingly, does not expect

to have any cash available to distribute to Royalty Trust unitholders in future periods.

HOGA currently is evaluating its options regarding

the drilling of a new well on the Highlander subject interest.

AND CAPITAL RESOURCES

to the royalty trust agreement, FCX has agreed to pay annual trust expenses up to a maximum amount of $350,000, with no right of repayment

or interest due, to the extent the Royalty Trust lacks sufficient funds to pay administrative expenses.

No such contributions by FCX

were made during the nine-month periods ended September 30, 2023 or 2022.

FCX, in light of the shut-in of the sole well on the Highlander

subject interest and the cessation of production from the well as described above, has confirmed to the Trustee that FCX plans to provide

funds for the payment of such expenses as they become payable, in accordance with the provisions of the royalty trust agreement.

to such annual contributions, FCX has agreed to lend money, on an unsecured, interest-free basis, to the Royalty Trust to fund the Royalty

Trust’s ordinary administrative expenses as set forth in the royalty trust agreement.

No loans were outstanding as of September

30, 2023, or December 31, 2022.

All funds the Trustee borrows to cover expenses or liabilities, whether from FCX or from any other source,

must be repaid before the Royalty Trust unitholders receive any distributions.

to the royalty trust agreement, FCX agreed to provide and maintain a $1.0 million stand-by reserve account or an equivalent letter of

credit for the benefit of the Royalty Trust to enable the Trustee to draw on such reserve account or letter of credit to pay obligations

of the Royalty Trust if its funds are inadequate to pay its obligations at any time.

Currently, with the consent of the Trustee, FCX

may reduce the reserve account or substitute a letter of credit with a different face amount for the original letter of credit or any

substitute letter of credit.

In connection with this arrangement, FCX provided $1.0 million to the Royalty Trust.

The $1.0 million, plus interest

collected thereon, is held in reserve fund cash.

As of June 30, 2023, the Royalty Trust had not drawn any funds from the reserve account, and FCX had not requested a reduction of such reserve account.

In connection with the completion of the Highlander Sale, HOGA assumed all administrative and reporting responsibilities with respect to the Royalty Trust, including those described in Article III of the royalty trust agreement.

In accordance with the terms of the master conveyance, royalties are paid to the Royalty Trust on the last day of the month following the month in which production payments are received by HOGA.

Royalties received by the Royalty Trust must first be used to (i) satisfy Royalty Trust administrative expenses and (ii) reduce Royalty Trust indebtedness.

The Royalty Trust had no indebtedness outstanding as of June 30, 2023 and December 31, 2022.

Each quarter, the Trustee will determine the amount of funds available for distribution to the Royalty Trust unitholders.

Available funds will equal the excess cash received by the Royalty Trust from the royalty interests and other sources during that quarter over the Royalty Trust’s liabilities for that quarter.

Available funds will be reduced by any cash the Trustee decides to hold as a reserve against future liabilities.

As of June 30, 2023, the Trustee has established a minimum cash reserve of $302,500.

As no proceeds were available for distribution, the Royalty Trust did not withhold any funds for the cash reserve in the second quarter of 2023.

This cash is reserved for the payment of future known, anticipated or contingent expenses or liabilities of the Royalty Trust.

Cash held in reserve will be invested as required by the royalty trust agreement.

Distributable income totaled $0 and $197,331 during the three- and six-month periods ended June 30, 2023, respectively, and $305,382 and $563,512 during the three- and six-month periods ended June 30, 2022, respectively.

These distributions are not necessarily indicative of future distributions, particularly in light of the shutting in of the sole well producing from the Highlander subject interest, as discussed above, and the cessation of production from the well, effective March 31, 2023.

HOGA currently is evaluating its options with respect to the well.

The Royalty Trust's only other sources of liquidity are mandatory annual contributions, any loans and the required standby reserve account or letter of credit from FCX.

As a result, any material adverse change in FCX's, McMoRan's or HOGA's financial condition or results of operations could materially and adversely affect the Royalty Trust and the underlying royalty trust units.

OFF-BALANCE SHEET ARRANGEMENTS

The Royalty Trust has no off-balance sheet arrangements.

The Royalty Trust has not guaranteed the debt of any other party, nor does the Royalty Trust have any other arrangements or relationships with other entities that could potentially result in unconsolidated debt, losses or contingent obligations.

RESULTS OF OPERATIONS

Royalty Income.

In accordance with the terms of the master conveyance, during the three-month period ended June 30, 2023, the Royalty Trust received royalties of $14,331 related to 14,231 thousand cubic feet (Mcf) of natural gas production with average post-production costs of $1.43 per Mcf and an average sales price of $2.43 per Mcf.

During the three-month period ended June 30, 2022, the Royalty Trust received royalties of $525,689 related to

107,110 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.40 per Mcf and an average sales price of $5.30 per Mcf.

During the six-month period ended June 30, 2023, the Royalty Trust received royalties of $401,278 related to 101,352 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.67 per Mcf and an average sales price of $4.63 per Mcf.

During the six-month period ended June 30, 2022, the Royalty Trust received royalties of $976,719 related to 222,627 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.40 per Mcf and an average sales price of $4.78 per Mcf.

Royalty income was lower during the three- and six-month periods ended June 30, 2023, as compared to the corresponding 2022 periods, primarily due to lower production resulting from the operational issues relating to the sole well producing from the Highlander subject interest and ultimately the shutting in of the well.

Administrative Expenses.

Administrative expenses consist primarily of audit, legal and trustee expenses incurred in connection with the administration of the Royalty Trust.

During the three-month periods ended June 30, 2023 and 2022, the Royalty Trust paid administrative expenses of $171,714 and $211,923, respectively.

During the six-month periods ended June 30, 2023 and 2022, the Royalty Trust paid administrative expenses of $361,390 and $396,090, respectively.

Administrative expenses were lower for the three- and six-month periods ended June 30, 2023, as compared to the corresponding 2022 periods, primarily due to the timing of payments for professional services.

NEW ACCOUNTING STANDARDS

CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).

Forward-looking statements are all statements other than statements of historical facts, such as any statements regarding the future financial condition of the Royalty Trust or the trading market for the royalty trust units, all statements regarding the respective plans of McMoRan or HOGA for the subject interests, the potential results of any drilling on the subject interests by the applicable operator, anticipated interests of McMoRan or HOGA and the Royalty Trust in any of the subject interests, HOGA's geologic models and the nature of the geologic trend onshore in South Louisiana discussed in this Form 10-Q, the amount and date of quarterly distributions to Royalty Trust unitholders, expectations regarding the repair or redrill of the well on the Highlander subject interest, the drilling of another well on the Highlander subject interest, and statements regarding the Royalty Trust’s future income from the overriding royalty interests and future distributions to Royalty Trust unitholders and all statements regarding any belief or understanding of the nature or potential of the subject interests.

The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “intends,” “likely,” “will,” “should,” “to be,” “potential,” and any similar expressions and/or statements that are not historical facts are intended to identify those assertions as forward-looking statements.

Forward-looking statements are not guarantees or assurances of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements.

Important factors that may cause actual results to differ materially from those anticipated by the forward-looking statements include, but are not limited to, the future plans of FCX and HOGA for their remaining oil and gas properties;

The $1.0 million, plus

interest collected thereon, is held in reserve fund cash.

As of September 30, 2023, the Royalty Trust had not drawn any funds from the

reserve account, and FCX had not requested a reduction of such reserve account.

connection with the completion of the Highlander Sale, HOGA assumed all administrative and reporting responsibilities with respect to

the Royalty Trust, including those described in Article III of the royalty trust agreement.

accordance with the terms of the master conveyance, royalties are paid to the Royalty Trust on the last day of the month following the

month in which production payments are received by HOGA.

The Royalty Trust received royalties of $0 and $401,278 during the three- and

nine-month periods ended September 30, 2023, respectively, and $791,065 and $1,767,784 during the three- and nine-month periods ended

September 30, 2022, respectively.

received by the Royalty Trust must first be used to (i) satisfy Royalty Trust administrative expenses and (ii) reduce Royalty Trust indebtedness.

The Royalty Trust had no indebtedness outstanding as of September 30, 2023 and December 31, 2022.

quarter, the Trustee will determine the amount of funds available for distribution to the Royalty Trust unitholders.

Available funds

will equal the excess cash received by the Royalty Trust from the royalty interests and other sources during that quarter over the Royalty

Trust’s liabilities for that quarter.

Available funds will be reduced by any cash the Trustee decides to hold as a reserve against

future liabilities.

As of September 30, 2023, the Trustee has established a minimum cash reserve of $302,500.

The minimum cash reserve

is not reflective of the Royalty Trust’s operating cash balance as of September 30, 2023.

with the distribution to unitholders in the first quarter of 2022, the Royalty Trust withheld $8,750 from the funds otherwise available

for distribution each quarter through the first quarter of 2023, with the intent of gradually building a cash reserve of approximately

As no proceeds were available for distribution in the second or third quarters of 2023, the Royalty Trust did not withhold

any funds for the cash reserve.

Unless another well is drilled on the onshore Highlander subject interest as discussion “Overview

Status of the Onshore Highlander Subject Interest”

above, the Royalty Trust does not intend to withhold funds for the cash

reserve as the Royalty Trust does not expect to have any cash available to distribute to unitholders in future periods.

reserved for the payment of future known, anticipated or contingent expenses or liabilities of the Royalty Trust.

The Trustee may increase

or decrease the targeted cash reserve 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.

Cash held in reserve will be invested as required by the royalty

trust agreement.

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.

Distributable

income totaled $0 and $197,331 during the three- and nine-month periods ended September 30, 2023, respectively, and $657,410 and $1,220,922

during the three- and nine-month periods ended September 30, 2022, respectively.

These distributions are not necessarily indicative of

future distributions, particularly in light of the shutting in of the sole well producing from the Highlander subject interest, as discussed

above, and the cessation of production from the well, effective March 31, 2023.

HOGA has informed the Trustee that due to the underground

flow of fluids into the wellbore that the well cannot be salvaged and needs to be plugged and abandoned.

Abandoning the well will eliminate

any production from the onshore Highlander subject interest, which also will eliminate any proceeds to which the Royalty Trust would

be entitled pursuant to its overriding royalty interest.

Unless another well is drilled on the onshore Highlander subject interest, the

Royalty Trust does not expect to receive any significant income attributable to its overriding royalty interests and accordingly, does

not expect to have any cash available to distribute to Royalty Trust unitholders in future periods.

The Royalty Trust’s only other

sources of liquidity are mandatory annual contributions, any loans and the required standby reserve account or letter of credit from

As a result, any material adverse change in FCX’s, McMoRan’s or HOGA’s financial condition or results of operations

could materially and adversely affect the Royalty Trust and the underlying royalty trust units.

SHEET ARRANGEMENTS

Royalty Trust has no off-balance sheet arrangements.

The Royalty Trust has not guaranteed the debt of any other party, nor does the Royalty

Trust have any other arrangements or relationships with other entities that could potentially result in unconsolidated debt, losses or

contingent obligations.

OF OPERATIONS

In accordance with the terms of the master conveyance, during the three-month period ended September 30, 2023, the Royalty

Trust did not receive royalty income.

During the three-month period ended September 30, 2022, the Royalty Trust received royalties of

$791,065 related to 104,953 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production

costs of $0.43 per Mcf and an average sales price of $7.97 per Mcf.

the nine-month period ended September 30, 2023, the Royalty Trust received royalties of $401,278 related to 101,352 Mcf of natural gas

production attributable to the onshore Highlander subject interest with average post-production costs of $0.67 per Mcf and an average

sales price of $4.63 per Mcf.

During the nine-month period ended September 30, 2022, the Royalty Trust received royalties of $1,767,784

related to 327,580 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production

costs of $0.41 per Mcf and an average sales price of $5.80 per Mcf.

income was lower during the three- and nine-month periods ended September 30, 2023, as compared to the corresponding 2022 periods, primarily

due to lower production resulting from the operational issues relating to the sole well producing from the Highlander subject interest

and ultimately the shutting in of the well.

Administrative

Administrative expenses consist primarily of audit, legal and trustee expenses incurred in connection with the administration

of the Royalty Trust.

During the three-month periods ended September 30, 2023 and 2022, the Royalty Trust paid administrative expenses

of $108,432 and $127,201, respectively.

During the nine-month periods ended September 30, 2023 and 2022, the Royalty Trust paid administrative

expenses of $469,822 and $523,291, respectively.

Administrative expenses were lower for the three- and nine-month periods ended September

30, 2023, as compared to the corresponding 2022 periods, primarily due to the timing of payments for professional services.

ACCOUNTING STANDARDS

Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as

amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).

Forward-looking statements are all statements

other than statements of historical facts, such as any statements regarding the future financial condition of the Royalty Trust or the

trading market for the royalty trust units, all statements regarding the respective plans of McMoRan or HOGA for the subject interests,

the potential results of any drilling on the subject interests by the applicable operator, anticipated interests of McMoRan or HOGA and

the Royalty Trust in any of the subject interests, HOGA’s geologic models and the nature of the geologic trend onshore in South

Louisiana discussed in this Form 10-Q, the amount and date of quarterly distributions to Royalty Trust unitholders, expectations regarding

any drilling of another well on the Highlander subject interest, and statements regarding the Royalty Trust’s future income from

the overriding royalty interests and future distributions to Royalty Trust unitholders and all statements regarding any belief or understanding

of the nature or potential of the subject interests.

The words “anticipates,”

“may,”

“can,”

“plans,”

“believes,”

“estimates,”

“expects,”

“projects,”

“intends,”

“likely,”

“will,”

“should,”

“to be,”

“potential,”

and any similar expressions and/or statements

that are not historical facts are intended to identify those assertions as forward-looking statements.

Forward-looking

statements are not guarantees or assurances of future performance and actual results may differ materially from those anticipated, projected

or assumed in the forward-looking statements.

Important factors that may cause actual results to differ materially from those anticipated

by the forward-looking statements include, but are not limited to, the future plans of FCX and HOGA for their remaining oil and gas properties;

the risk that the subject interests will not produce additional hydrocarbons;

general economic and business conditions;

variations in the market demand for, and prices of, oil and natural gas;

variations in

the market demand for, and prices of, oil and natural gas;

drilling results;

changes in oil and natural gas reserve expectations;

the potential adoption of new governmental regulations;

potential adoption of new governmental regulations;

decisions by FCX, McMoRan or HOGA not to develop and/or transfer the subject interests;

2 unchanged sentences

fluctuations in the market price, volume and frequency of the trading market for the royalty trust units;

the amount of cash received or expected to be received by the Trustee from the underlying subject interests on or prior to a record date for a quarterly cash distributions;

the cost and timing of repairs or redrilling of the damaged well on the Highlander subject interest;

the amount of cash received

or expected to be received by the Trustee from the underlying subject interests on or prior to a record date for a quarterly cash distributions;

the cost and timing of drilling a new well on the Highlander subject interest;

and other factors described in Part I, Item 1A.

“Risk Factors” in the 2022 Form 10-K, as updated by the Royalty Trust’s subsequent filings with the SEC.

Any differences in actual cash receipts by the Royalty Trust could affect the amount of quarterly cash distributions.

Investors are cautioned that current production rates may not be indicative of future production rates or of the amounts of hydrocarbons that a well may produce, and that many of the assumptions upon which forward-looking statements are based are likely to change after such forward-looking statements are made, which the Royalty Trust cannot control.

The Royalty Trust cautions investors that it does not intend to update its forward-looking statements, notwithstanding any changes in assumptions, changes in business plans, actual experience, or other changes, and the Royalty Trust undertakes no obligation to update any forward-looking statements except as required by law.

Factors”

in the 2022 Form 10-K, as updated by the Royalty Trust’s subsequent filings with the SEC.

Any differences in actual

cash receipts by the Royalty Trust could affect the amount of quarterly cash distributions.

are cautioned that current production rates may not be indicative of future production rates or of the amounts of hydrocarbons that a

well may produce, and that many of the assumptions upon which forward-looking statements are based are likely to change after such forward-looking

statements are made, which the Royalty Trust cannot control.

The Royalty Trust cautions investors that it does not intend to update its

forward-looking statements, notwithstanding any changes in assumptions, changes in business plans, actual experience, or other changes,

and the Royalty Trust undertakes no obligation to update any forward-looking statements except as required by law.

Quantitative and Qualitative Disclosures About Market Risk .

As a smaller reporting company, the Royalty Trust is not required to provide the information required by this Item.

a smaller reporting company, the Royalty Trust is not required to provide the information required by this Item.

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