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Item 1. Financial Statements

2020-08-12 compared with 2020-05-08 · 64 added, 50 removed, 180 unchanged (39% of the section changed)

2 unchanged sentences

STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS

June 30, December 31,

ASSETS (unaudited) (audited)

Operating cash $ 251,702 $ 412,249

1 unchanged sentence

Overriding royalty interests in subject interests, net 710,586 823,927

Total assets $ 2,016,442 $ 2,283,717

LIABILITIES AND TRUST CORPUS

1 unchanged sentence

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

outstanding as of March 31, 2020 and December 31, 2019)

outstanding as of June 30, 2020 and December 31, 2019) 962,288 1,236,176

Total liabilities and trust corpus $ 2,016,442 $ 2,283,717

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STATEMENTS OF DISTRIBUTABLE INCOME (Unaudited)

Three Months Ended

Three Months Ended Six Months Ended,

June 30, June 30,

2020 2019 2020 2019

Royalty income $ 177,646 $ 339,798 $ 434,063 $ 828,280

8 unchanged sentences

STATEMENTS OF CHANGES IN TRUST CORPUS (Unaudited)

Three Months Ended

Three Months Ended Six Months Ended,

June 30, June 30,

2020 2019 2020 2019

Trust corpus, beginning of period $ 1,092,640 $ 1,668,738 $ 1,236,176 $ 1,800,617

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

Operating results for the three-month period ended March 31, 2020 , are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 .

Operating results for the three- and six-month periods ended June 30, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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).

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OVERRIDING ROYALTY INTERESTS

No impairment charges were recorded during the three-month periods ended March 31, 2020 or 2019 .

No impairment charges were recorded during the three- or six-month periods ended June 30, 2020 or 2019.

The onshore Highlander subject interest is the only producing subject interest in which the Royalty Trust holds an overriding royalty interest, and began commercial production on February 25, 2015.

Prior to this date there had been no commercial production of hydrocarbons from any of the subject interests.

Amortization charges related to production volumes associated with the onshore Highlander subject interest reduced the carrying value of the overriding royalty interests by $58,106 and $139,047 during the three-month periods ended March 31, 2020 and 2019 , respectively.

Accumulated amortization was $5,990,879 and $5,932,773 at March 31, 2020 , and December 31, 2019 , respectively.

Amortization charges related to production volumes associated with the onshore Highlander subject interest reduced the carrying value of the overriding royalty interests by $55,235 and $113,341 during the three- and six-month periods ended June 30, 2020, respectively, and by $137,023 and $276,070 during the three- and six-month periods ended June 30, 2019, respectively.

Accumulated amortization was $6,046,114 and $5,932,773 at June 30, 2020, and December 31, 2019, respectively.

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

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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.

As of March 31, 2020 , only the onshore Highlander subject interest had established commercial production.

The Royalty Trust received royalties of $256,417 and $488,482 during the three-month periods ended March 31, 2020 and 2019 , respectively, relating to production from the onshore Highlander subject interest.

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 March 31, 2020 .

As of June 30, 2020, only the onshore Highlander subject interest had established commercial production.

The Royalty Trust received royalties of $177,646 and $434,063 during the three- and six-month periods ended June 30, 2020, respectively, and of $339,798 and $828,280 during the three- and six-month periods ended June 30, 2019, respectively, relating to production from the onshore Highlander subject interest.

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, 2020.

Additionally, the Trustee has established a minimum cash reserve of $250,000.

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(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-mont h periods ended March 31, 2020 or 2019 .

No such contributions were made during the three- and six-month periods ended June 30, 2020 or 2019.

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 March 31, 2020 or December 31, 2019 .

No loans were outstanding at June 30, 2020 or December 31, 2019.

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.

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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 March 31, 2020 , the Royalty Trust had not drawn any funds from the reserve account, and FCX had not requested a reduction of such reserve account.

As of June 30, 2020, the Royalty Trust had not drawn any funds from the reserve account, and FCX had not requested a reduction of such reserve account.

Administration.

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Royalty Trust Units Held by FCX and HOGA.

At March 31, 2020 , the Royalty Trust had 230,172,696 royalty trust units outstanding.

At June 30, 2020, the Royalty Trust had 230,172,696 royalty trust units outstanding.

In connection with the Highlander Sale on February 5, 2019, FCX, through its indirect wholly owned subsidiary McMoRan, assigned 31,143,150 of its royalty trust units to HOGA and retained 31,143,149 royalty trust units.

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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-month periods ended March 31, 2020 and 2019 , are set forth in the table below.

Three Months Ended

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, 2020 and 2019, are set forth in the table below.

Three Months Ended Six Months Ended,

June 30, June 30,

2020 2019 2020 2019

Natural gas sales volumes (Mcf) (a) 131,512 145,769 269,859 293,692

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Net cash proceeds available for distribution $ 1,702 $ 243,530 $ 78,521 $ 505,717

Attributable to the onshore Highlander subject interest, which is the only subject interest with commercial production.

A summary of quarterly per unit distributions for the three-month periods ended March 31, 2020 and 2019 is set forth in the table below.

Three-month period ended:

Per Unit Amount

The Royalty Trust paid $162,249 and $255,019 during the three-month periods ended March 31, 2020 and 2019 , respectively.

(a) Attributable to the onshore Highlander subject interest, which is the only subject interest with commercial production.

A summary of quarterly per unit distributions for the three-month periods ended March 31, 2020 and 2019, and for the three-month periods ended June 30, 2020 and 2019, is set forth in the table below.

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

$ 76,819 $0.000334 4/30/2020 5/14/2020 $ 262,187 $0.001139 4/30/2019 5/14/2019

$ 1,702 $0.000007 7/30/2020 8/13/2020 $ 243,530 $0.001058 7/30/2019 8/13/2019

These distributions are not necessarily indicative of future distributions.

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SUBSEQUENT EVENTS

On April 16, 2020, the Royalty Trust declared a cash distribution of $0.000334 per unit payable on May 14, 2020 , to Royalty Trust unitholders of record on April 30, 2020 .

On July 17, 2020, the Royalty Trust declared a cash distribution of $0.000007 per unit payable on August 13, 2020, to Royalty Trust unitholders of record on July 30, 2020.

For additional information, see Note 4.

The Royalty Trust evaluated all other events subsequent to March 31, 2020 , 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.

The Royalty Trust evaluated all other events subsequent to June 30, 2020, 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 .

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In March 2020, the World Health Organization designated the outbreak of the novel coronavirus known as COVID-19 as a pandemic.

Governments have tried to slow the spread of the virus by imposing social distancing guidelines, travel restrictions and stay-at-home orders, which have caused a significant decrease in activity in the global economy and the demand for oil and natural gas.

Also in March 2020, the Organization of Petroleum Exporting Countries and other oil producing nations (“OPEC+”) were unable to reach an agreement on production levels for crude oil, at which point Saudi Arabia and Russia initiated efforts to aggressively increase production.

The convergence of these events created the unprecedented dual impact of a global oil and natural gas demand decline coupled with the risk of a substantial increase in supply.

While OPEC+ agreed in April 2020 to cut production, these cuts and other reduced capital expenditures by non-OPEC members have not offset the significant decrease in demand related to the COVID-19 pandemic.

As a result, the prices of oil and natural gas have remained extremely depressed, and available storage for oil and transportation capacity for production of oil and natural gas is increasingly limited and may be completely unavailable in the near future.

The imbalance between the supply of and demand for oil and natural gas, lack of available storage, as well as the uncertainty around the extent and timing of an economic recovery, have caused extreme market volatility and a substantial adverse effect on commodity prices.

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and natural gas industry.

Demand for oil and natural gas has significantly deteriorated as a result of the virus outbreak and corresponding preventative measures taken around the world to mitigate the spread of the virus.

During the second quarter of 2020, and thus far during the third quarter of 2020, there have been continued and, in certain cases, increasing outbreaks of COVID-19 in the United States.

Demand and pricing may again decline due to the resurgence of the virus across the U.S.

and other locations around the world and the imposition of social distancing guidelines, travel restrictions, and stay-at-home orders.

The extent of the additional impacts on the oil and natural gas industry and further effects on the Royalty Trust cannot be reasonably predicted at this time.

Business Overview

11 unchanged sentences

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);

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.

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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.

As of March 31, 2020 , only the onshore Highlander subject interest had any reserves classified as proved, probable or possible and had established commercial production.

As of June 30, 2020, 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).

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

At March 31, 2020 , 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.

At June 30, 2020, 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.

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.

2 unchanged sentences

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 three-mont h periods ended March 31, 2020 or 2019 .

No such contributions by FCX were made during the three- and six-month periods ended June 30, 2020 or 2019.

No loans were outstanding as of March 31, 2020 , or December 31, 2019 .

No loans were outstanding as of June 30, 2020, or December 31, 2019.

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.

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The $1.0 million, plus interest collected thereon, is held in reserve fund cash.

As of March 31, 2020 , the Royalty Trust had not drawn any funds from the reserve account, and FCX had not requested a reduction of such reserve account.

As of June 30, 2020, 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.

As of March 31, 2020 , only the onshore Highlander subject interest had established commercial production.

As of June 30, 2020, only the onshore Highlander subject interest had established commercial production.

The Royalty Trust received royalties of $177,646 and $434,063 during the three- and six-month periods ended June 30, 2020, respectively, and $339,798 and $828,280 during the three- and six-month periods ended June 30, 2019, respectively, relating to production from the onshore Highlander subject interest.

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 March 31, 2020 .

The Royalty Trust had no indebtedness outstanding as of June 30, 2020.

Additionally, the Trustee has established a minimum cash reserve of $250,000.

As a result, distributions will be made to Royalty Trust unitholders only when royalties received less administrative expenses incurred and repayment of any indebtedness exceeds the $250,000 minimum cash reserve.

Distributable income totaled $76,819 and $262,187 during the three-month periods ended March 31, 2020 and 2019 , respectively.

On April 16, 2020, the Royalty Trust declared a cash distribution of $0.000334 per unit payable on May 14, 2020 , to Royalty Trust unitholders of record on April 30, 2020 .

Distributable income totaled $1,702 and $78,521 during the three- and six-month periods ended June 30, 2020, respectively.

Distributable income totaled $243,530 and $505,717 during the three- and six-month periods ended June 30, 2019, respectively.

O n July 17, 2020 , th e Royalty Trust declared a cash distribution of $0.000007 per unit payable on August 13, 2020, to Royalty Trust unitholders of record on July 30, 2020.

These distributions are not necessarily indicative of future distributions.

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Royalty Income.

As of March 31, 2020 , only the onshore Highlander subject interest had established commercial production.

In accordance with the terms of the master conveyance, during the three-month period ended March 31, 2020 , the Royalty Trust received royalties of $256,417 related to 138,347 thousand cubic feet ("Mcf") of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.34 per Mcf and an average sales price of $2.19 per Mcf.

During the three-month period ended March 31, 2019 , the Royalty Trust received royalties of $488,482 related to 147,923 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.32 per Mcf and an average sales price of $3.62 per Mcf.

Royalty income was lower during the three-month period ended March 31, 2020 , as compared to the corresponding 2019 period, due to lower average sales prices and lower production during the three-month 2019 period.

As of June 30, 2020, only the onshore Highlander subject interest had established commercial production.

In accordance with the terms of the master conveyance, during the three-month period ended June 30, 2020, the Royalty Trust received royalties of $177,646 related to 131,512 thousand cubic feet ("Mcf") of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.35 per Mcf and an average sales price of $1.70 per Mcf.

During the three-month period ended June 30, 2019, the Royalty Trust received royalties of $339,798 related to 145,769 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.32 per Mcf and an average sales price of $2.66 per Mcf.

During the six-month period ended June 30, 2020, the Royalty Trust received royalties of $434,063 related to 269,859 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.34 per Mcf and an average sales price of $1.95 per Mcf.

During the six-month period ended June 30, 2019, the Royalty Trust received royalties of $828,280 related to 293,692 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.32 per Mcf and an average sales price of $3.14 per Mcf.

Royalty income was lower during the three- and six-month periods ended June 30, 2020, as compared to the corresponding 2019 periods, due to lower average sales prices and lower production compared to the three- and six-month 2019 periods.

Administrative Expenses.

During the three-month periods ended March 31, 2020 and 2019 , the Royalty Trust paid administrative expenses of $181,091 and $228,619 , respectively.

Administrative expenses, which consisted primarily of audit, legal and trustee expenses incurred in connection with the administration of the Royalty Trust, were lower for the three-month period ended March 31, 2020 , as compared to the corresponding 2019 period, primarily because of timing of payments for professional fees.

During the three-month periods ended June 30, 2020 and 2019, the Royalty Trust paid administrative expenses of $176,273 and $98,992, respectively.

During the six-month periods ended June 30, 2020 and 2019, the Royalty Trust paid administrative expenses of $357,364 and $327,611, respectively.

Administrative expenses, which consisted primarily of audit, legal and trustee expenses incurred in connection with the

administration of the Royalty Trust, were higher for the three- and six-month periods ended June 30, 2020, as compared to the corresponding 2019 periods, primarily because of timing of payments for professional fees.

NEW ACCOUNTING STANDARDS

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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.

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, and all statements regarding any belief or understanding of the nature or potential of the subject interests.

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, 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.

22 unchanged sentences

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