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Item 1. Financial Statements

2022-11-10 compared with 2022-08-12 · 46 added, 49 removed, 199 unchanged (32% of the section changed)

2 unchanged sentences

STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS

June 30, December 31,

September 30, December 31,

ASSETS (unaudited) (audited)

6 unchanged sentences

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

outstanding as of June 30, 2022 and December 31, 2021) 971,472 1,219,756

outstanding as of September 30, 2022 and December 31, 2021) 1,297,616 1,219,756

Total liabilities and trust corpus $ 2,356,391 $ 2,274,280

2 unchanged sentences

STATEMENTS OF DISTRIBUTABLE INCOME (Unaudited)

Three Months Ended Six Months Ended,

June 30, June 30,

Three Months Ended Nine Months Ended,

September 30, September 30,

2022 2021 2022 2021

9 unchanged sentences

STATEMENTS OF CHANGES IN TRUST CORPUS (Unaudited)

Three Months Ended Six Months Ended,

June 30, June 30,

Three Months Ended Nine Months Ended,

September 30, September 30,

2022 2021 2022 2021

16 unchanged sentences

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, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Operating results for the three- and nine-month periods ended September 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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).

3 unchanged sentences

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 $35,346 and $73,467 during the three- and six-month periods ended June 30, 2022, respectively, and $30,712 and $75,276 during the three- and six-month periods ended June 30, 2021, respectively.

Accumulated amortization was $6,366,860 and $6,293,393 at June 30, 2022, and December 31, 2021, respectively.

Amortization charges related to production volumes associated with the onshore Highlander subject interest reduced the carrying value of the overriding royalty interests by $34,634 and $108,101 during the three- and nine-month periods ended September 30, 2022, respectively, and $36,955 and $112,231 during the three- and nine-month periods ended September 30, 2021, respectively.

Accumulated amortization was $6,401,494 and $6,293,393 at September 30, 2022, and December 31, 2021, 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.

4 unchanged sentences

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 June 30, 2022, only the onshore Highlander subject interest had established commercial production.

The Royalty Trust received royalties of $525,689 and $976,719 during the three- and six-month periods ended June 30, 2022, respectively, and $213,382 and $451,565 during the three- and six-month periods ended June 30, 2021, respectively.

The Royalty Trust received royalties of $791,065 and $1,767,784 during the three- and nine-month periods ended September 30, 2022, respectively, and $134,631 and $586,196 during the three- and nine-month periods ended September 30, 2021, 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, 2022.

The Royalty Trust had no indebtedness outstanding as of September 30, 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, 2022, the Trustee has established a minimum cash reserve of $276,250.

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

As of September 30, 2022, the Trustee has established a minimum cash reserve of $285,000.

Commencing with the distribution to unitholders in the first quarter of 2022, the Trust has been withholding, and in the future intends to withhold, $8,750 from the funds otherwise available for distribution each quarter to gradually

8 unchanged sentences

(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- and six-month periods ended June 30, 2022 or 2021.

No such contributions were made during the three- and nine-month periods ended September 30, 2022 or 2021.

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, 2022 or December 31, 2021.

No loans were outstanding at September 30, 2022 or December 31, 2021.

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.

2 unchanged sentences

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, 2022, 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 September 30, 2022, the Royalty Trust had not drawn any funds from the reserve account, and FCX had not requested a reduction of such reserve account.

Administration.

6 unchanged sentences

Royalty Trust Units Held by FCX and HOGA.

At June 30, 2022, the Royalty Trust had 230,172,696 royalty trust units outstanding, HOGA held 31,143,150 royalty trust units, and FCX, through its indirect wholly owned subsidiary McMoRan, held 31,143,149 royalty trust units.

At September 30, 2022, the Royalty Trust had 230,172,696 royalty trust units outstanding, HOGA held 31,143,150 royalty trust units, and FCX, through its indirect wholly owned subsidiary McMoRan, held 31,143,149 royalty trust units.

FCX and HOGA each hold 13.5% of the outstanding royalty trust units.

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, 2022 and 2021, are set forth in the table below.

Three Months Ended Six Months Ended,

June 30, June 30,

2022 2021 2022 2021

Natural gas sales volumes (Mcf) (a)

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 nine-month periods ended September 30, 2022 and 2021, are set forth in the table below.

Three Months Ended Nine Months Ended,

September 30, September 30,

2022 2021 2022 2021

Natural gas sales volumes (Mcf) 104,953 52,667 327,580 240,857

Natural gas average sales price (per Mcf) $ 7.97 $ 3.01 $ 5.80 $ 2.85

7 unchanged sentences

Net cash proceeds available for distribution $ 657,410 $ 29,304 $ 1,220,922 $ 109,892

(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, 2022 and 2021, and for the three-month periods ended June 30, 2022 and 2021, is set forth in the table below.

A summary of quarterly per unit distributions for the three-month periods ended March 31, 2022 and 2021, the three-month periods ended June 30, 2022 and 2021, and the three-month periods ended September 30, 2022 and 2021, is set forth in the table below.

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

1 unchanged sentence

$ 305,382 $0.001327 7/29/2022 8/12/2022 $ 47,999 $0.000209 7/30/2021 8/13/2021

$ 657,410 $0.002856 10/28/2022 11/14/2022 $ 29,304 $0.000127 10/29/2021 11/12/2021

These distributions are not necessarily indicative of future distributions.

2 unchanged sentences

SUBSEQUENT EVENTS

On July 14, 2022, the Royalty Trust declared a cash distribution of $0.001327 per unit payable on August 12, 2022, to Royalty Trust unitholders of record on July 29, 2022.

On October 14, 2022, the Royalty Trust declared a cash distribution of $0.002856 per unit payable on November 14, 2022, to Royalty Trust unitholders of record on October 28, 2022.

For additional information, see Note 4.

The Royalty Trust evaluated all other events subsequent to June 30, 2022, 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 September 30, 2022, 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 .

32 unchanged sentences

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 June 30, 2022, only the onshore Highlander subject interest had established commercial production.

As of September 30, 2022, 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).

5 unchanged sentences

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, 2022, 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 September 30, 2022, 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- and six-month periods ended June 30, 2022 or 2021.

No such contributions by FCX were made during the three- and nine-month periods ended September 30, 2022 or 2021.

No loans were outstanding as of June 30, 2022, or December 31, 2021.

No loans were outstanding as of September 30, 2022, or December 31, 2021.

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.

3 unchanged sentences

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

As of June 30, 2022, 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 September 30, 2022, 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 June 30, 2022, only the onshore Highlander subject interest had established commercial production.

The Royalty Trust received royalties of

$525,689 and $976,719 during the three- and six-month periods ended June 30, 2022, respectively, and $213,382 and $451,565 during the three- and six-month periods ended June 30, 2021, respectively.

The Royalty Trust received royalties of $791,065 and $1,767,784 during the three- and nine-month periods ended September 30, 2022,

respectively, and $134,631 and $586,196 during the three- and nine-month periods ended September 30, 2021, 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, 2022.

The Royalty Trust had no indebtedness outstanding as of September 30, 2022.

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

1 unchanged sentence

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

As of June 30, 2022, the Trustee has established a minimum cash reserve of $276,250.

As of September 30, 2022, the Trustee has established a minimum cash reserve of $285,000.

3 unchanged sentences

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

Distributable income totaled $305,382 and $563,512 during the three- and six-month periods ended June 30, 2022, respectively, and $47,999 and $80,588 during the three- and six-month periods ended June 30, 2021, respectively.

On July 14, 2022, the Royalty Trust declared a cash distribution of $0.001327 per unit payable on August 12, 2022, to Royalty Trust unitholders of record on July 29, 2022.

Distributable income totaled $657,410 and $1,220,922 during the three- and nine-month periods ended September 30, 2022, respectively, and $29,304 and $109,892 during the three- and nine-month periods ended September 30, 2021, respectively.

On October 14, 2022, the Royalty Trust declared a cash distribution of $0.002856 per unit payable on November 14, 2022, to Royalty Trust unitholders of record on October 28, 2022.

These distributions are not necessarily indicative of future distributions.

6 unchanged sentences

Royalty Income.

As of June 30, 2022, 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, 2022, the Royalty Trust received royalties of $525,689 related to 107,110 thousand cubic feet (Mcf) of natural gas production with average post-production costs of $0.40 per Mcf and an average sales price of $5.30 per Mcf.

During the three-month period ended June 30, 2021, the Royalty Trust received royalties of $213,382 related to 76,780 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.46 per Mcf and an average sales price of $3.24 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.

During the six-month period ended June 30, 2021, the Royalty Trust received royalties of $451,565 related to 188,190 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 $2.81 per Mcf.

Royalty income was higher during the three- and six-month periods ended June 30, 2022, as compared to the corresponding 2021 periods, primarily due to higher natural gas prices and higher production.

In accordance with the terms of the master conveyance, during the three-month period ended September 30, 2022, the Royalty Trust received royalties of $791,065 related to 104,953 thousand cubic feet (Mcf) of natural gas production with average post-production costs of $0.43 per Mcf and an average sales price of $7.97 per Mcf.

During the three-month period ended September 30, 2021, the Royalty Trust received royalties of $134,631 related to 52,667 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.45 per Mcf and an average sales price of $3.01 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.

During the nine-month period ended September 30, 2021, the Royalty Trust received royalties of $586,196 related to 240,857 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.42 per Mcf and an average sales price of $2.85 per Mcf.

Royalty income was higher during the three- and nine-month periods ended September 30, 2022, as compared to the corresponding 2021 periods, primarily due to higher natural gas prices and higher production.

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, 2022 and

2021, the Royalty Trust paid administrative expenses of $211,923 and $165,391, respectively.

During the six-month periods ended June 30, 2022 and 2021, the Royalty Trust paid administrative expenses of $396,090 and $370,993, respectively.

Administrative expenses were higher for the three- and six-month periods ended June 30, 2022, as compared to the corresponding 2021 periods, primarily due to the timing of payments for professional services.

During the three-month periods ended September 30, 2022 and 2021, the Royalty Trust paid administrative expenses of $127,201 and $105,335, respectively.

Administrative

expenses were higher for the three-month period ended September 30, 2022, as compared to the corresponding 2021 period, primarily due to inflation and the timing of payments for professional services.

During the nine-month periods ended September 30, 2022 and 2021, the Royalty Trust paid administrative expenses of $523,291 and $476,328, respectively.

Administrative expenses were higher for the nine-month period ended September 30, 2022, as compared to the corresponding 2021 period, primarily due to inflation and the timing of payments for professional services.

NEW ACCOUNTING STANDARDS

25 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