Item 8. Financial Statements and Supplementary Data
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Unitholders of MV Oil Trust
and The Bank of New York Mellon Trust Company, N.A., as Trustee
Opinion on the financial statements
We have audited the accompanying statements of assets and trust corpus of MV Oil Trust (the “Trust”) as of December 31, 2022 and 2021, the related statements of distributable income and changes in trust corpus for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the assets and trust corpus of the Trust as of December 31, 2022 and 2021, and the distributable income and changes in trust corpus for each of the three years in the period ended December 31, 2022, in conformity with the modified cash basis of accounting described in Note B to the financial statements.
Basis of accounting
As described in Note B to the financial statements, these financial statements have been prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Trustee. Our responsibility is to express an opinion on the Trust’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by the Trustee, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Trustee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Grant Thornton LLP
We have served as the Trust’s auditor since 2006.
Oklahoma City, Oklahoma
March 16, 2023
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MV OIL TRUST
STATEMENTS OF ASSETS AND TRUST CORPUS
December 31,
2021
2022
ASSETS
Cash and cash equivalents
$
297,146
$
1,036,214
Investment in net profits interest
50,383,675
50,383,675
Accumulated amortization
(42,771,353 )
(44,536,335 )
Total assets
$
7,909,468
$
6,883,554
TRUST CORPUS
Trust corpus, 11,500,000 Trust units issued and outstanding at December 31,
2021 and 2022
$
7,909,468
$
6,883,554
STATEMENTS OF DISTRIBUTABLE INCOME
Year ended December 31,
2020
2021
2022
Income from net profits interest
$
6,790,443
$
12,078,886
$
27,204,590
Cash on hand used (withheld) for Trust expenses
(302,835 )
207,425
(739,068 )
General and administrative expense (1)
(852,608 )
(958,811 )
(935,522 )
Distributable income
$
5,635,000
$
11,327,500
$
25,530,000
Distributions per Trust unit (11,500,000 Trust units issued and outstanding for 2020, 2021 and 2022)
$
0.490
$
0.985
$
2.220
(1)
Includes $102,902, $134,032 and $112,379 paid to MV Partners, LLC and $150,000, $150,000, and $150,000 paid to The Bank of New York Mellon Trust Company, N.A. for the years ended December 31, 2020, 2021 and 2022, respectively.
STATEMENTS OF CHANGES IN TRUST CORPUS
Year ended December 31,
2020
2021
2022
Trust corpus, beginning of year
$
12,487,586
$
10,583,308
$
7,909,468
Income from net profits interest
6,790,443
12,078,886
27,204,590
Cash distributions
(5,635,000 )
(11,327,500 )
(25,530,000 )
Trust expenses
(852,608 )
(958,811 )
(935,522 )
Amortization of net profits interest
(2,207,113 )
(2,466,415 )
(1,764,982 )
Trust corpus, end of year
$
10,583,308
$
7,909,468
$
6,883,554
The accompanying notes are an integral part of these financial statements.
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MV OIL TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE A — ORGANIZATION OF THE TRUST
MV Oil Trust (the “Trust”) is a statutory trust formed on August 3, 2006, under the Delaware Statutory Trust Act pursuant to a Trust Agreement (the “Trust Agreement”) among MV Partners, LLC (“MV Partners”), as trustor, The Bank of New York Mellon Trust Company, N.A., as Trustee (the “Trustee”), and Wilmington Trust Company, as Delaware Trustee (the “Delaware Trustee”).
The Trust was created to acquire and hold a term net profits interest for the benefit of the Trust unitholders pursuant to a conveyance from MV Partners to the Trust. The term net profits interest is an interest in underlying properties consisting of MV Partners’ net interests in all of its oil and natural gas properties located in the Mid-Continent region in the states of Kansas and Colorado (the “underlying properties”). These oil and gas properties include approximately 860 producing oil and gas wells.
The net profits interest is passive in nature, and the Trustee has no management control over and no responsibility relating to the operation of the underlying properties. The net profits interest entitles the Trust to receive 80% of the net proceeds attributable to MV Partners’ interest from the sale of production from the underlying properties during the term of the Trust. The net profits interest will terminate on the liquidation date, which is the later to occur of (1) June 30, 2026 or (2) the time when 14.4 million barrels of oil equivalent (MMBoe) have been produced from the underlying properties and sold (which amount is the equivalent of 11.5 MMBoe with respect to the Trust’s 80% net profits interest), and the Trust will soon thereafter wind up its affairs and terminate. As of December 31, 2022, cumulatively, since inception, the Trust has received payment for 80% of the net proceeds attributable to MV Partners’ interest from the sale of 13.5 MMBoe of production from the underlying properties (which amount is the equivalent of 10.8 MMBoe with respect to the Trust’s net profits interest).
The trust will dissolve prior to the liquidation date if:
(a)
the trust sells the net profits interest;
(b)
annual cash proceeds received by the trust attributable to the net profits interest are less than $1.0 million for each of two consecutive years;
(c)
the holders of a majority of the outstanding trust units vote in favor of dissolution; or
(d)
there is a judicial dissolution of the trust.
Upon dissolution, the trustee would sell all of the trust’s assets, either by private sale or public auction, and distribute the net proceeds of the sale to the trust unitholders.
The Trustee can authorize the Trust to borrow money to pay Trust administrative or incidental expenses that exceed cash held by the Trust. The Trustee may authorize the Trust to borrow from the Trustee or the Delaware Trustee as a lender provided the terms of the loan are similar to the terms it would grant to a similarly situated commercial customer with whom it did not have a fiduciary relationship. The Trustee may also deposit funds awaiting distribution in an account with itself and make other short-term investments with the funds distributed to the Trust.
NOTE B — TRUST ACCOUNTING POLICIES
A summary of the significant accounting policies of the Trust follows.
1.
Basis of accounting
The Trust uses the modified cash basis of accounting to report receipts by the Trust of the net profits interest and payments of expenses incurred. The net profits interest represents the right to receive revenues (oil, gas and natural gas liquid sales) less direct operating expenses (lease operating, maintenance and overhead expenses and production and property taxes) and an adjustment for lease equipment cost and lease development expenses (which are capitalized in financial statements prepared in accordance with accounting
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principles generally accepted in the United States of America (“U.S. GAAP”)) of the underlying properties times 80% (term net profits interest percentage). Actual cash receipts may vary due to timing delays of actual cash receipts from the property operators or purchasers and due to wellhead and pipeline volume balancing agreements or practices. The actual cash distributions of the Trust will be made based on the terms of the conveyance creating the Trust’s net profits interest.
The financial statements of the Trust, as prepared on a modified cash basis, reflect the Trust’s assets, Trust corpus, and distributable income as follows:
(a)
Income from net profits interest is recorded when distributions are received by the Trust;
(b)
Distributions to Trust unitholders are recorded when paid by the Trust;
(c)
Trust general and administrative expenses (which include the Trustee’s fees as well as accounting, engineering, legal and other professional fees) are recorded when paid;
(d)
Cash reserves for Trust expenses may be established by the Trustee for certain expenditures that would not be recorded as contingent liabilities under U.S. GAAP;
(e)
Amortization of the investment in Net Profits Interest, calculated using the units-of-production method based upon total estimated proved reserves, is charged directly to trust corpus and does not affect distributable income; and
(f)
The Trust evaluates its investment in the net profits interest periodically to determine whether its aggregate value has been impaired below its total capitalized cost based on the underlying properties. The Trust will provide a write-down to its investment in the net profits interest if and when total capitalized costs, less accumulated amortization, exceed undiscounted net future cash flows attributable to the Trust’s interests in the proved oil and gas reserves of the underlying properties.
While these statements differ from financial statements prepared in accordance with U.S. GAAP, the modified cash basis of reporting income and distributions is considered most meaningful because quarterly distributions to the Trust unitholders are based on net cash receipts.
This comprehensive basis of accounting other than generally accepted accounting principles corresponds to the accounting permitted for royalty trusts by the U.S. Securities and Exchange Commission (the “SEC”) as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.
No new accounting pronouncements have been adopted or issued during the year ended December 31, 2022 that would impact the financial statements of the Trust.
2.
Cash equivalents
For purposes of these statements, the Trust considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
3.
Use of estimates
The preparation of financial statements requires estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates affecting these financial statements include estimates of proved oil and gas reserves, which are used to compute the Trust’s amortization of net profits interest.
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NOTE C — NET PROFITS INTEREST
The net profits interest was recorded at the historical cost of MV Partners on January 24, 2007, the date of conveyance, and is calculated as follows:
Oil and gas properties
$
96,210,819
Accumulated depreciation and depletion
(40,468,762 )
Hedge asset
7,237,537
Net property value to be conveyed
62,979,594
Times 80% net profits interest to Trust
$
50,383,675
NOTE D — INCOME FROM NET PROFITS INTEREST
Year ended December 31,
2020
2021
2022
Excess of revenues over direct operating expenses and lease equipment and development costs (1)
$
8,488,053
$
15,098,607
$
34,005,736
Times net profits interest over the term of the Trust
80 %
80 %
80 %
Income from net profits interest before reserve adjustments
6,790,443
12,078,886
27,204,590
MV Partners reserve for future capital expenditures (2)
—
—
—
Income from net profits interest (3)
$
6,790,443
$
12,078,886
$
27,204,590
(1)
Pursuant to the conveyance of the net profits interest, direct operating expenses, lease equipment and development costs are deducted when calculating the distributable income to the Trust.
(2)
Pursuant to the conveyance of the net profits interest, MV Partners can reserve up to $1,000,000 for future exploration, development, maintenance or operating expenditures at any time. The reserve balance was $1,000,000 at December 31, 2020, 2021 and 2022, respectively.
(3)
The income from net profits interest is based upon the cash receipts from MV Partners for the oil and gas production. The revenues from oil production are typically received one month after production; thus, the cash received by the Trust during the year ended December 31, 2020 substantially represents the production by MV Partners from September 2019 through August 2020 and the cash received by the Trust during the year ended December 31, 2021 substantially represents the production by MV Partners from September 2020 through August 2021 and the cash received by the Trust during the year ended December 31, 2022 substantially represents the production by MV Partners from September 2021 through August 2022.
For the years ended December 31, 2020, 2021 and 2022, MV Purchasing, LLC, which we refer to herein as “MV Purchasing,” purchased 73%, 73% and 74%, respectively, of the production sold from the underlying properties. MV Purchasing is majority owned by the indirect equity owners of MV Partners. Sales to MV Purchasing are under short-term arrangements, ranging from one to six months, using market sensitive pricing.
NOTE E — INCOME TAXES
Tax counsel to the Trust advised the Trust at the time of formation that, under then current tax laws, in its opinion the net profits interest should be treated as a debt instrument for federal income tax purposes, and the Trust should be required to treat a portion of each payment it receives with respect to the net profits interest as interest income in accordance with the “noncontingent bond method” under the original issue discount rules contained in the Internal Revenue Code of 1986, as amended, and the corresponding regulations. Tax counsel to the Trust also advised the Trust at the time of formation that in its opinion the Trust will be treated as a grantor trust for federal income tax purposes. On the basis of this advice, Trust unitholders will be considered to own and receive the Trust’s assets and income and will be directly taxable
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thereon as if no trust were in existence. No provision for federal or state income taxes has been made in the accompanying statements.
NOTE F — DISTRIBUTIONS TO UNITHOLDERS
The Trustee determines for each quarter the amount available for distribution to the Trust unitholders. This distribution is expected to be made on or before the 25th day of the month following the end of each quarter to the Trust unitholders of record on the 15th day of the month following the end of each quarter (or the next succeeding business day). Such amounts will be equal to the excess, if any, of the cash received by the Trust relating to such preceding quarter, over the expenses of the Trust for such quarter, subject to adjustments for changes made by the Trustee during such quarter in any cash reserves established for future expenses of the Trust.
As previously disclosed, the Trustee intends to build a cash reserve of approximately $1.265 million for the payment of future known, anticipated or contingent expenses or liabilities of the Trust. The Trustee may increase or decrease the targeted 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. 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 trust unitholders, together with interest earned on the funds.
Date paid
Period covered
Distribution
per unit
Reserve
released
(established) (1)
January 24, 2020
October 1, 2019 through December 31, 2019
$
0.190
$
—
April 24, 2020
January 1, 2020 through March 31, 2020
$
0.205
—
July 24, 2020
April 1, 2020 through June 30, 2020
$
0.000 (2)
440,532
October 23, 2020
July 1, 2020 through September 30, 2020
$
0.095
(440,532 )
January 25, 2021
October 1, 2020 through December 31, 2020
$
0.110
$
—
April 23, 2021
January 1, 2021 through March 31, 2021
$
0.210
—
July 15, 2021
April 1, 2021 through June 30, 2021
$
0.300
—
October 25, 2021
July 1, 2021 through September 30, 2021
$
0.365
—
January 25, 2022
October 1, 2021 through December 31, 2021
$
0.410
$
—
April 25, 2022
January 1, 2022 through March 31, 2022
$
0.425
—
July 25, 2022
April 1, 2022 through June 30, 2022
$
0.700
—
October 25, 2022
July 1, 2022 through September 30, 2022
$
0.685
—
(1)
Pursuant to the conveyance of the net profits interest, MV Partners can reserve up to $1,000,000 for future exploration, development, maintenance or operating expenditures at any time.
(2)
There was no quarterly distribution during the third quarter of 2020 to Trust unitholders, as the revenue collected by MV Partners from April 1, 2020 through June 30, 2020 was not sufficient to cover the costs paid during the period. MV Partners released $440,532 from the reserve for future expenditures to cover the deficit. The reserve was reestablished during the fourth quarter of 2020.
NOTE G — RELATED PARTY TRANSACTIONS
The Trust has entered into an administrative services agreement with MV Partners that obligates the Trust, throughout the term of the Trust, to pay to MV Partners each quarter an administrative services fee for accounting, bookkeeping and informational services performed by MV Partners on behalf of the Trust relating to the net profits interest. The annual fee, which increases by 4% each year, was a total of $103,901, $108,057 and $112,379 for 2020, 2021 and 2022, respectively. The administrative services agreement will terminate upon the termination of the net profits interest unless earlier terminated by mutual agreement of the Trustee and MV Partners.
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The Trust has entered into a Trust Agreement with the Trustee that obligates the Trust, throughout the term of the Trust, to pay to the Trustee a quarterly fee. The annual fee was a total of $150,000 for each of 2020, 2021 and 2022. In addition, the Trustee paid an annual fee to the Delaware trustee of $2,750, $2,750 and $2,760 in 2020, 2021 and 2022, respectively. The Trust Agreement will terminate upon the termination of the net profits interest unless earlier terminated by mutual agreement of a majority of the Trust unitholders.
NOTE H — ADVANCE FOR TRUST EXPENSES
Under the terms of the Trust Agreement, the Trustee is allowed to borrow money to pay Trust expenses. During 2020, 2021 and 2022, the Trust did not borrow any money, and there were no prior borrowings that had not been repaid. Since the Trust uses the modified cash basis of accounting, a liability has not been recorded for any advances from MV Partners. The net advance is shown as an addition to Trust Corpus when the borrowing is made and is shown as a reduction to Trust Corpus when it is repaid.
MV Partners provided a letter of credit in the amount of $1.8 million to the Trustee to protect the Trust against the risk that it does not have sufficient cash to pay future expenses.
As previously disclosed, the Trustee is building a reserve for the payment of future known, anticipated or contingent expenses or liabilities of the Trust. Since January 2022, the Trustee has been withholding, and in the future intends to withhold, a portion of the proceeds otherwise available for distribution each quarter to build the cash reserve to approximately $1.265 million. This amount is in addition to the letter of credit in the amount of $1.8 million provided to the Trustee by MV Partners to protect the Trust against the risk that it does not have sufficient cash to pay future expenses. The Trustee may increase or decrease the targeted amount at any time, without advance notice to the unitholders. Cash held in reserve will be invested as required by the 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 trust unitholders, together with interest earned on the funds. As of December 31, 2022, the Trustee has withheld a total of $737,919 from the proceeds otherwise available for distribution towards the building of this cash reserve, which is included in cash and cash equivalents on the accompanying Statements of Assets and Trust Corpus.
NOTE I — OTHER EVENTS
Subsequent event
The first quarterly distribution for 2023 was $4,715,000, or $0.410 per Trust unit, and was made on January 25, 2023 to Trust unitholders owning Trust units as of January 17, 2022. Such distribution included the net proceeds of production collected by MV Partners from October 1, 2022 through December 31, 2022. The Trustee withheld $263,541 from the distribution towards the building of its $1.265 million cash reserve for the payment of future known, anticipated or contingent expenses or liabilities of the Trust.
NOTE J — DISCLOSURES ABOUT OIL AND GAS ACTIVITIES (UNAUDITED)
The Trust is required to disclose proved reserves in accordance with the SEC’s reporting rules, which require that the average, first-day-of-the-month price during the 12-month period before the end of the year be used when estimating whether reserve quantities are economical to produce. This same 12-month average price is also used in calculating the aggregate amount of (and changes in) future cash inflows related to the standardized measure of discounted future net cash flows. The rules also allow for the use of reliable technology to estimate proved oil and gas reserves if those technologies have been demonstrated to result in reliable conclusions about reserve volumes. The unaudited supplemental information on oil and gas exploration and production activities for 2020, 2021 and 2022 has been presented in accordance with these rules.
Estimates of the proved oil and gas reserves attributable to the Trust as of December 31, 2020, 2021 and 2022 are based on reports of Cawley, Gillespie & Associates, Inc., independent petroleum and geological engineers, and the contract property management engineering staff of the managers of MV Partners who operate the underlying properties, in accordance with the SEC’s rules and definitions. Users of this information should be aware that the process of estimating quantities of “proved” and “proved developed” and “proved
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undeveloped” crude oil, natural gas, and natural gas liquids reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors, including additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Consequently, material revisions to existing reserve estimates occur from time to time.
The reserve data below represent estimates only and should not be construed as being exact. Moreover, the discounted values should not be construed as representative of the current market value of the Net Profits Interest. A market value determination would include many additional factors, including: (i) anticipated future oil and gas prices; (ii) the effect of federal income taxes, if any, on the Trust; (iii) an allowance for return on investment; (iv) the effect of governmental legislation; (v) the value of additional potential reserves, not considered proved at present, which may be recovered as a result of further exploration and development activities; and (vi) other business risks.
The following tables set forth (i) the estimated net quantities of proved, proved developed and proved undeveloped oil, natural gas and natural gas liquids reserves attributable to the Trust, and (ii) the standardized measure of the discounted future net profits interest income attributable to the Trust and the nature of changes in such standardized measure between years. These tables are prepared on the accrual basis, which is the basis on which MV Partners maintains its production records and is different from the basis on which the Trust is reporting.
ESTIMATED QUANTITIES OF OIL AND GAS RESERVES
Oil (Bbls)
Gas (Mcf)
NGL (Bbls)
Total (Boe)
Proved reserves
Balance at December 31, 2019
2,995,619
83,238
1,970
3,010,773
Revisions of previous estimates
(675,943 )
(39,480 )
(1,207 )
(683,308 )
Production
(518,734 )
(25,362 )
(109 )
(523,031 )
Balance at December 31, 2020
1,800,942
18,396
654
1,804,434
Revisions of previous estimates
661,281
101,055
(247 )
677,963
Production
(514,745 )
(32,916 )
(88 )
(520,289 )
Balance at December 31, 2021
1,947,478
86,535
319
1,962,108
Revisions of previous estimates
95,494
11,867
28
97,490
Production
(493,642 )
(25,461 )
(87 )
(497,942 )
Balance at December 31, 2022
1,549,330
72,941
260
1,561,656
Proved developed reserves
December 31, 2019
2,687,298
83,238
1,970
2,702,451
December 31, 2020
1,641,394
18,396
654
1,644,886
December 31, 2021
1,860,861
86,535
319
1,875,491
December 31, 2022
1,492,741
72,941
260
1,505,067
Proved undeveloped reserves
December 31, 2019
308,322
—
—
308,322
Proved undeveloped reserves converted to proved developed reserves by drilling
(27,049 )
—
—
(27,049 )
Additional proved undeveloped reserves added during 2020
8,186
—
—
8,186
Proved undeveloped reserves removed from drilling
plan
(120,650 )
—
—
(120,650 )
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Oil (Bbls)
Gas (Mcf)
NGL (Bbls)
Total (Boe)
Revisions of previous estimates
(9,260 )
—
—
(9,260 )
December 31, 2020
159,548
—
—
159,548
Proved undeveloped reserves converted to proved developed reserves by drilling
(68,621 )
—
—
(68,621 )
Additional proved undeveloped reserves added during 2021
9,981
—
—
9,981
Proved undeveloped reserves removed from
drilling plan
(14,294 )
—
—
(14,294 )
Revisions of previous estimates
3
—
—
3
December 31, 2021
86,617
—
—
86,617
Proved undeveloped reserves converted to proved developed reserves by drilling
(31,444 )
—
—
(31,444 )
Additional proved undeveloped reserves added during 2022
26,746
—
—
26,746
Proved undeveloped reserves removed from
drilling plan
(25,304 )
—
—
(25,304 )
Revisions of previous estimates
(26 )
—
—
(26 )
December 31, 2022
56,589
—
—
56,589
The Trust recognized net reductions to reserves for its share of MV Partners’ total during 2020 associated with the production of properties of 523,031 Boe. The Trust recognized net decreases to reserves of 112,464 Boe as a result of changes in the development plan. Additional reductions to reserves of 570,844 Boe were a result of negative revisions due to lower commodity prices during 2020.
The Trust recognized net reductions to reserves for its share of MV Partners’ total during 2021 associated with the production of properties of 520,289 Boe. The Trust recognized net decreases to reserves of (4,313) Boe as a result of changes in the development plan. Net increases to reserves of 682,276 Boe were a result of positive revisions due to higher commodity prices during 2021.
The Trust recognized net reductions to reserves for its share of MV Partners’ total during 2022 associated with the production of properties of 497,942 Boe. The Trust recognized net increases to reserves of 1,442 Boe as a result of changes in the development plan. Additional increases to reserves of 96,047 Boe were a result of positive revisions due to higher commodity prices during 2022.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
FROM PROVED OIL AND GAS RESERVES
Estimates of future net cash flows from proved reserves of crude oil, natural gas, and natural gas liquids are computed using the average, first-day-of-the-month price during the 12-month period for 2020, 2021 and 2022.
2020
2021
2022
Future cash inflows
$
63,107,344
$
121,119,425
$
138,608,602
Future costs
Production
(44,907,531 )
(65,037,972 )
(56,930,542 )
Development
(2,237,200 )
(1,442,500 )
(1,047,713 )
Future net cash flows
15,962,613
54,638,953
80,630,347
Less 10% discount factor
(3,141,451 )
(9,376,987 )
(11,418,520 )
Standardized measure of discounted future net cash flows
$
12,821,162
$
45,261,966
$
69,211,827
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CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS FROM PROVED OIL AND GAS RESERVES
2020
2021
2022
Standardized measure at beginning of year
$
48,399,122
$
12,821,162
$
45,261,966
Net proceeds to the Trust
(6,790,443 )
(12,078,886 )
(27,204,589 )
Net changes in price and production costs
(29,767,790 )
28,017,592
39,987,484
Changes in estimated future development
costs
1,385,798
(289,926 )
(124,022 )
Development costs incurred during the year
284,000
1,002,600
454,500
Revisions of quantity estimates
(5,317,854 )
15,737,944
4,463,154
Accretion of discount
4,839,912
1,282,116
4,526,197
Changes in production rates, timing and other (1)
(211,583 )
(1,230,636 )
1,847,137
Standardized measure at end of year
$
12,821,162
$
45,261,966
$
69,211,827
(1)
The Trust’s changes in standardized measure of discounted future net cash flows attributable to production rates, timing and other primarily represents changes in the Trust’s estimates of when proved reserve quantities will be realized. During the years ended December 31, 2020, 2021 and 2022, the operator changed its development drilling capital plans, which had the effect of altering the estimated timing of development and then the ultimate realization of undeveloped proved reserves.
The average, first-day-of-the-month price during the 12-month period for 2020, 2021 and 2022 used in determining future net revenues related to the standardized measure calculation are as follows:
2020
2021
2022
Oil (per Bbl)
$
35.02
$
62.06
$
89.17
Gas (per Mcf)
$
1.64
$
2.91
$
6.10
NGL (per Bbl)
$
12.62
$
21.23
$
37.47
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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