What changed in this filing

/stocks — the workspaceLOADING

Item 2. Properties

2021-03-31 compared with 2020-03-16 · 193 added, 184 removed, 343 unchanged (52% of the section changed)

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(1) a 75% net overriding royalty carved out of Southland

Royaltys fee mineral interests in the Waddell Ranch in Crane County, Texas (the Waddell Ranch properties);

and (2) a 95% net overriding royalty carved out of Southland Royaltys major producing royalty interests in Texas

(the Texas Royalty properties).

Royaltys fee mineral interests in the Waddell Ranch in Crane County, Texas (the Waddell

Ranch properties);

and (2) a 95% net overriding royalty carved out of Southland Royaltys major producing royalty interests in Texas (the Texas Royalty properties).

The interests out of which the Trusts net overriding royalty interests were carved were in all cases less than 100%.

The Trusts net overriding royalty interests represent burdens against the

properties in favor of the Trust without regard to ownership of the properties from which the overriding royalty interests were carved.

The net overriding royalty for the Texas Royalty properties is subject to the provisions of the lease agreements

under which such royalties were created.

The Trusts net overriding royalty interests represent burdens against the properties in favor of the Trust without

regard to ownership of the properties from which the overriding royalty interests were carved.

The net overriding royalty for the Texas Royalty properties is subject to the provisions of the lease agreements under which such royalties were created.

References below to net wells and acres are to the interests of the owner of the Underlying Properties (from which the Royalties were carved) in the gross wells and acres.

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for the Trust properties based on the reserve report prepared by independent petroleum engineers as of December 31, 2020, is approximately 10.1 years.

The following information under this Item 2 is based upon data and information, including audited

computation statements, furnished to the Trustee by BROG and Riverhill Energy.

The following information under this Item 2 is based upon data and information, including audited computation statements, furnished to the Trustee by

Blackbeard, the owner of the Waddell Ranch properties and BROG, the former owner of the Waddell Ranch properties, and Riverhill Energy, the owner of the Texas Royalty properties.

PRODUCING ACREAGE, WELLS AND DRILLING

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productive oil wells, 109 gross (39 net) productive gas wells and 209 gross (67 net) injection wells.

As of December 31, 2019, BROG is operator

of record of the Waddell Ranch properties.

All field, technical and accounting operations have been contracted by agreements between the working interest owners and Schlumberger Integrated Project Management (IPM) and Riverhill Capital Corporation

(Riverhill Capital), but remain under the direction of BROG, as of December 31, 2019.

Six major fields on the Waddell Ranch properties

account for more than 80% of the total production.

In the six fields, there are 12 producing zones ranging in depth from 2,800 to 10,600 feet.

Most prolific of these zones are the Grayburg and San Andres, which produce from depths between 2,800 and

Also productive from the San Andres are the Sand Hills (Judkins) gas field and the Sand Hills (McKnight) oil field, the Dune (Grayburg/San Andres) oil field, and the Waddell (Grayburg/San Andres) oil field.

The Dune and Waddell oil fields are productive from both the Grayburg and San Andres formations.

The Sand Hills (Tubb) oil fields produce from the Tubb

formation at depths averaging 4,300 feet, and the University Waddell (Devonian) oil field is productive from the Devonian formation between 8,400 and 9,200 feet.

The Waddell Ranch properties are mature producing properties, and all of the major oil fields are currently being waterflooded for the purpose of

facilitating enhanced recovery.

As of April 1, 2020, Blackbeard

Operating, LLC (Blackbeard) became operator of record of the Waddell Ranch properties.

All field, technical and accounting operations have been contracted by agreements between the working interest owners and Schlumberger Integrated

Project Management (IPM) and Riverhill Capital Corporation (Riverhill Capital), but remain under the direction of Blackbeard, as of December 31, 2020.

Six major fields on the Waddell Ranch properties account for more than 80% of the total production.

In the six fields, there are 12 producing zones

ranging in depth from 2,800 to 10,600 feet.

Most prolific of these zones are the Grayburg and San Andres, which produce from depths between 2,800 and 3,400 feet.

Also productive from the San Andres are the Sand Hills (Judkins) gas field and the Sand

Hills (McKnight) oil field, the Dune (Grayburg/San Andres) oil field, and the Waddell (Grayburg/San Andres) oil field.

The Dune and Waddell oil

fields are productive from both the Grayburg and San Andres formations.

The Sand Hills (Tubb) oil fields produce from the Tubb formation at depths averaging 4,300 feet, and the University Waddell (Devonian) oil field is productive from the Devonian

formation between 8,400 and 9,200 feet.

The Waddell Ranch properties are mature producing properties, and all of the major oil fields are currently

being waterflooded for the purpose of facilitating enhanced recovery.

Proved reserves and estimated future net revenues attributable to the properties are included in the reserve reports summarized below.

The owner of the Underlying Properties for Waddell Ranch does not own the full

working interest in any of the tracts constituting the Waddell Ranch properties and, therefore, implementation of any development programs will require approvals of other working interest holders as well as the owner of the Underlying Properties.

addition, implementation of any development programs will be dependent upon oil and gas prices currently being received and anticipated to be received in the future.

The owner of the Underlying Properties for

Waddell Ranch does not own the full working interest in any of the tracts constituting the Waddell Ranch properties and, therefore, implementation of any development programs will require approvals of other working interest holders as well as the

owner of the Underlying Properties.

In addition, implementation of any development programs will be dependent upon oil and gas prices currently being received and anticipated to be received in the future.

There were 16 gross (6 net) drill wells

completed on the Waddell Ranch properties during 2020.

At December 31, 2020, there were 4 drill wells and 3 workover in progress on the Waddell Ranch properties.

There were 3 gross (0 net) drill wells completed on the Waddell Ranch properties

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At December 31, 2018,

there were 1 drill wells and 1 workover in progress on the Waddell Ranch properties.

There were 0 gross (0 net) drill wells completed on the Waddell Ranch properties during 2017.

At December 31, 2017, there were 0 drill wells and 1 workover in

progress on the Waddell Ranch properties.

BROG has advised the Trustee that the total amount of capital expenditures for 2019 with regard to the

Waddell Ranch properties totaled $6.6 million (gross).

there was 1 drill well and 1 workover in progress on the Waddell Ranch properties.

Blackbeard has advised the Trustee that the total amount of capital expenditures for 2020 with regard

to the Waddell Ranch properties totaled $10.4 million (gross).

Capital expenditures include the cost of remedial and maintenance activities.

The amount spent on remedial and maintenance activities is approximately $3.3 million of the budgeted

amount projected by BROG for 2019.

BROG has advised the Trustee that the capital expenditures budget for 2020 totals approximately

The amount spent on remedial and maintenance activities was approximately $71,000 of the amount

expended by Blackbeard in 2020.

Blackbeard has advised the Trustee that the capital expenditures budget for 2021 totals approximately

$86.6 million (gross) ($32.5 million net to the Trust), of which approximately $1.5 million (gross) is attributable to facilities.

Accordingly, there is a 88% decrease in capital expenditures for 2020 as compared with the 2019

capital expenditures.

The major reason for the variance is the decreased prices.

There will be no new drill wells and no recompletions in 2020 as compared to 2 new drill wells and 0 recompletion in 2019.

The foregoing capital expenditures budget may

be subject to revision after Blackbeard assumes the role of operator of the Waddell Ranch properties on April 1, 2020.

The Trustee has been advised that, effective November 1, 2019, BROG sold its interests in the Waddell

Ranch properties to Blackbeard Operating, LLC (Blackbeard).

In conjunction with the transfer and assignment of the Waddell Ranch properties, BROG also assigned to Blackbeard all of its rights, title and interest in and to the Net

Overriding Royalty Conveyance (Permian Basin Royalty Trust - Waddell Ranch) dated November 1, 1980.

BROG will continue to handle all operations and accounting on behalf of Blackbeard until March 31, 2020.

Accordingly, there is a $76.2 million increase in capital expenditures for 2021 as compared

with the 2020 capital expenditures.

There will be 91 new drill wells and 24 recompletions in 2021 as compared to 16 new drill wells and 3 recompletion in 2020.

The Trustee has been advised that, effective November 1, 2019, BROG sold its interests in the Waddell Ranch properties to Blackbeard.

conjunction with the transfer and assignment of the Waddell Ranch properties, BROG also assigned to Blackbeard all of its rights, title and interest in and to the Net Overriding Royalty Conveyance (Permian Basin Royalty Trust - Waddell Ranch) dated November 1, 1980.

BROG handled all operations and accounting on behalf of Blackbeard until March 31, 2020.

Texas Royalty Properties .

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The following table shows as of December 31, 2020, the gross and net producing wells

and acres for the BROG/Blackbeard interests on the Waddell Ranch.

The net wells and acres are determined by multiplying the gross wells or acres by the BROG/Blackbeard interests owners working interest in the wells or acres as of December 31,

and acres for the Blackbeard interests on the Waddell Ranch.

The net wells and acres are determined by multiplying the gross wells or acres by the Blackbeard interests owners working interest in the wells or acres as of December 31, 2020.

Similar information is not available for the Riverhill Energy interests.

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NUMBER OF WELLS

BROG/Blackbeard Interests

Blackbeard Interests

OIL AND GAS PRODUCTION

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Waddell Ranch Properties

Texas Royalty Properties

Texas Royalty

Oil (barrels)

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Average Sales Price

Average Production Cost

Average Production Cost Oil/Gas BOE

Since the oil and gas sales attributable to the Royalties are based on an allocation formula that is dependent on such

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properties lease operating expense for 2020 was $19.6 million (gross).

The lease operating expense increased from $23.1 in 2018 primarily because of increasing activity and facilities maintenance.

The lease operating expense decreased from $23.4 in 2019 primarily because of decreasing activity and facilities maintenance.

Waddell Ranch lifting cost on a barrel of oil

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Petroleum Engineering in 1979, and has in excess of twenty years experience in oil and gas reserves studies and evaluations.

Mueller is a licensed professional engineer with the Texas Board of Professional Engineers and a member of the

Texas Society of Professional Engineers.

Mueller is a licensed professional engineer with the Texas Board of Professional Engineers and a member of

the Texas Society of Professional Engineers.

Cawley, Gillespie & Associates, Inc.s reports are attached as exhibits to this Form 10-K.

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The downward revisions of both reserves and discounted future net cash flows for the Waddell Ranch properties are primarily due to

weaker pricing for oil and by weaker gas pricing.

stronger pricing for oil and by weaker gas pricing.

The Texas Royalty properties are revised downward due to weaker pricing for oil.

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future net revenues from the Waddell Ranch properties and the Texas Royalty properties, respectively, at December 31, 2019.

The upward revisions of both reserves and discounted future net cash flows for the Waddell Ranch properties are

primarily due to stronger pricing for oil and gas.

The downward revisions of both reserves and discounted future net cash flows for the Waddell Ranch properties are

primarily due to weaker pricing for oil and by weaker gas pricing.

The Texas Royalty properties are revised downward due to weaker pricing for oil.

Average oil and gas prices of $65.56 per barrel and $3.11 per Mcf were used to determine the estimated future net revenues from the Waddell Ranch

properties and the Texas Royalty properties, respectively, at December 31, 2018.

The upward revisions of both reserves and discounted future net cash flows for the Waddell Ranch properties are primarily due to stronger pricing for oil and gas.

The Texas Royalty properties are revised upward due to stronger pricing for oil and gas.

oil and gas prices of $51.34 per barrel and $2.97 per Mcf were used to determine the estimated future net revenues from the Waddell Ranch properties and the Texas Royalty properties, respectively, at December 31, 2017.

The upward revisions of

both reserves and discounted future net cash flows for the Waddell Ranch properties are primarily due to stronger pricing for oil offset by stronger gas pricing.

The Texas Royalty Properties are revised downward due to stronger pricing for oil.

The following presents estimated future net revenue and the present value of estimated future net revenue attributable to the Royalties, for each of the

years ended December 31, 2019, 2018 and 2017 (in thousands):

The following presents estimated future net revenue and

the present value of estimated future net revenue attributable to the Royalties, for each of the years ended December 31, 2020, 2019 and 2018 (in thousands):

Waddell Ranch properties

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Reserve quantities and revenues shown in the preceding tables for the Royalties were estimated from projections of

reserves and revenue attributable to the combined BROG, River Hill Energy and Trust interests in the Waddell Ranch properties and Texas Royalty properties.

reserves and revenue attributable to the combined Blackbeard, River Hill Energy and Trust interests in the Waddell Ranch properties and Texas Royalty properties.

Reserve quantities attributable to the Royalties were estimated by allocating to the

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The reserves actually recovered and the timing of production of those reserves may be substantially different from the original estimate.

Moreover, the present values shown above should not be considered as the market values of such oil and gas reserves or the costs that would be incurred

to acquire equivalent reserves.

Moreover, the present values shown above should not be considered as the market

values of such oil and gas reserves or the costs that would be incurred to acquire equivalent reserves.

A market value determination would include many additional factors.

Detailed information concerning the number of

wells on royalty properties is not generally available to the owner of royalty interests.

Consequently, the Registrant does not have information that would be disclosed by a company with oil and gas operations, such as an accurate account of the

number of wells located on the above royalty properties, the number of exploratory or development wells drilled on the above royalty properties during the periods presented by this report, or the number of wells in process or other present

activities on the above royalty properties, and the Registrant cannot readily obtain such information.

Many aspects of the production, pricing, transportation and marketing of crude oil and natural gas are regulated by federal and state agencies.

Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden on affected members of the industry.

Detailed information concerning the number of wells on royalty properties is not generally available to the owner of royalty interests.

Consequently,

the Registrant does not have information that would be disclosed by a company with oil and gas operations, such as an accurate account of the number of wells located on the above royalty properties, the number of exploratory or development wells

drilled on the above royalty properties during the periods presented by this report, or the number of wells in process or other present activities on the above royalty properties, and the Registrant cannot readily obtain such information.

Many aspects of the production,

pricing, transportation and marketing of crude oil and natural gas are regulated by federal and state agencies.

Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory

burden on affected members of the industry.

Exploration and production operations are subject to various types of regulation at the federal,

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underground injection activities;

the restriction on the types, quantities and concentrations of materials that can be released into the environment;

the limitation or prohibition of drilling activities on certain lands lying within wilderness,

wetlands, endangered or threatened species habitat, and other protected areas;

the restriction on the types, quantities and concentrations of materials that can be emitted or released into the environment;

the limitation or prohibition of drilling activities on certain lands lying within

wilderness, wetlands, endangered or threatened species habitat, and other protected areas;

the installation of emission monitoring and/or pollution control equipment;

the reporting of the types and quantities of various substances that are stored, processed, or

released in connection with operation of the Underlying Properties;

the reporting of the types and quantities of various substances that are stored,

processed, or released in connection with operation of the Underlying Properties;

the remediation of pollution from current or former operations, such as cleanup of releases, pit closure, removal of surface equipment and plugging of abandoned wells;

and preparedness for spill and emergency response activities;

the planning and preparedness for spill and emergency response activities;

the application of specific health and safety criteria addressing worker protection;

and the imposition of substantial liabilities for pollution resulting from operations including waste

generation, air emissions, water discharges and current and historical waste disposal practices.

and the imposition of substantial liabilities for pollution resulting from operations

including waste generation, air emissions, water discharges and current and historical waste disposal practices.

Failure to comply with these laws and regulations may result in the assessment of administrative, civil or criminal penalties;

the imposition of

investigatory or remedial obligations;

imposition of investigatory or remedial obligations;

and the issuance of injunctions limiting or preventing some or all of the operations.

Under certain environmental laws and regulations, the operators of the Underlying Properties could also be subject to joint

and several, strict liability for the removal or remediation of previously released materials or property contamination, in either case, whether at a drill site or a waste disposal facility, regardless of whether the operators were responsible for

the release or contamination or if the operations were in compliance with all applicable laws at the time those actions were taken.

climate change is the subject of an important public policy debate and the basis for new legislation proposed by the United States Congress and certain states.

Under certain environmental laws and regulations, the operators of the Underlying Properties could also be

subject to joint and several, strict liability for the removal or remediation of previously released materials or property contamination, in either case, whether at a drill site or a waste disposal facility, regardless of whether the operators were

responsible for the release or contamination or if the operations were in compliance with all applicable laws at the time those actions were taken.

In addition, climate change is the subject of an important public policy debate and the basis for new legislation proposed by the United States Congress

and certain states.

Some states have adopted climate change statutes and regulations.

The United States

Environmental Protection Agency (the EPA) has promulgated greenhouse gas monitoring and reporting regulations that, since 2011, have required annual reporting of carbon dioxide, methane and nitrous oxide emissions from certain sources in

the oil and natural gas industry sector, including in the onshore oil and natural gas production segment.

Beyond measuring and reporting, the EPA

issued an Endangerment Finding under Section 202(a) of the Clean Air Act, concluding that greenhouse gas pollution threatens the public health and welfare of future generations.

The EPA indicated that it will use data collected

through the reporting rules to decide whether to promulgate future greenhouse gas emission limits.

On August 16, 2012, the EPA issued a final rule, known as New Source Performance Standards (NSPS) Subpart OOOO, that established new

source performance standards for volatile organic compounds (VOC(s)) and sulfur dioxide, an air toxics standard for major sources of oil and natural gas production, and an air toxics standard for major sources of natural gas transmission

The rule required that, starting January 1,

2015, all hydraulically fractured or refractured natural gas wells be completed using reduced emission (green) completion technology, which significantly reduces VOC emissions.

The United States Environmental Protection Agency (the EPA) has promulgated greenhouse gas monitoring and reporting regulations that, since 2011, have

required annual reporting of carbon dioxide, methane and nitrous oxide emissions from certain sources in the oil and natural gas industry sector, including in the onshore oil and natural gas production segment.

Beyond measuring and reporting, the EPA issued an Endangerment Finding under Section 202(a) of the Clean Air Act, concluding that

greenhouse gas pollution threatens the public health and welfare of future generations.

The EPA indicated that it will use data collected through the reporting rules to decide whether to promulgate future greenhouse gas emission limits.

August 16, 2012, the EPA issued a final rule, known as New Source Performance Standards (NSPS) Subpart OOOO, that established new source performance standards for volatile organic compounds (VOC(s)) and sulfur dioxide,

an air toxics standard for major sources of oil and natural gas production, and an air toxics standard for major sources of natural gas transmission and storage.

The rule required that, starting

January 1, 2015, all hydraulically fractured or refractured natural gas wells be completed using reduced emission (green) completion technology, which significantly reduces

VOC emissions.

Limiting emissions of VOCs will have the co-benefit of also limiting methane, a greenhouse gas.

These regulations also include requirements applicable to storage tanks and other equipment in the affected oil

and natural gas industry segments.

On May 12, 2016, the EPA issued a final rule, known as NSPS Subpart OOOOa, establishing additional standards for the reduction of methane, VOCs, and other emissions from new and existing sources in the oil and

These regulations also include requirements applicable to storage tanks and other equipment in the

affected oil and natural gas industry segments.

On May 12, 2016, the EPA issued a final rule, known as NSPS Subpart OOOOa, establishing additional standards for the reduction of methane, VOCs, and other emissions from new and existing sources

in the oil and gas sector.

Among other requirements, these new standards require green completion technology for new hydraulically fractured or refractured oil wells.

And rulemaking concerning regulation of greenhouse gas and other emissions from the oil and

natural gas industry continues:

And rulemaking concerning regulation of greenhouse gas and other emissions from

the oil and natural gas industry continues:

in October 2018, the EPA released proposed revisions to some of the 2016 requirements, including reducing the required frequency of fugitive emissions monitoring at well sites and compressor stations.

As recently as

August 2019, EPA has proposed modifications to the NSPS Subpart OOOO and OOOOa rules for example, proposing to remove sources in the transmission and storage segment of the oil and natural gas industry from regulation under NSPS Subpart

OOOO/OOOOa and to rescind methane requirements for all production and processing sources in the oil and natural gas industry or, alternatively, rescind all methane requirements under the rules without removing any sources from the oil and natural

gas source category.

Accordingly, the ultimate scope of these regulations remains uncertain.

Congress and various states, including Texas, have

proposed or adopted legislation regulating or requiring disclosure of the chemicals in the hydraulic fracturing fluid that is used in the drilling operation.

recently, EPA published two new rules on September 14 and 15, 2020 that remove the transmission and storage sectors of the oil and gas industry from regulation under the NSPS and rescind methane-specific standards for the production and

processing segments of the industry.

However, states and environmental groups brought suit challenging the new rules almost immediately.

Although the bulk of the 2012 and 2016 standards are currently in effect, future implementation and the ultimate

scope of the 2012 and 2016 standards are uncertain at this time as a result of these challenges and current uncertainty regarding how the standards may be altered under the administration of recently elected U.S.

President Biden.

Accordingly, the

ultimate scope of these regulations remains uncertain.

Congress and various states, including Texas, have proposed or adopted legislation

regulating or requiring disclosure of the chemicals in the hydraulic fracturing fluid that is used in the drilling operation.

Texas requires oil and gas operators to disclose the chemicals on the Frac Focus website.

Hydraulic fracturing has historically been regulated by state oil and natural gas commissions.

The EPA, however, has asserted federal regulatory authority over certain hydraulic fracturing activities involving diesel under the Safe Drinking Water

Act (the SDWA).

Hydraulic fracturing has

historically been regulated by state oil and natural gas commissions.

The EPA, however, has asserted federal regulatory authority over certain hydraulic fracturing activities involving diesel under the Safe Drinking Water Act (the SDWA).

The EPA has issued permitting guidance for oil and natural gas hydraulic fracturing activities using diesel fuels.

Under the guidance, EPA defined the term diesel to include five categories of oils, including

some such as kerosene, that are not traditionally considered to be diesel.

The Federal Water Pollution Control Act, also known as the Clean Water

Act (CWA), and analogous state laws impose restrictions and strict controls on the discharge of pollutants, including produced waters and other oil and natural gas wastes, into waters of the United States.

The discharge of pollutants

into regulated waters is prohibited, except in accordance with the terms of a permit issued by EPA or the relevant state agency.

The CWA also prohibits the discharge of dredge and fill material in regulated waters, including wetlands, unless

authorized by a permit issued by the U.S.

Under the guidance, EPA defined the term diesel to include five categories of oils, including some such as kerosene, that

are not traditionally considered to be diesel.

The Federal Water Pollution Control Act, also known as the Clean Water Act (CWA), and

analogous state laws impose restrictions and strict controls on the discharge of pollutants, including produced waters and other oil and natural gas wastes, into waters of the United States.

The discharge of pollutants into regulated waters is

prohibited, except in accordance with the terms of a permit issued by EPA or the relevant state agency.

The CWA also prohibits the discharge of dredge and fill material in regulated waters, including wetlands, unless authorized by a permit issued by

Army Corps of Engineers.

In May 2015, EPA and the U.S.

Army Corps of Engineers jointly announced a final rule defining the Waters of the United States (WOTUS) which are protected

under the CWA.

The rule, which would have made additional waters expressly Waters of the United States and therefore subject to the jurisdiction of the Clean Water Act, rather than subject to a case-specific evaluation, was stayed by the U.S.

of Appeals for the Sixth Circuit before it took effect.

Army Corps of Engineers jointly announced a final rule defining the Waters of the United States (WOTUS) which are protected under the CWA.

The rule, which would

have made additional waters expressly Waters of the United States and therefore subject to the jurisdiction of the Clean Water Act, rather than subject to a case-specific evaluation, was stayed by the U.S.

Court of Appeals for the Sixth Circuit

before it took effect.

On February 1, 2018, EPA officially delayed implementation of the 2015 rule until early 2020, and in July 2018, the EPA proposed repeal of the 2015 WOTUS rule.

Later that year, EPAs

decision was challenged in court, which resulted in a decision by the U.S.

Later that year, EPAs decision was challenged in court,

which resulted in a decision by the U.S.

District Court for the District of South Carolina to enjoin EPAs February 2018 delay rule.

Several states then acted to halt reinstatement of the 2015 WOTUS rule, the

effect of all of which was that the 2015 WOTUS definition was in effect in 22 states.

Several states then acted to halt reinstatement of the 2015 WOTUS rule, the effect of all of which was that the

2015 WOTUS definition was in effect in 22 states.

In September 2019, EPA finalized the repeal of the 2015 WOTUS rule, and the repeal became effective in December 2019, reinstating the pre-2015 standards.

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Meanwhile, in December 2018, the EPA and the U.S.

Army Corps of Engineers issued a proposed rule to revise the definition of Waters of the United

States. The rule was finalized in January 2020, and will become effective 60 days after publication in the Federal Register.

The rule narrows the WOTUS definition, excluding, for example, streams that flow only after precipitation and wetlands

without a direct surface connection to traditional navigable waters.

The rule is expected to be heavily litigated, which could delay its implementation.

Regardless, the applicable WOTUS definition affects what CWA permitting or other regulatory

obligations may be triggered during development and operation of the Underlying Properties, and changes to the WOTUS definition could cause delays in development and/or increase the cost of development and operation of the Underlying Properties.

Spill prevention, control, and countermeasure (SPCC) regulations promulgated under the CWA and later amended by the Oil Pollution Act

of 1990 impose obligations and liabilities related to the prevention of oil spills and damages resulting from such spills into or threatening waters of the United States or adjoining shorelines.

operators of certain oil and natural gas facilities that store oil in more than threshold quantities, the release of which could reasonably be expected to reach jurisdictional waters, must

develop, implement, and maintain SPCC Plans.

Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the

CWA and analogous state laws and regulations.

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also

known as the superfund law, imposes liability, regardless of fault or the legality of the original conduct, on certain classes of persons that contributed to the release of a hazardous substance into the environment.

persons include the current or previous owner and operator of a site where a hazardous substance has been disposed and persons who disposed or arranged for the disposal of a hazardous substance at a site, or transported a hazardous substance to a

site for disposal.

CERCLA also authorizes the EPA and, in some cases, private parties to take actions in response to threats to the public health or the environment and to seek recovery from such responsible classes of persons of the costs of such

In the course of operations, the working interest owner and/or the operator of the Underlying Properties may have generated and may generate wastes that may fall within CERCLAs definition of hazardous substances.

operator of the Underlying Properties or the working interest owners may be responsible under CERCLA for all or part of the costs to clean up sites at which such substances have been disposed.

Although the Trust is not the operator of any of the

Underlying Properties, or the owner of any working interest, its ownership of royalty interests could cause it to be responsible for all or part of such costs to the extent CERCLA imposes responsibility on such parties as owners.

Army Corps of Engineers issued a proposed rule to revise the definition of Waters of the United States. The rule became effective on June 22,

The rule narrows the WOTUS definition, excluding, for example, streams that flow only after precipitation and wetlands without a direct surface connection to traditional navigable waters.

Litigation by parties opposing the rule again quickly

followed, including a challenge in the U.S.

District Court for the District of Colorado, which resulted in a statewide stay of the rule on June 19, 2020.

This ruling is currently being appealed in the Tenth Circuit.

Regardless, the applicable

WOTUS definition affects what CWA permitting or other regulatory obligations may be triggered during development and operation of the Underlying Properties, and changes to the WOTUS definition could cause delays in development and/or increase the

cost of development and operation of the Underlying Properties.

Spill prevention, control, and countermeasure (SPCC) regulations promulgated under the CWA

and later amended by the Oil Pollution Act of 1990 impose obligations and liabilities related to the prevention of oil spills and damages resulting from such spills into or threatening waters of the United States or adjoining shorelines.

example, operators of certain oil and natural gas facilities that store oil in more than threshold quantities, the release of which could reasonably be expected to reach jurisdictional waters, must develop, implement, and maintain SPCC Plans.

Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the CWA and analogous state laws and

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as the superfund

law, imposes liability, regardless of fault or the legality of the original conduct, on certain classes of persons that contributed to the release of a hazardous substance into the environment.

These persons include the current or

previous owner and operator of a site where a hazardous substance has been disposed and persons who disposed or arranged for the disposal of a hazardous substance at a site, or transported a hazardous substance to a site for disposal.

authorizes the EPA and, in some cases, private parties to take actions in response to threats to the public health or the environment and to seek recovery from such responsible classes of persons of the costs of such an action.

In the course of

operations, the working interest owner and/or the operator of the Underlying Properties may have generated and may generate wastes that may fall within CERCLAs definition of hazardous substances.

The operator of the Underlying

Properties or the working interest owners may be responsible under CERCLA for all or part of the costs to clean up sites at which such substances have been disposed.

Although the Trust is not the operator of any of the Underlying Properties, or the

owner of any working interest, its ownership of royalty interests could cause it to be responsible for all or part of such costs to the extent CERCLA imposes responsibility on such parties as owners.

The Underlying Properties have produced oil and/or gas for many years and, in connection with that production, managed waste, such as drilling fluids

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such a disposal well is likely to be or determined to be contributing to seismic activity, then the RRC may deny, modify, suspend or terminate the permit application or existing operating permit for that well.

In addition, several cases have recently put a spotlight on the issue of whether injection wells may be regulated under the CWA if a direct hydrological

connection to a jurisdictional surface water can be established.

The split among

federal circuit courts of appeals that decided these cases engendered two petitions for writ of certiorari to the United States Supreme Court in August 2018, one of which was granted in February

Oral arguments were presented to the Supreme Court in November 2019, and the Court is expected to rule sometime this year (2020).

EPA has also brought attention to the reach of the CWAs jurisdiction in such instances by issuing a request

for comment in February 2018 regarding the applicability of the CWA permitting program to discharges into groundwater with a direct hydrological connection to jurisdictional surface water, which hydrological connections should be considered

direct, and whether such discharges would be better addressed through other federal or state programs.

In a statement issued by EPA in April 2019, the Agency concluded that the CWA should not be interpreted to require permits for

discharges of pollutants that reach surface waters via groundwater.

But should the Supreme Court rule that CWA permitting be required for saltwater injections wells, the costs of permitting and compliance for the Underlying Properties could

Various state and federal statutes prohibit certain actions that adversely affect endangered or threatened species and their habitat,

migratory birds and their habitat, wetlands, and natural resources.

In addition, several cases have recently put a spotlight on the issue of whether injection wells may

be regulated under the CWA if a direct hydrological connection to a jurisdictional surface water can be established.

The split among federal circuit courts of appeals that decided these cases engendered two petitions for writ of certiorari to the

United States Supreme Court in August 2018, one of which was granted in February 2019.

Oral arguments were presented to the Supreme Court in November 2019.

EPA has also brought attention to the reach of the CWAs jurisdiction in such instances

by issuing a request for comment in February 2018 regarding the applicability of the CWA permitting program to discharges into groundwater with a direct hydrological connection to jurisdictional surface water, which hydrological connections should

be considered direct, and whether such discharges would be better addressed through other federal or state programs.

In a statement issued by EPA in April 2019, the Agency concluded that the CWA should not be interpreted to require

permits for discharges of pollutants that reach surface waters via groundwater.

However, in April 2020, the Supreme Court issued a ruling in the case, County of Maui, Hawaii v.

Hawaii Wildlife Fund , holding that discharges into groundwater

may be regulated under the CWA if the discharge is the functional equivalent of a direct discharge into navigable waters.

On December 10, 2020, EPA issued a draft guidance on the ruling, which emphasized that discharges to

groundwater are not necessarily the functional equivalent of a direct discharged based solely on proximity to jurisdictional waters.

If in the future CWA permitting is required for saltwater injection wells as a result of the Supreme

Courts ruling in County of Maui, Hawaii v.

Hawaii Wildlife Fund , the costs of permitting and compliance for injection well operations by the companies that operate the Underlying Properties could increase.

Various state and federal statutes prohibit certain actions that adversely affect endangered or threatened species and their habitat, migratory birds

and their habitat, wetlands, and natural resources.

These statutes include the Endangered Species Act, the Migratory Bird Treaty Act, the CWA, and CERCLA.

The United States Fish and Wildlife Service (USFWS) may designate

critical habitat and suitable habitat areas that it believes are necessary for the survival of threatened or endangered species.

A critical habitat or suitable habitat designation could result in further material restrictions to federal land use and

private land use and could delay or prohibit land access or development.

Where takings of, or harm to, species or damages to wetlands, habitat or natural resources occur or may occur, government entities or at times private parties may act to

restrict or prevent oil and gas exploration or production activities or seek damages for harm to species, habitat or natural resources resulting from drilling or construction or production activities, including, for example, for releases of oil,

wastes, hazardous substances or other regulated materials, and may seek natural resources damages and, in some cases, criminal penalties.

Underlying Properties and operation thereof may be subject to the requirements of the federal Occupational Safety and Health Act (OSHA) and comparable state statutes.

The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of CERCLA, the general duty clause and Risk Management Planning regulations promulgated under section 112(r) of the Clean Air Act,

and similar state statutes may require disclosure of information about hazardous materials used, produced or otherwise managed during operation of the Underlying Properties.

These laws also require the development of risk management plans for

certain facilities to prevent accidental releases of pollutants.

The Trustee is unable to predict the total impact of the current and potential

regulations upon the operators of the Underlying Properties, but it is possible that the operators of the Underlying Properties could face operational delays, increases in the operating costs to comply with climate change or any other environmental

legislation or regulation, or decreases in the completion of new oil and natural gas wells, each of which could reduce net proceeds payable to the Trust and Trust distributions.

Other Regulation

The petroleum industry is also subject to

compliance with various other federal, tribal, state, and local regulations and laws, including, but not limited to, occupational safety, resource conservation and equal employment opportunity.

The Trustee does not believe that compliance with these

laws by the operating parties will have any material adverse effect on Unit holders.

The United States Fish and Wildlife Service (USFWS) may designate critical habitat

and suitable habitat areas that it believes are necessary for the survival of threatened or endangered species.

A critical habitat or suitable habitat designation could result in further material restrictions to federal land use and private land use

and could delay or prohibit land access or development.

Where takings of, or harm to, species or damages to wetlands, habitat or natural resources occur or may occur, government entities or at times private parties may act to restrict or prevent oil

and gas exploration or production activities or seek damages for harm to species, habitat or natural resources resulting from drilling or construction or production activities, including, for example, for releases of oil, wastes, hazardous

substances or other regulated materials, and may seek natural resources damages and, in some cases, criminal penalties.

The Underlying Properties

and operation thereof may be subject to the requirements of the federal Occupational Safety and Health Act (OSHA) and comparable state statutes.

require disclosure of information about hazardous materials used, produced or otherwise managed during operation of the Underlying Properties.

These laws also require the development of risk management plans for certain facilities to prevent

accidental releases of pollutants.

The Trustee is unable to predict the total impact of the current and potential regulations upon the operators of

the Underlying Properties, but it is possible that the operators of the Underlying Properties could face operational delays, increases in the operating costs to comply with climate change or any other environmental legislation or regulation, or

decreases in the completion of new oil and natural gas wells, each of which could reduce net proceeds payable to the Trust and Trust distributions.

The petroleum industry is also subject to compliance with various other federal, tribal, state, and local regulations and laws, including, but not

limited to, occupational safety, resource conservation and equal employment opportunity.

The Trustee does not believe that compliance with these laws by the operating parties will have any material adverse effect on Unit holders.

Legal Proceedings

3 unchanged sentences

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What changed 10-K

Item 2. Properties