What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-31 compared with 2020-03-16 · 76 added, 85 removed, 138 unchanged (54% of the section changed)

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Selected Financial Data

For the Year Ended December 31,

Royalty income

Distributable income

Distributable income per Unit

Distributions per Unit

Total assets, December 31

REMOVED AND RESERVED.

Computation of Royalty Income Received by the Trust

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From the Underlying Properties:

Other (adjustment)(1)

Severance Tax

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Total Royalty Income for Distribution

Managements Discussion and Analysis of Financial Condition and Results of

Due to the NPI deficit, the Waddell Ranch properties did not contribute Royalty income from June 1, 2020 through

December 31, 2020.

As of December 31, 2020, the cumulative NPI deficit is $6,437,477 for the underlying property (at 75%).

The NPI deficit must be recovered from future proceeds of the Waddell properties prior to any other proceeds being

paid to the Trust.

Managements Discussion and Analysis of Financial Condition and Results of Operation

Trustees Discussion and Analysis for the Three-Year Period Ended December 31, 2020

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Year Ended December 31,

Royalty Income

Total Royalty Income

Oil Royalty Income

Gas Royalty Income

Total Revenue

Total Revenue/Unit

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Oil prices have decreased primarily because of world

market conditions.

market conditions and the negative impact of the COVID-19 pandemic on economic activity.

Oil prices are expected to remain volatile.

Gas liquids values remain weaker and keep the prices of gas weaker.

Gas liquids values remain weaker and keep the prices of gas weaker in

addition to not receiving revenue from Blackbeard on the Waddell NPI due to excess costs of new drilling.

Subsequent to December 31, 2020, the price of both oil and gas continued to fluctuate, giving

rise to a correlating adjustment of the respective standardized measure of discounted future net cash flows.

As of March 6, 2020, NYMEX posted oil prices were approximately $41.14 per barrel, which compared to the posted price of $55.68 per barrel,

used to calculate the worth of future net revenue of the Trusts proved developed reserves, would result in a smaller standardized measure of discounted future net cash flows for oil.

As of March 6 , 2020, NYMEX posted gas prices were

$1.89 per million British thermal units.

As of March 10, 2021, NYMEX posted oil prices were approximately $64.75 per barrel, which compared to the posted price of $39.57 per

barrel, used to calculate the worth of future net revenue of the Trusts proved developed reserves, would result in a smaller standardized measure of discounted future net cash flows for oil.

As of March 10, 2021, NYMEX posted gas prices

were $2.69 per million British thermal units.

The use of such price, as compared to the posted price of $2.00 per million British thermal units, used to calculate the future net revenue of the Trusts proved developed reserves would result in a

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approximately 5% from 2019 to 2020 primarily due to the natural decline of production.

For the underlying properties total gas production decreased approximately 15.4% from 2018 to 2019 primarily due to the natural decline of production.

On May 2, 2011, ConocoPhillips, as the parent company of BROG, the then-operator of the Waddell Ranch properties, notified the Trustee that as a

result of inaccuracies in ConocoPhillips accounting and record keeping relating to the Trusts interest in proceeds from the gas plant production since January 2007, ConocoPhillips overpaid the Trust approximately $5.9 million

ConocoPhillips withheld $4.5 million from the proceeds for 2011 pending completions to the corrections of the accounting procedures.

Beginning with the October 2012 distribution, previously withheld proceeds of $4.5 million were

reimbursed by ConocoPhillips to the Trust ($4.0 million and $0.5 million in 2013 and 2012, respectively).

ConocoPhillips has adjusted the monthly royalty payments to the Trust since October 2012 by the related reimbursed amounts to reflect

ConocoPhillips ongoing correction of past and current production and royalty allocations and the payment of the previously withheld proceeds.

These adjustments were completed in the first quarter of 2015.

The Trusts reported royalty

income for the years ended December 31, 2019, 2018 and 2017 was not significantly impacted by these offsetting amounts.

At this time, the Trustee considers all such corrections and adjustment to be accurate and fairly performed.

Total capital expenditures in 2019 used in the net overriding royalty calculation were approximately $3.3 million (gross) compared to $730,000

(gross) in 2018 and $1.9 million (gross) in 2017.

The operator of the Waddell Ranch properties has informed the Trustee that, in order to halt the production decline curve and to exploit the remaining potential of the Trusts assets more

fully, a more aggressive, robust capital expenditure budget will be necessary in the future and is being pursued.

For the underlying properties total gas production increased approximately 5% from 2019 to 2020 primarily due to additional production on Waddell due to new

Total capital expenditures in 2020 used in the net overriding royalty calculation were approximately $10.3 million (gross) compared

to $3.3 million (gross) in 2019 and $730,000 (gross) in 2018.

The operator of the Waddell Ranch properties has informed the Trustee that, in order to halt the production decline curve and to exploit the remaining potential of the Trusts

assets more fully, a more aggressive, robust capital expenditure budget will be necessary in the future and is being pursued.

In 2019, there were 0

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This cost is for the development program and base facilities.

recompletions, on average, provided a total of an additional 0 BOEPD to the exit rate annualized average.

In 2019, there were 2 new drill wells and 0 recompletion.

Texas law requires all temporarily abandoned wells to be either worked over and recompleted to functional status or permanently plugged and abandoned

within a five year time frame.

In 2020, there

were 16 new drill wells and 3 recompletion.

Texas law requires all temporarily abandoned wells to be either worked over and recompleted to

functional status or permanently plugged and abandoned within a five year time frame.

The Waddell Ranch properties contain over 700 such temporarily abandoned wells.

In 2019, there were 0 recompletion wells completed and 0 wells permanently plugged on the Waddell Ranch properties.

In 2020, there were 3 recompletion wells completed and 21 wells permanently

plugged on the Waddell Ranch properties.

There were 20 gross (10 net) drill wells completed on the Waddell Ranch properties during 2020.

At December 31, 2018, there was 0 drill

well and 0 workover in progress on the Waddell Ranch properties.

BROG has advised the Trustee that the proposed budget for 2020 will be

$1.4 million (gross) and $600,000 (net).

The 2020 budget will not include amounts to be spent on vertical wells, or wells to be worked over and completed, but will be spent on additional facilities and infrastructure improvements

and the completion of projects begun 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.

In 2019, lease operating expense and property taxes on the Waddell Ranch properties amounted to

approximately $23.4 million.

December 31, 2019, there was 2 drill wells and 0 workover in progress on the Waddell Ranch properties.

Blackbeard has advised the

Trustee that the proposed budget for 2021 will be $86.7 million (gross) and $32.5 (net).

The 2021 budget will not include amounts to be spent on vertical wells, or wells to be worked over and completed, but will be spent on

additional facilities and infrastructure improvements and the completion of projects begun in 2020.

In 2020, lease operating expense and property

taxes on the Waddell Ranch properties amounted to approximately $19.6 million.

In 2019, lease operating expense and property taxes on the Waddell Ranch properties amounted to approximately $23.4 million.

In 2017, lease operating expense and property taxes on the Waddell Ranch properties

amounted to approximately $16.4 million.

The Trustee has been advised by the operator that since June 2006, the oil from the Waddell Ranch has

been marketed by the operator by soliciting bids from third parties on an outright sale basis of production listed in bid packages.

the monthly royalty receipts were invested by the Trustee in cash and cash equivalents until the monthly distribution date, and earned interest totaled $23,000.

In 2018, lease operating expense

and property taxes on the Waddell Ranch properties amounted to approximately $23.1 million.

The Trustee has been advised by the operator that

since June 2006, the oil from the Waddell Ranch has been marketed by the operator by soliciting bids from third parties on an outright sale basis of production listed in bid packages.

During 2020, the monthly royalty receipts were invested by the Trustee in cash and cash equivalents until the monthly distribution date, and earned

interest totaled $9,603.

Interest income for 2019 and 2018 was $23,000 and $26,006, respectively.

General and administrative expenses in 2019 were $1,089,302 compared to $1,324,828 in 2018 and $1,246,786 in 2017, primarily due to audit of

properties and other professional services.

The reserve for administrative expenses for any potentially extraordinary events and/or expenses was $1,050,000 as of December 31, 2019.

Total reserves for expenses for the years ended

December 31, 2019, 2018 and 2017 was $0, $0 and $0, respectively.

General and administrative expenses in 2020 were

$1,041,303 compared to $1,089,302 in 2019 and $1,324,828 in 2018, decrease due primarily to audit of properties and other professional services in the prior years.

The reserve for

administrative expenses for any potentially extraordinary events and/or expenses was $1,100,000 as of December 31, 2020.

Total reserves for expenses for the years ended December 31,

2020, 2019 and 2018 was $50,000, $0 and $0, respectively.

Distributable income for 2020 was $10,958,618 or $0.24 per Unit.

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For the fourth quarter of 2019, the Trust received royalty income of $5,129,649 or $0.11 per Unit.

Interest income for the fourth

quarter of 2019 amounted to $4,826 compared to $6,782 for the fourth quarter of 2018.

Interest income for the fourth quarter of

2020 amounted to $1,539 compared to $4,826 for the fourth quarter of 2019.

The decrease in interest income can be attributed primarily to a decrease of funds available.

Total general and administrative expenses was $213,203 for the fourth

quarter of 2019 compared to $143,389 for the fourth quarter of 2018.

The increase in expenses primarily related to timing of payments of legal and auditor expenses.

Total general and administrative expenses was $135,434 for the fourth quarter of

2020 compared to $213,203 for the fourth quarter of 2019.

The decrease in expenses primarily related to timing of payments of legal and auditor expenses.

Royalty income for the Trust for the fourth quarter is associated with actual oil and gas production during August through October from the Underlying

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in the fourth quarter of 2019.

The Trustee has been advised that oil production decreased in the fourth quarter of 2019 compared to

the same period in 2018 primarily due to natural decline.

Gas production decreased in the fourth quarter of 2019 compared to the same period in 2018 due to various interruptions.

The Trust has been advised that 0 wells were drilled and completed during the three months ended December 31, 2019, and there were 0 wells

The Trustee has been advised that oil production decreased in the fourth quarter of 2020 compared to the same period

in 2019 primarily due to natural decline.

Gas production increased in the fourth quarter of 2020 compared to the same period in 2019 due to additional wells producing later in the year due to new drilling.

The Trust has been advised that 6 wells were drilled and completed during the three months ended December 31, 2020, and there were 7 wells in

Use of Estimates

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Actual results may differ from such estimates.

routinely reviews its royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

If an impairment event occurs and it is determined that the

carrying value of the Trusts royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely

be measured by discounting projected cash flows.

The Trustee routinely reviews its royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying

amount of an asset may not be recoverable.

If an impairment event occurs and it is determined that the carrying value of the Trusts royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which

the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely be measured by discounting projected cash flows.

There was no impairment of the assets as of December 31, 2020.

Accounting Policies and Estimates

The Trusts financial statements reflect the selection and application of accounting policies that

require the Trust to make significant estimates and assumptions.

The following are some of the more critical judgment areas in the application of accounting policies that currently affect the Trusts financial condition and results of

Critical Accounting Policies and Estimates

The Trusts financial statements reflect the selection and application of accounting policies that require the Trust to make significant estimates

and assumptions.

The following are some of the more critical judgment areas in the application of accounting policies that currently affect the Trusts financial condition and results of operations.

Basis of Accounting

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Estimates of future net revenues from proved

reserves have been prepared using average 12-month oil and gas prices, determined as an unweighted arithmetic average of the first-day-of-the-month benchmark price for each month within the 12-month period preceding the end of the most recent

fiscal year, unless prices are defined by contractual arrangements.

The standardized measure of discounted future net cash flows is achieved by using a discount rate of 10% a year to reflect the timing of future cash flows relating to proved oil and

gas reserves.

reserves have been prepared using average 12-month oil and gas prices, determined

as an unweighted arithmetic average of the

first-day-of-the-month benchmark price for each month within the 12-month period preceding the end of the most recent fiscal year, unless prices are defined by contractual arrangements.

The standardized measure of discounted future net cash flows is achieved by using a discount

rate of 10% a year to reflect the timing of future cash flows relating to proved oil and gas reserves.

The reserves actually recovered and the timing of production may be substantially different from the reserve estimates and related costs.

Numerous uncertainties are inherent in estimating volumes and the value of proved reserves and in

projecting future production rates and the timing of development of non-producing reserves.

Such reserve estimates are subject to change as market conditions change.

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 its royalty properties, the number of exploratory or development wells drilled

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

uncertainties are inherent in estimating volumes and the value of proved reserves and in projecting future production rates and the timing of development of non-producing reserves.

Such reserve estimates are

subject to change as market conditions change.

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 its royalty properties, the

number of exploratory or development wells drilled on its royalty properties during the periods presented by this report, or the number of wells in process or other present activities on its royalty properties, and the Registrant cannot readily

obtain such information.

Contingencies

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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-K

Item 5. Market for Registrant’s Common Equity