What changed in this filing

/stocks — the workspaceLOADING

Item 2. Properties

2022-03-30 compared with 2021-03-31 · 232 added, 202 removed, 334 unchanged (57% 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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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.

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.

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.

There were 79 gross (30 net)

drill wells completed on the Waddell Ranch properties during 2021.

At December 31, 2021, there were 11 drill wells and 11 workover in progress on the Waddell Ranch properties.

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

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 during 2019.

At December 31, 2018,

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).

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

Blackbeard has advised the Trustee

that the total amount of capital expenditures for 2021 with regard to the Waddell Ranch properties totaled $154 million (gross).

Capital expenditures include the cost of remedial and maintenance activities.

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 $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 amount spent on remedial and

maintenance activities is approximately $5 million of the amount expended by Blackbeard in 2021.

Blackbeard has advised the Trustee that the

capital expenditures budget for 2022 totals approximately $245 million (gross) ($92 million net to the Trust), of which approximately $19 million (gross) is attributable to facilities.

Accordingly, there is a 59% increase in

capital expenditures expected for 2022 as compared with the 2021 capital expenditures.

There are expected to be 125 (gross) new drill wells and 120 (gross) recompletions in 2022 as compared to 79 (gross) new drill wells and 110 (gross) recompletion

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.

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

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advised that, effective April 1, 1998, Schlumberger Technology Corporation (STC) acquired all of the shares of stock of Riverhill Capital.

Prior to the acquisition by STC, CMC and Riverhill Energy were wholly-owned subsidiaries of

Riverhill Capital.

The Trustee has further been advised, in accordance with the STC acquisition of Riverhill Capital, the shareholders of Riverhill Capital acquired ownership of all shares of stock of Riverhill Energy.

Effective January 1, 2001

CMC merged into STC.

Prior to the acquisition by STC, CMC and Riverhill Energy

were wholly-owned subsidiaries of Riverhill Capital.

The Trustee has further been advised, in accordance with the STC acquisition of Riverhill Capital, the shareholders of Riverhill Capital

acquired ownership of all shares of stock of Riverhill Energy.

Effective January 1, 2001 CMC merged into STC.

Thus, the ownership in the Texas Royalty properties remained in Riverhill Energy.

The Trustee has been advised that as of

May 1, 2000, the accounting operations pertaining to the Texas Royalty properties were transferred from STC to Riverhill Energy.

As of January 1, 2012, ConocoPhillips assumed all field, technical and accounting operations, on behalf of

BROG, with regard to the Waddell Ranch properties.

ConocoPhillips currently provides summary reporting of monthly results for the Waddell Ranch properties.

The Trustee has been advised that as of May 1, 2000, the accounting operations pertaining to the Texas Royalty properties were transferred from STC

to Riverhill Energy.

As of January 1, 2012, ConocoPhillips assumed all field, technical and accounting operations, on behalf of BROG, with regard to the Waddell Ranch properties.

ConocoPhillips currently provides summary reporting of monthly

results for the Waddell Ranch properties.

Well Count and Acreage Summary .

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

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.

The following table shows as of

December 31, 2021, the gross and net producing wells 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, 2021.

Similar information is not available for the Riverhill Energy interests.

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properties lease operating expense for 2021 was $23.0 million (gross).

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

equivalent (BOE) basis was $32.92/bbl as compared to $25.19 in 2019 and $20.30 in 2018.

The lease operating expense increased from $19.6 million in 2020 primarily because of increasing activity and facilities maintenance.

Waddell Ranch lifting cost on a

barrel of oil equivalent (BOE) basis was $17.71/bbl as compared to $32.92 in 2020 and $25.19 in 2019.

PRICING INFORMATION

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Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated

with reasonable certainty to be economically producible from a given date forward, from

known reservoirs, and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts providing the right to operate expire, unless

evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.

The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain

that it will commence the project within a reasonable time.

(i) The area of the reservoir considered as proved includes:

with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations prior to the time at which contracts

providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation.

The project to extract the hydrocarbons must have

commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i) The area of the reservoir

considered as proved includes:

(A) The area identified by drilling and limited by fluid contacts, if any, and

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quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas

cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an

associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection)

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The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of

the first-day-of-the-month price for each month within such period, unless prices are

defined by contractual arrangements, excluding escalations based upon future conditions.

Developed oil and gas reserves are reserves of

any category that can be expected to be recovered (i) through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well;

(ii) through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Estimated future net revenues are computed by applying average prices during the 12-month period

prior to fiscal year-end determined as an unweighted arithmetic average of the

first-day-of-the-month benchmark price for each month within such period, unless prices

are defined by contractual arrangements, excluding escalations based upon future conditions to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based

on current costs) to be incurred in developing and producing the proved reserves, and assuming continuation of existing economic conditions.

Estimated future net revenues are sometimes referred to herein as estimated future net cash

Present value of estimated future net revenues is computed using the estimated future net

revenues and a discount factor of 10%.

Reserves are estimated remaining quantities of oil and gas and related substances anticipated to

be economically producible, as of a given date, by application of development projects to known accumulations.

In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue

interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements,

excluding escalations based upon future conditions.

Developed oil and gas reserves are reserves of any category that can be expected to

be recovered (i) through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well;

and (ii) through installed extraction equipment

and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Estimated future net

revenues are computed by applying average prices during the 12-month period prior to fiscal year-end determined as an unweighted arithmetic average of the first-day-of-the-month benchmark price for

each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions to estimated future production of proved oil and gas

reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, and assuming continuation of existing economic conditions.

Estimated future net revenues are sometimes referred to herein as estimated future net cash flows.

Present value of estimated

future net revenues is computed using the estimated future net revenues and a discount factor of 10%.

Reserves are estimated

remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations.

In addition, there must exist, or there must be a reasonable

expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from

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The independent petroleum engineers reports as

to the proved oil and gas reserves attributable to the Royalties conveyed to the Trust were obtained from Cawley, Gillespie & Associates, Inc.

Cawley, Gillespie & Associates, Inc.

has been in business since 1973 when the petroleum

consulting firm Keller & Augustson merged with the petroleum consulting firm Cawley, Harrington & Gillespie.

The primary business of Cawley, Gillespie & Associates, Inc.

is the estimation and evaluation of petroleum

Mueller, has been employed by Cawley, Gillespie & Associates, Inc.

Mueller attended Texas A&M University from 1975 to 1979, graduating with a Bachelor of Science degree, Summa Cum Laude, in

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.

to the proved oil and gas reserves attributable to the Royalties conveyed to the Trust were prepared by Cawley, Gillespie & Associates, Inc.

Cawley, Gillespie & Associates, Inc., whose firm registration number is F-693, was founded in 1961 and is nationally recognized in the evaluation of oil and natural gas properties.

The technical person at Cawley, Gillespie & Associates, Inc.

primarily responsible for overseeing

the reserves estimates with respect to the Trust is Zane Meekins.

Meekins has been a practicing petroleum engineering consultant since 1989 with over 34 years of practice experience in petroleum engineering, and is a registered professional

engineer in the State of Texas (License No.

Meekins graduated from Texas A&M University in 1987, S umma Cum Laude , with a B.S.

degree in Petroleum Engineering.

Both Cawley, Gillespie & Associates, Inc.

Meekins have indicated that they meet or exceed all requirements set forth in Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers.

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

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revenues from the Waddell Ranch properties and the Texas Royalty properties, respectively, at December 31, 2021.

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

stronger pricing for oil and by weaker gas pricing.

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

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 by stronger gas pricing.

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

Average oil and gas prices of $39.57 per barrel and $2.00 per Mcf were used to determine the estimated

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

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):

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.

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, 2021, 2020 and 2019 (in thousands):

Waddell Ranch properties

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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 limitation or prohibition of drilling or other construction or operational

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

the reporting of the types and quantities

of various substances that are stored, processed, released, or disposed of 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;

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.

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

imposition of investigatory or remedial obligations;

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;

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.

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.

President Biden has set ambitious goals related to mitigating climate change, including at least a 50 per cent reduction from 2005 levels in economy-wide net greenhouse gas pollution by 2030.

Some states have also 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.

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

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 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.

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in the oil and gas sector.

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

Among other requirements, these new standards extended green completion requirements to new hydraulically fractured or refractured oil wells.

And rulemaking concerning regulation of greenhouse gas and other emissions from

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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.

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.

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, in June 2021, Congress partially overturned that rollback.

Furthermore, in November 2021, EPA issued a proposed rule, known as OOOOb, which would update, strengthen, and expand the NSPS Subpart OOOOa regulations for methane

and VOC emissions from new, modified, and reconstructed sources, and a proposed rule, known as OOOOc, that includes emissions guidelines to assist states in the development of plans to regulate methane emissions from certain existing sources.

Although the bulk of the 2012 and 2016 standards are currently in effect, future implementation and the ultimate scope of the VOC and methane emissions standards for the oil and gas production, transmission, and storage industry segments are

uncertain at this time as a result of ongoing rulemakings and expected legal challenges.

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

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.

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.

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.

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.

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.

Litigation of the repeal quickly ensued.

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 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.

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 CWA, 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.

The WOTUS Rule and its subsequent repeal in September 2019 have been heavily litigated, resulting in the rule taking effect at times in some states but not others.

Meanwhile, in December 2018, the EPA and

Army Corps of Engineers issued a proposed rule to revise the definition of Waters of the United States. The rule, known as the Navigable Waters Protection Rule, became effective on June 22, 2020 and narrowed 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

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.

The stay was subsequently lifted by the

Tenth Circuit in March, 2021.

However, on August 30, 2021, the U.S.

District Court for the District of Arizona issued an order vacating and remanding the Navigable Waters Protection Rule.

response, EPA and the U.S.

Army Corps of Engineers issued a joint statement indicating that the agencies are halting implementation of the Navigable Waters Protection Rule, and are reverting back to the

pre-2015 definition of waters of the United States. On November 18, 2021, EPA and the U.S.

Army Corps of Engineers released a pre-publication version of

their proposed rule to reinstate the pre-2015 definition of waters of the United States, updated to reflect consideration of Supreme Court Decisions, including the significant nexus

standard articulated in Rapanos v.

This proposed rule was published in the Federal Register on December 7, 2021.

In June 2021, EPA and the U.S.

Army Corps of Engineers also announced their intent to issue a

second rule that further refines the definition of WOTUS and builds upon the current regulatory framework.

Furthermore, on January 24, 2022, the U.S.

Supreme Court agreed to hear a case to determine the propriety of the significant

nexus standard, which could impact the scope of the definition of WOTUS.

21-454, 142 S.

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

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Under these laws, removal or remediation of current releases of such

materials or of previously disposed wastes or property contamination at a drill site or a waste disposal facility could be required by a governmental authority regardless of whether the operators of the Underlying Properties 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.

The federal Safe

Drinking Water Act (SDWA) and the Underground Injection Control (UIC) program promulgated under the SDWA and state programs regulate the drilling and operation of salt water disposal wells.

EPA directly administers the UIC

program in some states and in others administration is delegated to the state.

Permits must be obtained before drilling salt water disposal wells, and casing integrity monitoring must be conducted periodically to ensure that the disposed waters are

not leaking into groundwater.

In addition, because some states have become concerned that the injection or disposal of produced water could, under certain circumstances, trigger or contribute to earthquakes, they have adopted or are considering

additional regulations regarding such disposal methods.

Changes in regulations or the inability to obtain permits for new disposal wells in the future may affect the ability of the operators of the Underlying Properties to dispose of produced water

and ultimately increase the cost of operation of the Underlying Properties or delay production schedules.

For example, in 2014, the Railroad Commission of Texas (RRC) published a final rule governing permitting or re-permitting of disposal wells that would require, among other things, the submission of information on seismic events occurring within a specified radius of the disposal well location, as well as logs, geologic

cross sections and structure maps relating to the disposal area in question.

If the permittee or an applicant of a disposal well permit fails to demonstrate that the injected fluids are confined to the disposal zone or if scientific data indicates

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 2019.

materials or of previously disposed wastes or property contamination at a drill site or a waste disposal facility could be required by

a governmental authority regardless of whether the operators of the Underlying Properties 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.

The federal Safe Drinking Water Act (SDWA) and the Underground Injection Control

(UIC) program promulgated under the SDWA and state programs regulate the drilling and operation of salt water disposal wells.

EPA directly administers the UIC program in some states and in others administration is delegated to the state.

Permits must be obtained before drilling salt water disposal wells, and casing integrity monitoring must be conducted periodically to ensure that the disposed waters are not leaking into groundwater.

In addition, because some states have become

concerned that the injection or disposal of produced water could, under certain circumstances, trigger or contribute to earthquakes, they have adopted or are considering additional regulations regarding such disposal methods.

Changes in regulations

or the inability to obtain permits for new disposal wells in the future may affect the ability of the operators of the Underlying Properties to dispose of produced water and ultimately increase the cost of operation of the Underlying Properties or

delay production schedules.

For example, in 2014, the Railroad Commission of Texas (RRC) published a final rule governing permitting or re-permitting of disposal wells that would require, among

other things, the submission of information on seismic events occurring within a specified radius of the disposal well location, as well as logs, geologic cross sections and structure maps relating to the disposal area in question.

If the permittee

or an applicant of a disposal well permit fails to demonstrate that the injected fluids are confined to the disposal zone or if scientific data indicates 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.

Furthermore, in response to a number of earthquakes in recent years in the Midland Basin, in September 2021 the RRC announced that it

will not issue any new saltwater disposal (SWD) well permits in an area known as the Gardendale Seismic Response Area (SRA), and will require existing SWD wells in that area to reduce their maximum daily injection rate to

10,000 barrels per day per well.

The RRC anticipates these measures will be in place for at least a year.

In December 2021, the RRC went on to suspend all well activity in deep formations in the Gardendale SRA, effectively terminating 33 disposal

well permits.

And in October 2021 and January 2022, respectively, the RRC identified two additional SRAs:

the Northern Culberson-Reeves SRA and the Stanton SRA.

As of March 1, 2022, operators in the Northern Culberson-Reeves SRA have

implemented a seismic response plan, which includes expanded data collection efforts, contingency responses for future seismicity, and scheduled checkpoint updates with RRC staff.

Operators in the Stanton SRA were given 90 days to develop a response

plan, at which point the RRC is prepared to implement its own plan in the absence of a coordinated industry response.

In addition, several cases

have in recent years 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.

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.

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.

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.

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 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 January 14, 2021, EPA

issued a draft 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.

However, on September 16, 2021,

EPA rescinded its January 14, 2021 guidance.

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 Bald and Golden Eagle Protection Act, the CWA, and

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 are subject to the requirements of the federal Occupational Safety and Health Act (OSHA) and

comparable state statutes.

In addition to 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 also require disclosure of information about hazardous materials used, produced or otherwise managed during

operation of the Underlying Properties.

Some of 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.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 2. Properties