What changed in this filing

/stocks — the workspaceLOADING

Item 2. Properties

2023-03-01 compared with 2022-03-30 · 254 added, 273 removed, 293 unchanged (64% of the section changed)

19 unchanged sentences

of the Trust.

The mineral interests in the Waddell Ranch, from which such net royalty interests are carved, vary from 37.5% (Trust net interest) to 50% (Trust net interest) in 78,715 gross (34,205 net) producing acres.

A majority of the proved

reserves are attributable to six fields:

Dune, Sand Hills (Judkins), Sand Hills (McKnight), Sand Hills (Tubb), University-Waddell (Devonian) and Waddell.

At December 31, 2021, the Waddell Ranch properties contained 775 gross (268 net)

productive oil wells, 107 gross 38 net) productive gas wells and 152 gross (50 net) injection wells.

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, 2021.

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.

The mineral interests in the Waddell Ranch, from which such net royalty interests are carved, vary from

37.5% (Trust net interest) to 50% (Trust net interest) in 78,715 gross (34,205 net) producing acres.

A majority of the proved reserves are attributable to six fields:

Dune, Sand Hills (Judkins),

Sand Hills (McKnight), Sand Hills (Tubb), University-Waddell (Devonian) and Waddell.

At December 31, 2022, the Waddell Ranch properties contained 918 (net) productive oil wells and 111 (net) productive gas wells.

As of April 1, 2020, Blackbeard Operating, LLC (Blackbeard) became operator of record of the Waddell Ranch properties.

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, 2022.

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.

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.

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 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 16 gross (6 net) drill wells completed on the

Waddell Ranch properties during 2020.

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.

There were 46.1 net drill wells completed on the Waddell Ranch properties during

At December 31, 2022, there were 46.9 drill wells and 38.7 workover in progress on the Waddell Ranch properties.

There were 79 gross (30 net) drill wells completed on the Waddell Ranch properties during 2021.

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).

At December 31, 2021,

there were 11 drill wells and 11 workover in progress 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.

Blackbeard has advised the Trustee that the total amount of capital expenditures for 2022 with regard

to the Waddell Ranch properties totaled $124 million (gross).

Capital expenditures include the cost of remedial and maintenance activities.

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.

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.

The amount spent on remedial and maintenance activities is approximately $89 million of the amount

expended by Blackbeard in 2022.

Blackbeard has advised the Trustee that the capital expenditures budget for 2023 totals approximately

$122 million net to the Trust, of which approximately $8.1 million (gross) is attributable to facilities.

Accordingly, there is a 32% increase in capital expenditures for 2023 as compared with the 2022 capital expenditures.

are expected to be 48.75 new drill wells and 45 recompletions in 2023 as compared to 46.88 new drill wells and 45.06 recompletion in 2022.

Trustee has been advised that, effective November 1, 2019, BROG sold its interests in the Waddell Ranch properties to 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 handled all operations and accounting on

behalf of Blackbeard until March 31, 2020.

Texas Royalty Properties .

The Texas Royalty properties consist of royalty interests in mature producing oil fields, such

as Yates, Wasson, Sand Hills, East Texas, Kelly-Snyder, Panhandle Regular, N.

The Texas Royalty properties consist of

royalty interests in mature producing oil fields, such as Yates, Wasson, Sand Hills, East Texas, Kelly-Snyder, Panhandle Regular, N.

Cowden, Todd, Keystone, Kermit, McElroy, Howard-Glasscock, Seminole and others located in 33 counties across Texas.

The Texas Royalty properties consist of approximately

125 separate royalty interests containing approximately 303,000 gross (approximately 51,000 net) producing acres.

Approximately 39% of the future net revenues discounted at 10% attributable to Texas Royalty properties are located in the Wasson and

Yates fields.

The Texas Royalty properties consist

of approximately 125 separate royalty interests containing approximately 303,000 gross (approximately 51,000 net) producing acres.

Approximately 39% of the future net revenues discounted at 10%

attributable to Texas Royalty properties are located in the Wasson and Yates fields.

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

Consequently, an accurate count of the number of wells located on the Texas Royalty properties

cannot readily be obtained.

In February 1997, BROG sold its interests in the Texas Royalty properties that are subject to the Net Overriding

Royalty Conveyance to the Trust dated effective November 1, 1980 (Texas Royalty Conveyance) to Riverhill Energy Corporation (Riverhill Energy), which was then a wholly-owned subsidiary of Riverhill Capital and an

affiliate of Coastal Management Corporation (CMC).

Consequently, an accurate

count of the number of wells located on the Texas Royalty properties cannot readily be obtained.

In February 1997, BROG sold its interests in the

Texas Royalty properties that are subject to the Net Overriding Royalty Conveyance to the Trust dated effective November 1, 1980 (Texas Royalty Conveyance) to Riverhill Energy Corporation (Riverhill Energy), which was

then a wholly-owned subsidiary of Riverhill Capital and an affiliate of Coastal Management Corporation (CMC).

At the time of such sale, Riverhill Capital was a privately owned Texas corporation with offices in Bryan and Midland, Texas.

The Trustee was informed by BROG that, as required by the

Texas Royalty Conveyance, Riverhill Energy succeeded to all of the requirements upon, and the responsibilities of BROG under, the Texas Royalty Conveyance with regard to the Texas Royalty properties.

BROG and Riverhill Energy further advised the

Trustee that all accounting operations pertaining to the Texas Royalty properties were being performed by Riverhill Energy.

The Trustee has been

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.

The Trustee was informed by BROG that, as required by the Texas Royalty Conveyance, Riverhill Energy succeeded to all of the requirements upon, and the responsibilities of BROG under, the Texas Royalty Conveyance with regard to the Texas Royalty

BROG and Riverhill Energy further advised the Trustee that all accounting operations pertaining to the Texas Royalty properties were being performed by Riverhill Energy.

The Trustee has been 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.

31 unchanged sentences

The lease operating expense increased from $23 million in 2021 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.

Waddell Ranch lifting cost on a barrel

of oil equivalent (BOE) basis was $17.58 bbl as compared to $17.71 in 2021 and $32.92 in 2020.

PRICING INFORMATION

43 unchanged sentences

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.

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.

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

16 unchanged sentences

The independent petroleum engineers reports as

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.

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

CG&A, 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 CG&A 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 35 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.

Both CG&A and Mr.

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.

26 unchanged sentences

Proved Undeveloped

Estimated quantities of proved developed reserves of oil and gas as of the dates indicated were as follows (in

Estimated quantities of proved developed reserves of oil and gas as of the dates indicated were as

follows (in thousands):

Proved Developed Reserves:

27 unchanged sentences

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

future net revenues from the Waddell Ranch properties and the Texas Royalty properties, respectively, at December 31, 2020.

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.

and gas prices of $66.56 per barrel and $3.65 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, 2021.

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 future net revenues from the Waddell Ranch

3 unchanged sentences

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):

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, 2022, 2021 and 2020 (in thousands):

Waddell Ranch properties

80 unchanged sentences

Environmental Regulation

Companies in the oil and gas

industry are subject to stringent and complex federal, tribal, state and local laws and regulations governing the health and safety aspects of oil and gas operations, the management and discharge of materials into the environment, or otherwise

relating to environmental protection.

Those laws and regulations may impose numerous obligations that are applicable to the operations of the Underlying Properties, including the acquisition of a permit before conducting drilling, production or

underground injection activities;

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 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, 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;

Companies in the oil and gas industry are subject to stringent and complex federal, tribal, state and local laws and regulations governing the health and

safety aspects of oil and gas operations, the management and discharge of materials into the environment, or otherwise relating to environmental protection.

Those laws and regulations may impose numerous obligations that are applicable to the

operations of the Underlying Properties, including the acquisition of a permit before conducting drilling, production or underground injection activities;

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 or other construction or operational activities on certain lands lying within wilderness, wetlands, endangered or threatened species habitat, and other protected areas;

installation of emission monitoring and/or pollution control equipment;

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 sourcing and disposal of water used in the drilling, fracturing and

completion processes;

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;

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 suspension or revocation of necessary

permits, licenses and authorizations;

the requirement that additional pollution controls be installed;

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.

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.

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.

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.

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 gas sector.

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

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.

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.

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 drilling or other operations 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.

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.

In response to the April 2007 U.S.

Supreme Court decision in Massachusetts

EPA finding that greenhouse gases (GHGs) are air pollutants under the Clean Air Act (CAA), the United States Environmental Protection Agency (the EPA) issued an Endangerment Finding under

Section 202(a) of the CAA, concluding that GHG pollution threatens the public health and welfare of future generations.

Thereafter, EPA promulgated GHG 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.

The EPA indicated that it will use data collected through the

reporting rules to decide whether to promulgate future GHG emission limits.

More recently, in August 2022, Congress passed the Inflation Reduction Act, which includes requirements to impose fees beginning in 2025 on methane emissions from oil and

gas operations that are required to report their GHG emissions under the EPAs GHG Reporting Rule.

Pursuant to the CAA and state laws

concerning the permitting of air emissions, certain new and modified sources of air emissions are subject to air permitting authorizations for construction and operation, and sources of air emissions at the Underlying Properties are no exception to

these requirements.

In addition to air permitting requirements, certain sources of emissions involved in oil and gas operations are subject to source-specific emission standards pursuant to CAA New Source Performance Standards (NSPS) and

National Emissions Standards for Hazardous Air Pollutants (NESHAPS).

For example, on August 16, 2012, the EPA issued a final rule, known as NSPS Subpart OOOO, that established new source performance standards for volatile organic

compounds (VOCs) 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 applied to certain oil and

natural gas sources that were constructed, modified, or reconstructed after August 23, 2011, and required that 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 GHG.

These regulations also include requirements applicable to storage

tanks and other equipment in the affected oil and natural gas industry segments.

On June 3, 2016, EPA promulgated 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

extended green completion requirements to new hydraulically fractured or refractured oil wells.

Furthermore, EPA has also recently proposed to revise and add to the NSPS OOOO program rules, which, if adopted, could have a significant impact on the

upstream and midstream oil and gas sectors.

The proposed rules would formally instate methane emissions limitations from new, modified, and reconstructed sources;

and would regulate existing sources for the first time under the NSPS OOOO program by

requiring states to implement plans that meet or exceed federally established emission reduction guidelines for existing oil and natural gas facilities.

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 ongoing 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).

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.

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

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.

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 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.

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

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

and produced water, that is subject to regulation under environmental laws.

Although the Trust has no knowledge of the procedures followed by the operators of the Underlying Properties in this regard, hydrocarbons or other solid or hazardous wastes

may have been or may be disposed or released on, under, or from the Underlying Properties by the current or previous operators or may have been disposed offsite of the Underlying Properties.

Federal, state and local laws and regulations applicable

to oil and gas-related wastes and properties have become increasingly more stringent.

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

penalties, the imposition of investigatory, ongoing monitoring, or remedial obligations, and/or the issuance of injunctions limiting or preventing some or all of the operations.

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.

Whether CWA permitting is required depends upon whether and the extent to which Waters of the United States (WOTUS) may be impacted by the planned activity for example, construction of drilling

pads, access roads, or pipelines.

Rulemaking by EPA and the USACE to define WOTUS has been heavily litigated, resulting in the rule taking effect at times in some states but not others.

Most recently, EPA and USACEs WOTUS definition rulemaking

on December 30, 2022, incorporated relatively permanent and significant nexus standards for determining jurisdiction over adjacent wetlands and additional waters.

This WOTUS definition will become effective

March 20, 2023.

Regardless, the applicable WOTUS definition affects what CWA permitting or other regulatory obligations, such as spill prevention, control, and countermeasure (SPCC) planning, 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.

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.

For 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 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.

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.

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 an action.

From time to time, EPA may designate

additional materials as hazardous substances under CERCLA, which could result in additional investigation and remediation at current Superfund sites, or reopener of Superfund sites that previously received

regulatory closure.

For example, on August 26, 2022, EPA announced a proposal to designate as hazardous substances perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid

(PFOS), which have been commonly used in a variety of industrial and consumer products.

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 and produced water, that is subject to regulation under environmental laws.

Although the Trust has no knowledge of the procedures followed by the operators of the

Underlying Properties in this regard, hydrocarbons or other solid or hazardous wastes may have been or may be disposed or released on, under, or from the Underlying Properties by the current or previous operators or may have been disposed offsite of

the Underlying Properties.

Federal, state and local laws and regulations applicable to oil and gas-related wastes and properties have become increasingly more stringent.

Failure to comply with these laws and

regulations may result in the assessment of administrative, civil or criminal penalties, the imposition of investigatory, ongoing monitoring, or remedial obligations, and/or the issuance of injunctions limiting or preventing some or all of the

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

analogous 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.

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..

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.

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.

Culberson-Reeves SRA and the Stanton SRA.

Operators in the Northern Culberson-Reeves and Stanton SRAs were required to develop and implement seismic response plans, which include expanded data collection efforts, contingency responses for future

seismicity, and scheduled checkpoint updates with RRC staff.

Both the Gardendale and Northern Culberson-Reeves SRAs were expanded in December 2022 in response to additional earthquakes in the area.

Such restrictions and requirements could limit the

Underlying Properties oil and gas well exploration and production activities or increase the cost of those activities if wastewater disposal options become limited.

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.

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

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 January 14, 2021, EPA issued guidance on the ruling that emphasized discharges to groundwater are not necessarily the functional equivalent of a

direct discharge based solely on proximity to jurisdictional waters, although EPA rescinded that guidance on September 16, 2021.

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

8 unchanged sentences

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 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