What changed in this filing

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Item 2. Properties

2023-03-23 compared with 2022-03-25 · 129 added, 132 removed, 155 unchanged (63% of the section changed)

Description of the Underlying Properties

The Underlying Properties consist of producing

and non-producing interests in oil and natural gas units, wells and lands in Texas, Louisiana and New Mexico.

The Underlying Properties

include a portion of the assets in east Texas and north Louisiana acquired by Enduro from Denbury Resources Inc.

in December 2010, and

all of the assets in the Permian Basin of New Mexico and west Texas acquired by Enduro from Samson Investment Company and ConocoPhillips

Company in January 2011 and February 2011, respectively.

In August 2018, the Sponsor purchased the Underlying Properties from Enduro and

assumed all of Enduro’s obligations under the Trust Agreement and other instruments to which Enduro and the Trustee were parties.

Underlying Properties consist of producing and non-producing interests in oil and natural gas units, wells and lands in Texas, Louisiana

and New Mexico.

The Underlying Properties include a portion of the assets in east Texas and north Louisiana acquired by Enduro from Denbury

Resources Inc.

in December 2010, and all of the assets in the Permian Basin of New Mexico and west Texas acquired by Enduro from

Samson Investment Company and ConocoPhillips Company in January 2011 and February 2011, respectively.

In August 2018,

the Sponsor purchased the Underlying Properties from Enduro and assumed all of Enduro’s obligations under the Trust Agreement

and other instruments to which Enduro and the Trustee were parties.

The Underlying Properties are divided into two geographic regions:

6 unchanged sentences

As of December 31,

2021, the Sponsor held average working interests of approximately 22% and 16% and average net revenue interests of approximately 18% and

12% in the Underlying Properties located in the Permian Basin and East Texas/North Louisiana regions, respectively.

The Underlying Properties

are also burdened by non-cost bearing interests owned by third parties consisting primarily of overriding royalty and royalty interests.

2022, the Sponsor held average working interests of approximately 21% and 18% and average net revenue interests of approximately 17%

and 12% in the Underlying Properties located in the Permian Basin and East Texas/North Louisiana regions, respectively.

The Underlying

Properties are also burdened by non-cost bearing interests owned by third parties consisting primarily of overriding royalty and royalty

Cawley, Gillespie & Associates, Inc.

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as to the proved oil and natural gas reserves as of December 31, 2022 was prepared by Cawley Gillespie.

Cawley Gillespie, whose firm

registration number is F-693, was founded in 1961 and is a leader in the evaluation of oil and gas properties.

The technical person at

Cawley Gillespie primarily responsible for overseeing the reserve estimates with respect to the Underlying Properties and the Net Profits

Interest attributable to the Trust is W.

Cawley Gillespie, whose

firm registration number is F-693, was founded in 1961 and is a leader in the evaluation of oil and gas properties.

The technical person

at Cawley Gillespie primarily responsible for overseeing the reserve estimates with respect to the Underlying Properties and the Net

Profits Interest attributable to the Trust is W.

Todd Brooker.

Brooker has been a petroleum consultant for Cawley Gillespie since 1992

and is currently the Senior Vice President.

Brooker has been a petroleum consultant for Cawley Gillespie

since 1992 and is currently the Senior Vice President.

He is a registered professional engineer in the State of Texas (license no.

83462) and a graduate

of the University of Texas with a Bachelor of Science in Petroleum Engineering.

and a graduate of the University of Texas with a Bachelor of Science in Petroleum Engineering.

Information concerning changes in net proved reserves

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reserve quantities and PV-10 attributable to the Trust and Underlying Properties as of December 31, 2022 and 2021:

Trust Net Profits Interest

Underlying Properties

Net Profits Interest

(in thousands)

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Proved Undeveloped

(1) Reserves for natural gas liquids are included as a component of oil reserves.

(2) Boe represents an approximate energy equivalent basis such that one Bbl of crude oil equals approximately six Mcf of natural gas.

However, the value of oil and natural gas value and the value of reserve volumes of oil and natural gas are often substantially different

than the amount implied by the Boe ratio.

(3) PV-10 is a non-GAAP financial measure and represents the present value of estimated future cash inflows from proved crude oil and

natural gas reserves, less future development and production costs, discounted at 10% per annum to reflect timing of future cash inflows

using the twelve-month unweighted arithmetic average of the first-day-of-the-month commodity prices, after adjustment for differentials

in location and quality, for each of the preceding twelve months.

An estimate of PV-10 is provided because it provides useful information

to investors as it is widely used by professional analysts and sophisticated investors when evaluating oil and gas companies.

considered relevant and useful for evaluating the relative monetary significance of oil and natural gas reserves.

PV-10 is not intended

to represent the current market value of the estimated reserves of the Underlying Properties.

for natural gas liquids are included as a component of oil reserves.

represents an approximate energy equivalent basis such that one Bbl of crude oil equals approximately

six Mcf of natural gas.

However, the value of oil and natural gas value and the value of

reserve volumes of oil and natural gas are often substantially different than the amount

implied by the Boe ratio.

is a non-GAAP financial measure and represents the present value of estimated future cash

inflows from proved crude oil and natural gas reserves, less future development and production

costs, discounted at 10% per annum to reflect timing of future cash inflows using the twelve-month

unweighted arithmetic average of the first-day-of-the-month commodity prices, after adjustment

for differentials in location and quality, for each of the preceding twelve months.

of PV-10 is provided because it provides useful information to investors as it is widely

used by professional analysts and sophisticated investors when evaluating oil and gas companies.

PV-10 is considered relevant and useful for evaluating the relative monetary significance

of oil and natural gas reserves.

PV-10 is not intended to represent the current market value

of the estimated reserves of the Underlying Properties.

PV-10 differs from standardized measure

of discounted future net cash flows because it does not include the effect of future income taxes.

Please refer to the notes to the financial

statements of the Trust included in this Form 10-K.

of discounted future net cash flows because it does not include the effect of future income

Please refer to the notes to the financial statements of the Trust included in this

Reserve quantities and revenues for the Net Profits

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allocated to the Net Profits Interest.

Estimates of proved reserves were prepared in accordance

with guidelines prescribed by the SEC and the Financial Accounting Standards Board, which require that reserve estimates be prepared under

existing economic and operating conditions based upon an average of the NYMEX first-day-of-the-month commodity price during the 12-month

period ending on the balance sheet date with no provision for price and cost escalations except by contractual arrangements.

in estimating reserves were as follows:

Estimates of proved reserves were prepared in

accordance with guidelines prescribed by the SEC and the Financial Accounting Standards Board, which require that reserve estimates be

prepared under existing economic and operating conditions based upon an average of the NYMEX first-day-of-the-month commodity price during

the 12-month period ending on the balance sheet date with no provision for price and cost escalations except by contractual arrangements.

Prices used in estimating reserves were as follows:

Oil (per Bbl)

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Changes in Proved Undeveloped Reserves

During the year ended December 31, 2021, proved

undeveloped reserves of the Underlying Properties increased 2.2 MMBoe due to the increase in the amount of booked, non-operated shale

wells in the Permian Basin, partially offset by modest decrease in the estimated reserves for the booked, non-operated wells in Haynesville

shale of Louisiana.

Compared to the year ended December 31, 2020, an increase in the amount of proved undeveloped gross wells were recognized

in the reserves of the Underlying Properties when compared to the year ended December 31, 2021.

The increase in gross wells reflects an

increase in timing of the development of undeveloped reserves potential in the Underlying Properties due to an increase in commodity prices

and planned capital expenditures by the operators of the Underlying Properties.

The slight reduction in natural gas reserves booked does

not reflect a decrease in the underlying reserves potential, as these reserves are still part of the Underlying Properties.

reduction was estimated based on an updated market view of third-party operators’

completion activity within the Haynesville given

the current third-party operator preference for oil-weighted capital expenditures over natural gas-weighted expenditures.

The following

is a summary of the changes in quantities of proved undeveloped reserves for the Underlying Properties during the year ended December

the year ended December 31, 2022, proved undeveloped reserves of the Underlying Properties decreased 0.9 MMBoe primarily due to

the decrease in the estimated reserves for the booked, non-operated wells in Haynesville shale of Louisiana, partially offset

by the increase in the amount of booked, non-operated Wolfcamp shale wells in the Permian Basin.

The following is a summary of the changes

in quantities of proved undeveloped reserves for the Underlying Properties during the year ended December 31, 2022.

Underlying Properties

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December 31, 2022

for natural gas liquids are included as a component of oil reserves.

(1) Reserves for natural gas liquids

are included as a component of oil reserves.

Producing Acreage and Well Counts

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East Texas/North Louisiana

(1) The Sponsor’s total producing wells include

3,395 non-operated wells.

(1) The Sponsor’s total producing

wells include 3,312 non-operated wells.

The following is a summary of the number of development

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Exploratory Wells:

(1) Production

of natural gas liquids is immaterial and included as a component of natural gas production.

(1) Production of natural gas liquids

is immaterial and included as a component of natural gas production.

Major Producing Areas

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are located primarily in the Permian Basin (measured by Boe reserves at December 31, 2022).

The largest field in the Permian Basin region

is the Eunice Monument field, which individually accounts for 15 percent of the Underlying Properties reserves as of December 31, 2021.

The largest field in the Permian Basin

region is the Eunice Monument field, which individually accounts for 16 percent of the Underlying Properties reserves as of December 31,

This unit produces from the Brushy Canyon and Wolfcamp formations at depths up to 8,500 feet.

Proved reserves attributable to the Underlying

Properties in the Eunice Monument field were 1.8 MMBoe as of December 31, 2021.

This field is operated by Apache Corporation

and Empire New Mexico.

Proved reserves attributable to the

Underlying Properties in the Eunice Monument field were 1.9 MMBoe as of December 31, 2022.

This field is operated by Apache

Corporation and Empire New Mexico.

East Texas/North Louisiana Region

1 unchanged sentence

10,424 gross (2,840 net) acres in the East Texas/North Louisiana region across three fields:

the Elm Grove field, operated primarily by

Aethon Energy Operating, LLC and Comstock Oil & Gas, LLC;

and the Kingston field, operated by EXCO Resources and Indigo Resources,

All proved reserves attributable to the Underlying Properties in the East Texas/North Louisiana region are located in the Haynesville,

Cotton Valley, and Hosston reservoirs of the Elm Grove and Kingston fields.

Proved reserves attributable to the Underlying Properties

in the Elm Grove and Kingston fields were 1.3 MMBoe and 0.3 MMBoe, respectively, as of December 31, 2021.

the Elm Grove field, operated primarily

by Aethon Energy Operating, LLC and Comstock Oil & Gas, LLC;

and the Kingston field, operated by EXCO Resources and Diversified

Production, LLC.

All proved reserves attributable to the Underlying Properties in the East Texas/North Louisiana region are located in

the Haynesville, Cotton Valley, and Hosston reservoirs of the Elm Grove and Kingston fields.

Proved reserves attributable to the Underlying

Properties in the Elm Grove and Kingston fields were 0.5 MMBoe and 0.3 MMBoe, respectively, as of December 31, 2022.

Production and Reserves

The following table shows the net production,

average sales price, average lease operating expense, and proved reserves as of year-end for the Underlying Properties located in the

Permian Basin of west Texas and New Mexico and in the East Texas/North Louisiana region, which relates to the amounts included in the

net profits calculation for the distributions paid during the years ended December 31, 2021, 2020 and 2019.

following table shows the net production, average sales price, average lease operating expense, and proved reserves as of year-end for

the Underlying Properties located in the Permian Basin of west Texas and New Mexico and in the East Texas/North Louisiana region,

which relates to the amounts included in the net profits calculation for the distributions paid during the years ended December 31,

2022, 2021 and 2020.

Year Ended December 31,

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Proved Reserves (MBoe)

(1) Production

of natural gas liquids is immaterial and included as a component of natural gas production.

(1) Production of natural gas liquids

is immaterial and included as a component of natural gas production.

Abandonment and Sale of Underlying Properties

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Interest relating to the abandoned property will be extinguished.

The Sponsor generally may sell all or a portion

of its interests in the Underlying Properties, subject to and burdened by the Net Profits Interest, without the consent of the Trust unitholders.

Following the sale of all or any portion of the Underlying Properties, the purchaser will be bound by the obligations of the Sponsor under

the Trust Agreement and the Conveyance with respect to the portion sold.

In addition, the Sponsor may, without the consent of the Trust

unitholders, require the Trustee to release the Net Profits Interest associated with any lease that accounts for less than or equal to

0.25% of the total production from the Underlying Properties in the prior 12 months and provided that the Net Profits Interest covered

by such releases cannot exceed, during any 12-month period, an aggregate fair market value to the Trust of $500,000.

These releases will

be made only in connection with a sale by the Sponsor to a non-affiliate of the relevant Underlying Properties and are conditioned upon

the Trust receiving an amount equal to the fair value to the Trust of such Net Profits Interest.

In September 2021, the Sponsor entered

into a lease arrangement with respect to a portion of the mineral rights relating to certain of the Underlying Properties located in Borden

County, Texas, for total estimated proceeds of $82,500 (approximately $63,000 net to the Trust’s 80% Net Profits Interest).

Sponsor generally may sell all or a portion of its interests in the Underlying Properties, subject to and burdened by the Net Profits

Interest, without the consent of the Trust unitholders.

Following the sale of all or any portion of the Underlying Properties, the purchaser

will be bound by the obligations of the Sponsor under the Trust Agreement and the Conveyance with respect to the portion sold.

the Sponsor may, without the consent of the Trust unitholders, require the Trustee to release the Net Profits Interest associated with

any lease that accounts for less than or equal to 0.25% of the total production from the Underlying Properties in the prior 12 months

and provided that the Net Profits Interest covered by such releases cannot exceed, during any 12-month period, an aggregate fair market

value to the Trust of $500,000.

These releases will be made only in connection with a sale by the Sponsor to a non-affiliate of the relevant

Underlying Properties and are conditioned upon the Trust receiving an amount equal to the fair value to the Trust of such Net Profits

In September 2021, the Sponsor entered into a lease arrangement with respect to a portion of the mineral rights

relating to certain of the Underlying Properties located in Borden County, Texas, for total estimated proceeds of $82,500 (approximately

$63,000 net to the Trust’s 80% Net Profits Interest).

Title to Properties

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To the extent that these burdens and obligations

affect the Sponsor’s rights to production or the value of production from the Underlying Properties, they have been taken into account

in calculating the Trust’s interests and in estimating the size and the value of the reserves attributable to the Underlying Properties.

affect the Sponsor’s rights to production or the value of production from the Underlying Properties, they have been taken into

account in calculating the Trust’s interests and in estimating the size and the value of the reserves attributable to the Underlying

The Sponsor’s interests in the oil and natural

gas properties comprising the Underlying Properties are typically subject to one or more of the following:

royalties and other burdens, express and implied, under oil and natural gas leases and other arrangements;

overriding royalties, production payments and similar interests and other burdens created by the Sponsor’s predecessors in title;

a variety of contractual obligations arising under operating agreements, farm-out agreements, production sales contracts and other

agreements that may affect the Underlying Properties or their title;

liens that arise in the normal course of operations, such as those for unpaid taxes, statutory liens securing unpaid suppliers and

contractors and contractual liens under operating agreements that are not yet delinquent or, if delinquent, are being contested in good

faith by appropriate proceedings;

pooling, unitization and communitization agreements, declarations and orders;

easements, restrictions, rights-of-way and other matters that commonly affect property;

conventional rights of reassignment that obligate the Sponsor to reassign all or part of a property to a third party if the Sponsor

intends to release or abandon such property;

preferential rights to purchase or similar agreements and required third party consents to assignments or similar agreements;

obligations or duties affecting the Underlying Properties to any municipality or public authority with respect to any franchise, grant,

license or permit, and all applicable laws, rules, regulations and orders of any governmental authority;

rights reserved to or vested in the appropriate governmental agency or authority to control or regulate the Underlying Properties

and also the interests held therein, including the Sponsor’s interests and the Net Profits Interest.

The Sponsor has informed the Trustee that the Sponsor

believes the burdens and obligations affecting the properties comprising the Underlying Properties are conventional in the industry for

similar properties.

The Sponsor has also informed the Trustee that the Sponsor believes the existing burdens and obligations do not, in

the aggregate, materially interfere with the use of the Underlying Properties and will not materially adversely affect the Net Profits

and other burdens, express and implied, under oil and natural gas leases and other arrangements;

royalties, production payments and similar interests and other burdens created by the Sponsor’s

predecessors in title;

variety of contractual obligations arising under operating agreements, farm-out agreements,

production sales contracts and other agreements that may affect the Underlying Properties

or their title;

that arise in the normal course of operations, such as those for unpaid taxes, statutory

liens securing unpaid suppliers and contractors and contractual liens under operating agreements

that are not yet delinquent or, if delinquent, are being contested in good faith by appropriate

unitization and communitization agreements, declarations and orders;

restrictions, rights-of-way and other matters that commonly affect property;

rights of reassignment that obligate the Sponsor to reassign all or part of a property to

a third party if the Sponsor intends to release or abandon such property;

rights to purchase or similar agreements and required third party consents to assignments

or similar agreements;

or duties affecting the Underlying Properties to any municipality or public authority with

respect to any franchise, grant, license or permit, and all applicable laws, rules, regulations

and orders of any governmental authority;

reserved to or vested in the appropriate governmental agency or authority to control or regulate

the Underlying Properties and also the interests held therein, including the Sponsor’s

interests and the Net Profits Interest.

The Sponsor has informed the Trustee that the

Sponsor believes the burdens and obligations affecting the properties comprising the Underlying Properties are conventional in the industry

for similar properties.

The Sponsor has also informed the Trustee that the Sponsor believes the existing burdens and obligations do not,

in the aggregate, materially interfere with the use of the Underlying Properties and will not materially adversely affect the Net Profits

Interest or its value.

To give third parties notice of the Net Profits

Interest, Enduro recorded the Conveyance in Texas, Louisiana and New Mexico in the real property records in each Texas, Louisiana or New

Mexico county in which the Underlying Properties are located, or in such other public records of those states as required under applicable

Interest, Enduro recorded the Conveyance in Texas, Louisiana and New Mexico in the real property records in each Texas, Louisiana or

New Mexico county in which the Underlying Properties are located, or in such other public records of those states as required under applicable

law to place third parties on notice of the Conveyance.

In a bankruptcy of the Sponsor, to the extent Louisiana

or New Mexico law were held to be applicable, the Net Profits Interest might be considered an asset of the bankruptcy estate and used

to satisfy obligations to creditors of the Sponsor, in which case the Trust would be an unsecured creditor of the Sponsor at risk of losing

the entire value of the Net Profits Interest to senior creditors.

See “Risk Factors—In the event of the bankruptcy of the

Sponsor, if a court were to hold that the Net Profits Interest was part of the bankruptcy estate, the Trust may be treated as an unsecured

creditor with respect to the Net Profits Interest attributable to properties in Louisiana and New Mexico”

in Item 1A of this Form

In a bankruptcy of the Sponsor, to the extent

Louisiana or New Mexico law were held to be applicable, the Net Profits Interest might be considered an asset of the bankruptcy estate

and used to satisfy obligations to creditors of the Sponsor, in which case the Trust would be an unsecured creditor of the Sponsor at

risk of losing the entire value of the Net Profits Interest to senior creditors.

See “Risk Factors—Financial Risks—In

the event of the bankruptcy of the Sponsor, if a court were to hold that the Net Profits Interest was part of the bankruptcy estate,

the Trust may be treated as an unsecured creditor with respect to the Net Profits Interest attributable to properties in Louisiana and

New Mexico”

in Item 1A of this Form 10-K.

The Sponsor believes that its title to the Underlying

9 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