SAN JUAN BASIN ROYALTY TRUST 10-Q

Item 4. Controls and Procedures. The Trust maintains a system of internal disclosure controls and procedures that is designed to ensure that the information required to be disclosed in the Trust’s filings under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. In its evaluation of its disclosure controls and procedures, the Trustee has relied, to the extent considered reasonable, on information provided by Hilcorp, the owner of the properties. Consequently, the Trust’s ability to disclose timely and accurately relevant information in its periodic reports is dependent upon Hilcorp’s timely delivery of accurate oil and gas revenue and production cost information and, therefore, the net proceeds owed to the Trust. The Net Overriding Royalty Conveyance (the “Conveyance”) that transferred the royalty to the Trust obligates Hilcorp to provide the Trust with certain financial and operational information, including information concerning calculations of net proceeds owed to the Trust. Once the Trust receives the financial information from Hilcorp, the Trust engages independent public accountants, compliance auditors, attorneys and petroleum engineers in order to assist the Trustee to ensure the accuracy and completeness of the information required to be disclosed in the Trust’s periodic reports. These outside professionals advise the Trustee in its review and compilation of this information for inclusion in this Quarterly Report on Form 10-Q and the other periodic reports provided by the Trust to the SEC. Despite the Trust’s internal controls and procedures ensuring the accuracy of the Trust’s reporting based upon the financial information received from Hilcorp, Hilcorp’s process of reconciling actual revenue and severance taxes to previously reported estimates are still occurring and being reported in 2021. Thus, distributions to the Trust from Hilcorp in any given month may be subject to adjustment based upon prior months’ true-ups and rebooking, plus interest. In addition, Hilcorp informed the Trust that due to Hilcorp’s transition to a new accounting system beginning in March 2021, revenue and severance tax categories for the February through May 2021 production months were based on estimates utilizing historical trends. Revenue and severance tax for the May, June and July 2021 production months were trued-up in August and September 2021. Hilcorp informed the Trust that it will complete the process of truing-up, accounting for and reporting to the Trust the operated revenue and severance tax computations for the April 2021 production month by the end of 2021. At this time the amount of these true-ups is unknown. The Trustee will coordinate with Hilcorp on the timing of any further true-ups and will communicate that timing to Unit holders. 13 Table of Contents Lease operating expenses and capital costs for the January through April 2021 production months were based on estimates, but the lease operating expenses and capital costs for May 2021 were based on actual costs. Both Lease operating expense and capital costs for the January through May 2021 production months were trued-up in July 2021. Due to excess production costs in June 2021, the Trust did not declare a distribution in August 2021. Hilcorp also confirmed that it continues to work on its actualization and accounting of the operated revenue and severance tax computations for the production month of April 2021 (the remaining 2021 production month that was based on estimates) and will notify the Trust promptly upon completion of such actualization and accounting by the end of 2021. Hilcorp further informed the Trust that it believes that the April 2021 true-up and adjustment may result in changes to future distributions of net proceeds to the Trust that reflect such rebooking and true-ups plus interest on such amounts (as required by the Conveyance) to the extent an underpayment to the Trust has occurred. Hilcorp has confirmed that it will continue to waive interest to the extent there were any overpayments to the Trust based on true-ups in 2021. The Trustee continues to engage with Hilcorp regarding its ongoing accounting and reporting to the Trust, and the Trust’s third-party compliance auditors continue to audit all payments made by Hilcorp to the Trust, including adjustments, true-ups, and recoupments. The Trustee continues to consult with outside counsel to review the rights of the Trust with respect to these matters and to evaluate any available potential legal remedies. The Trustee has evaluated the Trust’s internal disclosure controls and procedures as of September 30, 2021, and has concluded that such disclosure controls and procedures are effective, at the “reasonable assurance” level (as such term is used in Rule 13a-15(f) of the Exchange Act), to ensure that material information received from Hilcorp is gathered on a timely basis to be included in the Trust’s periodic reports and recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Additionally, during the three months ended September 30, 2021, there were no changes in the Trust’s internal control over financial reporting (as such term is used in Rule 13a-15(f) of the Exchange Act) that materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting. Because the Trust does not have, nor does the Indenture provide for, officers, a board of directors or an independent audit committee, the Trustee has reviewed neither the Trust’s disclosure controls and procedures nor the Trust’s internal control over financial reporting in concert with management, a board of directors or an independent audit committee. PART II OTHER INFORMATION Item 1. Legal Proceedings. None. Item 1A. Risk Factors. Not required. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. 14 Table of Contents