Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
Commodity Price Risk
The Trusts most significant market risk relates to the prices received for natural gas and oil production. The revenues derived
from the Subject Interests depend substantially on prevailing natural gas prices and, to a lesser extent, oil prices. As a result, commodity prices also affect the amount of Distributable Income to the Unit Holders. Lower prices may also reduce the
amount of natural gas and oil that Hilcorp or the third-party operators can economically produce. It is uncertain how the war in Ukraine and resulting sanctions against Russia will affect oil and natural gas prices in the coming months.
Hilcorp has informed the Trust that it does not believe that recent actions undertaken by President Bidens new administration to curtail
future leases for natural gas and oil drilling on federally-owned land will impact the Subject Interests because at the present, they do not impact current leases.
On January 20, 2021, President Biden signed an executive order that reversed the United States withdrawal from the Paris Agreement, and
the United States formally rejoined the Paris Agreement on February 19, 2021. At the federal regulatory level, both the EPA and the BLM have adopted regulations for the control of methane emissions, which also include leak detection and repair
requirements, from the oil and gas industry. Additionally, President Biden has issued an executive order seeking to adopt new regulations and policies to address climate change and suspend, revise or rescind prior agency actions that are identified
as conflicting with the Biden Administrations climate policies. In addition, President Biden has declared that he supports federal government efforts to limit or prohibit hydraulic fracturing and banning new leases for production of minerals
on federal properties, including onshore lands. Any of these actions could require Hilcorp to increase capital expenditures for the Subject Interests, decrease demand for natural gas and oil production, or limit the Subject Interests ability
to produce natural gas or oil production. The Trust is unable to determine what, if any, the effects of such actions will have on the Subject Interests ability to produce natural gas and oil, and Hilcorps ability to pay royalty income to
the Trust.
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