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Item 1. Financial Statements

2022-08-15 compared with 2022-05-16 · 310 added, 252 removed, 175 unchanged (76% of the section changed)

3 unchanged sentences

Net overriding royalty interest in producing oil and gas properties (net of accumulated

amortization of $129,838,708 and $129,584,681 at March 31, 2022 and December 31, 2021, respectively)

amortization of $129,984,517 and $129,584,681 at June 30, 2022, and December 31, 2021, respectively)

LIABILITIES AND TRUST CORPUS

2 unchanged sentences

Trust corpus 46,608,796 Units of beneficial interest authorized and outstanding

Total liabilities

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)

Three Months Ended March 31,

Three Months Ended

Six Months Ended

Royalty income

Interest income

Expenditures General and Administrative

General and administrative expenses

Distributable income

Distributable income per Unit (46,608,796 Units)

These Condensed Financial Statements should be read in conjunction with the accompanying

Notes to Condensed Financial Statements included herein.

CONDENSED STATEMENTS OF CHANGES IN TRUST

CORPUS (UNAUDITED)

Three Months Ended March 31,

CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)

Three Months Ended

Six Months Ended

Trust corpus, beginning of period

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These Condensed Financial Statements should be read in conjunction with the accompanying

Notes to Condensed Financial Statements included herein.

Notes to Financial Statements included herein.

Basis of Presentation

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the present owner of certain oil and gas interests (the Subject Interests) originally owned by Southland Royalty Company (Southland) in properties located in the San Juan Basin of northwestern New Mexico, all adjustments,

consisting only of normal recurring adjustments, have been included that are necessary to fairly present the assets, liabilities and trust corpus of the Trust at March 31, 2022, and the distributable income and changes in trust corpus for the

three-month periods ended March 31, 2022 and 2021.

consisting only of normal recurring adjustments, have been included that are necessary to fairly present the assets, liabilities and trust corpus of the Trust at June 30, 2022, and the distributable income and changes in trust corpus for the

three-month and six-month periods ended June 30, 2022 and 2021.

The distributable income for such interim periods is not necessarily indicative of the distributable income for the full year.

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the fourth month.

Net Proceeds for a calendar year are typically based on the actual oil and natural gas production during the period beginning with November of the preceding calendar year through October of the current calendar year.

Net Proceeds for a calendar year are typically based on the actual natural gas and oil production during the period beginning with November of the preceding calendar year through October of the current calendar year.

Hilcorp has notified the Trust that non-operated revenue is reported to

the Trust based on a three-month lag from operated revenues.

Non-operated revenue for a calendar year is typically based on the actual oil and natural gas production during the period beginning with August of

Non-operated revenue for a calendar year is typically based on the actual natural gas and oil production during the period, beginning with August of

the preceding calendar year through July of the current calendar year.

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corresponds to the accounting permitted for royalty trusts by the SEC, as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.

The Trustee routinely reviews the Trusts royalty interests in oil and natural gas

The Trustee routinely reviews the Trusts royalty interests in natural gas and oil

properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

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charged directly to trust corpus instead of as an expense.

There was no impairment of the Trusts assets as of March 31, 2022.

Federal Income Taxes

There was no impairment of the Trusts assets as of June 30, 2022.

For federal income tax purposes, the Trust constitutes a fixed investment trust that is taxed as a grantor trust.

A grantor trust is not

subject to tax at the trust level.

grantor trust is not subject to tax at the trust level.

The Unit Holders are considered to own the Trusts income and principal as though no trust were in existence.

The income of the Trust is deemed to have been received or accrued by each Unit Holder at the time

such income is received or accrued by the Trust rather than when distributed by the Trust.

The Trust is a widely held fixed investment

trust (WHFIT) classified as a non-mortgage widely held fixed investment trust (NMWHFIT) for federal income tax purposes.

The Trustee is the representative of the Trust that will provide

tax information in accordance with the applicable U.S.

The income of the Trust is deemed to have been received or accrued by each

Unit Holder at the time such income is received or accrued by the Trust rather than when distributed by the Trust.

The Trust is a widely

held fixed investment trust (WHFIT) classified as a non-mortgage widely held fixed investment trust (NMWHFIT) for federal income tax purposes.

The Trustee is the representative of the

Trust that will provide tax information in accordance with the applicable U.S.

Treasury Regulations governing the information reporting requirements of the Trust as a WHFIT and a NMWHFIT.

The Royalty constitutes an economic interest in oil and natural gas properties for federal income tax purposes.

The Royalty constitutes an economic interest in natural gas and oil properties for federal income tax purposes.

Unit Holders must

report their share of the production revenues of the Trust as ordinary income from oil and natural gas royalties and are entitled to claim depletion with respect to such income.

report their share of the production revenues of the Trust as ordinary income from natural gas and oil royalties and are entitled to claim depletion with respect to such income.

The Royalty is treated as a single property for depletion purposes.

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positions taken by the Trust related to the Trusts pass-through status and state tax positions have been reviewed, and the Trustee is of the opinion that the material tax positions it has taken would more likely than not be sustained by

As of March 31, 2022, the Trusts tax years 2018 and thereafter remain subject to examination.

As of June 30, 2022, the Trusts tax years 2018 and thereafter remain subject to examination.

Each Unit Holder

should consult his or her own tax advisor regarding tax compliance matters related to such Unit Holders interest in the Trust.

Commitments and Contingencies

Contingencies related to the Subject Interests that are unfavorably resolved would generally be reflected by the Trust as reductions to future

Royalty Income payments to the Trust with corresponding reductions to cash distributions to Unit Holders.

and Contingencies

Contingencies related to the Subject Interests that are unfavorably resolved would generally be reflected by the

Trust as reductions to future Royalty Income payments to the Trust with corresponding reductions to cash distributions to Unit Holders.

See Note 1 Basis of Presentation, for a summary of the terms of the Conveyance with respect to recovery of costs.

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however, both the Trust and

Hilcorp continue to monitor the impact that future Covid-19 restrictions or outbreaks may have on production, including personnel availability in New Mexico and other Subject Interest areas.

Hilcorp further

informed the Trust that it does not anticipate that the current state of the Covid-19 pandemic will have any material impact on its operation of the Subject Interests or on its payments of Royalty Income to

However, the impact of the continued Covid-19 pandemic or future restrictions or outbreaks on Hilcorp and the Subject Interests is still unknown and any such impact could result in actual results

being different from Hilcorps expectations.

Gross Proceeds and Severance Tax Estimates .

Hilcorps process of reconciling

Gross Proceeds and severance taxes to previously reported estimates (which the Trust refers to as true-ups) during fiscal years 2018 and 2020 were still occurring and being reported in 2021.

Hilcorp has informed the Trust that as it continues to refine further its estimating and reporting processes.

Hilcorp will review both prior periods, as well as future reporting periods, to ensure greater accuracy and consistency.

As part of that

review process, Hilcorp informed the Trust that it may reverse and rebook revenue for certain prior periods.

Thus, distributions to the Trust from Hilcorp in any given month in 2022 may include adjustments for the reversal and rebooking of prior

months revenue, plus interest.

Hilcorp continue to monitor the impact that future Covid-19 restrictions or outbreaks may have on production, including as it relates to personnel availability in New Mexico and other Subject Interests

Hilcorp further informed the Trust that it does not anticipate that the current state of the Covid-19 pandemic will have any material impact on its operation of the Subject Interests or on its

payments of Royalty Income to the Trust.

However, the impact of the continued Covid-19 pandemic, including a resurgence of COVID-19 lockdowns in Asia, may extend

existing supply chain disruptions and order backlogs for materials or services needed to maintain production in the Subject Interest areas, or have other unknown impacts on Hilcorp and the Subject Interests, and any such impact could result in

actual results being different from Hilcorps expectations.

Geo-Political Uncertainties.

Prices for goods

and services have risen over the last 12 months, and inflationary pressures have accelerated in the first half of 2022, as regional and global commodity prices have risen in response to the conflict in Ukraine.

The impact of ongoing or extended

conflict on Hilcorps ability to produce from the Subject Interests or on commodity prices is unknown.

Gross Proceeds and

Production Cost Estimates.

Hilcorps process of reconciling actual revenue and severance taxes to previously reported estimates

(which the Trust refers to as true-ups) were still occurring and being reported in 2021.

At the beginning of 2021, Hilcorp informed the Trust that it planned to refine further its estimating and

reporting processes and that Hilcorp would review prior periods to ensure greater accuracy and consistency, both for prior periods as well as future reporting periods.

As part of that review process, Hilcorp informed the Trust that it may reverse

and rebook revenue for certain periods.

Thus, distributions to the Trust from Hilcorp in certain months during 2021 were subject to adjustments based upon prior months true-ups and rebooking, plus

Hilcorp informed the Trust that it completed the transition to its new accounting system and began to report actual, not

estimated, revenue and expenses for operated wells beginning with the June 2021 production month (August 2021 reporting month) and that it has reversed and rebooked revenue for certain prior periods.

As of December 31, 2021, Hilcorp believes

that all prior month true-ups have been completed for operated wells.

The true-ups of revenues for non-operated properties for

the 2021 distribution periods were completed in the February and March 2022 reporting months.

The amount of Gross Proceeds depends on the

volumes of natural gas and oil produced from the Subject Interests.

Under the terms of the Indenture, the Trust cannot acquire new natural gas and oil assets, and as a result, Royalty Income is dependent on the natural gas and oil volumes

attributable to the Subject Interests.

Although Hilcorp and other operators of the Subject Interests may conduct drilling operations or well recompletions in the near term, the Subject Interests are depleting assets;

Hilcorp has informed the Trust

that it is unable to estimate the productive life of the Subject Interests.

The reduction in proved reserve quantities is a common measure of depletion.

Hilcorps (or a future operators) capital investments in the Subject Interests will

affect the quantity of proved reserves and can offset any reduction in proved reserves.

Lower commodity prices may also cause Hilcorp to reduce drilling operations, workover, and/or recompletions, thus reducing the volume of natural gas and oil

produced from the Subject Interests by Hilcorp.

Hilcorp did not conduct any new drill projects or recompletions within the Subject Interests in 2021 or to date in 2022.

Settlements and Litigation

Subsequent Events

On April 19, 2022, the Trust announced a cash distribution of $3,863,096.64 or $0.082883 per Unit, based primarily upon production during

the month of February 2022, which was paid on May 13, 2022.

2022, the Trust announced a cash distribution of $6,766,905.11 or $0.145185 per Unit, based primarily upon production during the month of May 2022, which was paid on August 12, 2022.

Trustees Discussion and Analysis of Financial Condition and Results of Operations.

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Conveyance and the Royalty

Pursuant to the Net Overriding Royalty Conveyance (the Conveyance) effective November 1,

1980, Southland conveyed the Royalty that burdens the Subject Interests in properties located in the San Juan Basin of northwestern New Mexico to the Trust.

Subsequent to the Conveyance of the Royalty, through a series of sales, assignments and

mergers, Southlands successor became Hilcorp, which acquired the Subject Interests from Burlington Resources Oil & Gas Company LP (Burlington), an indirect wholly owned subsidiary of ConocoPhillips, on July 31, 2017.

Pursuant to the Net Overriding Royalty Conveyance effective November 1, 1980, Southland conveyed the

Royalty that burdens the Subject Interests in properties located in the San Juan Basin of northwestern New Mexico to the Trust.

Subsequent to the Conveyance of the Royalty, through a series of sales, assignments and mergers, Southlands

successor became Hilcorp, which acquired the Subject Interests from Burlington Resources Oil & Gas Company LP (Burlington), an indirect wholly owned subsidiary of ConocoPhillips, on July 31, 2017.

The Royalty constitutes the principal asset of the Trust.

The beneficial interest in the Royalty is divided into 46,608,796 units (the

Units) representing undivided fractional interests in the beneficial interest of the Trust, equal to the number of Southland common stock shares outstanding as of the close of business on November 3, 1980.

Units), representing undivided fractional interests in the beneficial interest of the Trust, equal to the number of shares of Southland common stock outstanding as of the close of business on November 3, 1980.

Each stockholder of

Southland of record at the close of business on November 3, 1980, received one freely tradable Unit for each share of the common stock of Southland then held.

Southland of record at the close of business on November 3, 1980, received one freely tradable Unit for each share of the Southland common stock then held.

Holders of Units in the Trust are referred to herein as Unit Holders.

The primary function of

the Trustee is to collect Royalty Income, to pay all expenses and charges of the Trust and distribute the remaining available income to the Unit Holders.

The amount of income distributable to Unit Holders, which we refer to as Distributable

Income, depends on the amount of Royalty Income and interest received by the Trust, as well as the amount of expenses paid by the Trust and any change in cash reserves.

The primary function of the Trustee is to collect Royalty Income, to pay all expenses and charges of the Trust and distribute the remaining

available income to the Unit Holders.

The amount of income distributable to Unit Holders, which we refer to as Distributable Income, depends on the amount of Royalty Income and interest received by the Trust, as well as the amount of

expenses paid by the Trust and any change in cash reserves.

The Trust has no employees, officers, or directors.

The Trustee performs

all administrative functions of the Trust.

Hilcorp is the principal operator of the majority of the Subject Interests and is responsible, subject to the terms of a prior agreement with

the Trust, for marketing the oil and natural gas production from such properties, either under existing sales contracts or under future arrangements, at the best prices and on the best terms it shall deem reasonably obtainable under the

circumstances.

A very high percentage of the Royalty Income is attributable to the production and sale by Hilcorp of natural gas from the Subject Interests.

Accordingly, the market price and demand for natural gas produced and sold from the San Juan

Basin heavily influences the amount of Royalty Income distributed by the Trust and, by extension, the price of the Units.

The sale of San

Juan Basin assets, including the Subject Interests, from Burlington to Hilcorp closed on July 31, 2017.

The Trustee performs all administrative functions of the Trust.

Hilcorp is the principal

operator of the majority of the Subject Interests and is responsible, subject to the terms of a prior agreement with the Trust, for marketing the natural gas and oil production from such properties, either under existing sales contracts or under

future arrangements, at the best prices and on the best terms it shall deem reasonably obtainable under the circumstances.

A very high percentage of the Royalty Income is attributable to the production and sale of natural gas, from the Subject

Interests, by Hilcorp.

Accordingly, the market price and demand for natural gas produced and sold from the San Juan Basin heavily influences the amount of Royalty Income distributed by the Trust and, by extension, the price of the Units.

Natural Gas and Oil .

The sale of San Juan Basin assets, including the Subject Interests, from Burlington to Hilcorp closed on

July 31, 2017.

Under the terms of the sale, Hilcorp is required to make payments to Burlington if natural gas prices are above a certain price.

confirmed that in accordance with the Conveyance, Hilcorp will not charge the Trust any portion of such payments.

Hilcorp has confirmed that in accordance with the Conveyance, Hilcorp will not charge the Trust any

portion of such payments.

Gross Proceeds and Severance Tax Estimates.

Hilcorps process of reconciling

Gross Proceeds and severance taxes to previously reported estimates (which the Trust refers to as true-ups) were still occurring and being reported in 2021.

At the beginning of 2021, Hilcorp

informed the Trust that it planned to refine further its estimating and reporting processes, and that Hilcorp would review prior periods to ensure greater accuracy and consistency, both for prior periods as well as future reporting periods.

of that review process, Hilcorp informed the Trust that it may reverse and rebook revenue for certain prior periods.

Thus, distributions to the Trust from Hilcorp in certain months during 2021 were subject to adjustments based upon prior

months true-ups and rebooking, plus interest.

Hilcorp informed the Trust that it completed

the transition to its new accounting system and began to report actual, not estimated, revenue and expenses for operated wells beginning with the June 2021 production month (August reporting month), and that it has reversed and rebooked revenue for

certain prior periods.

Hilcorps process of reconciling actual revenue and

severance taxes to previously reported estimates (which the Trust refers to as true-ups) were still occurring and being reported in 2021.

At the beginning of 2021, Hilcorp informed the Trust that

it planned to refine further its estimating and reporting processes, and that Hilcorp would review prior periods to ensure greater accuracy and consistency, both for prior periods as well as future reporting periods.

As part of that review process,

Hilcorp informed the Trust that it may reverse and rebook revenue for certain prior periods.

Thus, distributions to the Trust from Hilcorp in certain months during 2021 were subject to adjustments based upon prior months true-ups and rebooking, plus interest.

Hilcorp informed the Trust that it completed the transition to

its new accounting system and began to report actual, not estimated, revenue and expenses for operated wells beginning with the June 2021 production month (August 2021 reporting month) and that it has reversed and rebooked revenue for certain prior

As of December 31, 2021, Hilcorp believes that all prior month true-ups have been completed for operated wells.

The true-up of revenues for non-operated properties for the 2021 distribution periods was completed in the February and March 2022 reporting months.

The amount of Gross Proceeds also depends on the volumes of oil and natural gas produced from the Subject Interests.

The true-ups of revenues for non-operated properties for the 2021 distribution periods were completed in the February and March 2022 reporting months.

The amount of Gross Proceeds also depends on the volumes of natural gas and oil produced from the Subject Interests.

Under the terms of the

Indenture, the Trust cannot acquire new oil and natural gas assets, and as a result, Royalty Income is dependent on the oil and natural gas volumes attributable to the Subject Interests.

Indenture, the Trust cannot acquire new natural gas and oil assets, and as a result, Royalty Income is dependent on the natural gas and oil volumes attributable to the Subject Interests.

Although Hilcorp and other operators of the Subject Interests

may conduct drilling operations or well recompletions in the near term, the Subject Interests are depleting assets and Hilcorp has informed the Trust that it is unable to estimate the productive life of the Subject Interests.

may conduct drilling operations or well recompletions in the near term, the Subject Interests are depleting assets;

Hilcorp has informed the Trust that it is unable to estimate the productive life of the Subject Interests.

The reduction in proved

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Hilcorps (or a future operators) capital investments in the Subject Interests will affect the quantity of proved reserves and can offset any reduction in proved reserves.

commodity prices may also reduce the value of the oil and natural gas produced from the Subject Interests by Hilcorp.

Hilcorp did not conduct any new drill projects or recompletions within the Subject Interests in 2021.

commodity prices may also reduce the volume of natural gas and oil produced from the Subject Interests by Hilcorp.

Hilcorp did not conduct any new drill projects or recompletions within the Subject Interests in 2021 or to date in 2022.

Relatedly, because of Hilcorps prior process of providing production estimates rather than actual production, a simple year-over-year

comparison from the prior distribution reports from Hilcorp will not reflect the actual comparable production amounts.

For example, a comparison of the January 2021 estimated production with the January 2022 actual production would reflect a decline

of almost 25%.

However, comparing the November 2021 actualizations of January 2021 production to January 2022 actual production, the decline is just under 5.5%.

In reviewing the Distribution Reports on an annual basis, the total 2020 MMBtu

production was 28,643,237 as compared to 2021 MMBtu of 26,899,877, which results in an annual decline of 6.09% year-over-year.

February 17, 2022, the Trust announced that Hilcorp had provided the Trust with its 2022 capital project plan for the Subject Interests (the 2022 Plan), and Hilcorp has estimated its 2022 capital expenditures for the Subject

Interests to be $1.9 million.

For example, a comparison of the April 2021 estimated production with the April 2022 actual production on the June 2022

Distribution Report would reflect a decline of approximately 7.1%.

However, comparing the April 2021 actual production from the November 2021 Distribution Report actualization to April 2022 actual production would reflect an,increase of 14.7%.

reviewing the Distribution Reports on a year-to-date basis, the total MMBtu production was 14,689,896 as of June 2021 compared to the total MMBtu production of

13,672,177 as of June 2022, which results in a year-to-date decline of 6.93%

On February 17, 2022, the Trust announced that Hilcorp had provided the Trust with its 2022 capital project plan for the Subject

Interests (the 2022 Plan), and Hilcorp has estimated its 2022 capital expenditures for the Subject Interests to be $1.9 million.

The objective of this capital project plan is to address the natural depletion of oil and gas assets.

Specifically, Hilcorp informed the Trust that its 2022 Plan would allocate approximately $1.5 million of

the 2022 Plans budget towards 24 well recompletions and workovers scheduled to be completed in the Mesaverde, Pictured Cliffs and Fruitland Coal formations.

Approximately $300,000 of the 2022 Plans budget will be allocated to facilities

projects related to natural gas compression, and approximately $100,000 will be spent for permitting and surveying costs for future new drill projects that are being considered for 2023 and 2024.

Hilcorp further informed the Trust that its planned

project status for 2022 is subject to revision if it revises its assumptions underlying the 2022 Plan, and that in any event actual capital costs may vary from these estimates.

Under the terms of the Conveyance, production costs are deducted from Gross Proceeds in calculating Net Proceeds, which is multiplied by 75%

to calculate Royalty Income.

Specifically, Hilcorp informed the Trust that its 2022 Plan will allocate approximately $1.5 million of the 2022 Plans budget towards 24 well recompletions and workovers scheduled to be completed in the Mesaverde, Pictured Cliffs and

Fruitland Coal formations.

Approximately $300,000 of the 2022 Plans budget will be allocated to facilities projects related to natural gas compression, and approximately $100,000 will be spent for permitting and surveying costs for future new

drill projects that are being considered for 2023 and 2024.

Hilcorp further informed the Trust that its planned project status for 2022 is subject to revision if it revises its assumptions underlying the 2022 Plan, and that in any event actual

capital costs may vary from these estimates.

Under the terms of the Conveyance, production costs are deducted from Gross Proceeds in

calculating Net Proceeds, which is multiplied by 75% to calculate Royalty Income.

Production Costs generally means costs incurred on an accrual basis by Hilcorp in operating the Subject Interests, including both capital and non-capital costs.

example, these costs include development drilling, production and processing costs, applicable taxes and operating charges.

However, Hilcorp informed the Trust that for wells operated by Hilcorp it did not intend to accrue lease operating expenses

to the Trust.

For example, these costs include development drilling, production and processing costs, applicable taxes and operating charges.

However, Hilcorp informed the Trust that for wells operated by

Hilcorp it did not intend to accrue lease operating expenses to the Trust.

If production costs exceed Gross Proceeds in any month, the excess is recovered out of future Gross Proceeds prior to the making of further payments to the Trust.

However, the Trust is not otherwise liable for any production costs or

other costs or liabilities attributable to the Subject Interests or the minerals produced therefrom.

If at any time the Trust receives more than the amount due under the Royalty, it is not obligated to return such overpayment, but the amounts

payable to it for any subsequent period are reduced by such amount, plus interest, at a rate specified in the Conveyance.

The Trust and the Trustee has very limited authority to control the amount and timing of production costs.

The Trustee continues to engage with Hilcorp regarding its ongoing accounting and reporting to the Trust, and the Trusts third-party

compliance auditors continue to audit all payments made by Hilcorp to the Trust, including adjustments, true-ups, and recoupments.

In addition, 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.

Factors that Affect Net

Generally, Net Proceeds are affected by (a) disruptions caused by weather, particularly winter storms that disrupt access to the production fields, (b) the timing and size of Hilcorps capital expenditures, and

Hilcorp has advised the Trust that it is possible for it to experience disruptions during the

winter months that could impact Hilcorps ability to access fields and maintain production.

the Trust is not otherwise liable for any Production Costs or other costs or liabilities attributable to the Subject Interests or the minerals produced therefrom.

If at any time the Trust receives more than the amount due under the Royalty, it is

not obligated to return such overpayment, but the amounts payable to it for any subsequent period are reduced by such amount, plus interest, at a rate specified in the Conveyance.

The Trust and the Trustee has very limited authority to control the

amount and timing of Production Costs.

The Trustee continues to engage with Hilcorp regarding its ongoing accounting and reporting to the

Trust, and the Trusts third-party compliance auditors continue to audit all payments made by Hilcorp to the Trust, including adjustments, true-ups, and recoupments.

In addition, 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.

Factors that Affect Net Proceeds.

Generally, Net Proceeds are affected by (a) disruptions caused by weather, particularly winter

storms that disrupt access to the production fields, (b) the timing and size of Hilcorps capital expenditures, and (c) commodity prices.

Hilcorp has advised the Trust that it is possible for it to experience disruptions during the winter months that could impact

Hilcorps ability to access fields and maintain production.

Capital Expenditures.

The timing and size of capital expenditures by Hilcorp may

impact Net Proceeds.

Capital expenditures by Hilcorp decreased approximately $142,400 for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

The decrease was primarily attributable to differences in

timing in the payment of these expenditures along with capital expenditures attributable to the prior years budget.

The Trusts income and monthly distributions from the Subject Interests are heavily influenced by the price of oil and natural gas.

These prices may fluctuate widely in response to relatively minor changes in the supply of and

demand for oil and natural gas based on market uncertainty or a variety of additional factors that are beyond the Trustees control.

Hilcorp has multiple gas purchase agreements that set forth the prices that it will receive for the oil and natural gas produced from the

The timing and size of capital expenditures

by Hilcorp may impact Net Proceeds.

Capital expenditures by Hilcorp decreased approximately $56,100, or 34.47%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, and decreased approximately

$198,500, or 51.61%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

The decrease was primarily attributable to differences in timing in the payment of these expenditures along with capital

expenditures attributable to the prior years budget.

Commodity Prices.

The Trusts income and monthly distributions

from the Subject Interests are heavily influenced by the price of natural gas and oil.

These prices may fluctuate widely in response to relatively minor changes in the supply of and demand for natural gas and oil based on market uncertainty or a

variety of additional factors that are beyond the Trustees control.

Prices for goods and services have risen over the last 12 months, and inflationary pressures have accelerated in the first half of 2022, as regional and global commodity

prices have risen in response to the conflict in Ukraine.

The impact of ongoing or extended conflict on Hilcorps ability to produce from the Subject Interests or on commodity prices is unknown.

Hilcorp has multiple gas purchase agreements that set forth the prices that it will receive for the natural gas and oil produced from the

Subject Interests.

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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 oil and natural

gas 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 oil and

natural gas, and Hilcorps ability to pay Royalty Income to the Trust.

Hilcorp previously informed the Trust that it does not

believe that recent actions undertaken by the Bidens administration to curtail future leases for oil and natural gas drilling on federally owned land will impact the Subject Interests because as currently enacted, they do not impact current

Results of Operations for the Three Months Ended March 2022 and 2021

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.

Hilcorp previously informed the Trust that it does not believe

that recent actions undertaken by the Bidens administration to curtail future leases for natural gas and oil drilling on federally owned land will impact the Subject Interests because as currently enacted, they do not impact current leases.

Results of Operations for the Three and Six Months Ended June 2022 and 2021

Royalty Income

Royalty Income consists of 75% of the monthly Net Proceeds attributable to the Royalty.

Royalty Income for the three months ended

March 31, 2022 and 2021 was determined as shown in the following table:

Three Months Ended March 31,

Income consists of 75% of the monthly Net Proceeds attributable to the Royalty.

Royalty Income for the three and six months ended June 30, 2022, and 2021 was determined as shown in the following table:

Three Months Ended

Six Months Ended

Gross proceeds from the Subject Interests:

Production Costs:

Severance tax natural gas

Severance tax gas

Severance tax oil

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Royalty Income

Estimated revenue related to audit exceptions and interest, and from

non-operated properties offset by Hilcorps true-ups and adjustments of non-operated revenue for the production months

November 2020 through October 2021.

Estimated revenue from non-operated properties offset by Hilcorps

true-ups and adjustments of non-operated revenue for the production months of June through December 2018 and July through October 2020.

Revenue of $97,895 prior period non-operated revenue actualizations and related interest, and $29,826 related

to audit exceptions and interest.

Estimated revenue from non-operated properties offset by Hilcorps true-ups and adjustments of

non-operated revenue for the production months of June through December 2018 and July through October 2020.

Estimated revenue of $399,922 related to audit exceptions and interest, and $568,056 related to prior period

non-operated revenues and actualizations.

Due to Hilcorps transition to a new accounting system, the February, March and April production months

were based on estimated production, estimated prices and estimated costs.

Due to Hilcorps transition to a new accounting system, the January 2021 production month was based on

estimated production, actual realized prices and estimated costs.

Includes $450,000 credit by Hilcorp to the Trust due to the settlement of certain audit exceptions related to

compressor maintenance services.

The Royalty Income distributed to the Trust for the three months ended March 31, 2022,

was higher than that distributed during the same period of 2021 due primarily to higher natural gas prices.

The average natural gas price increased from $2.64 per Mcf for the three months ended March 31, 2021, to $4.79 per Mcf for the three

months ended March 31, 2022.

Production of natural gas from the Subject Interests increased from 5,703,850 Mcf for the three months ended March 31, 2021, to 6,231,076 Mcf for the three months ended March 31, 2022.

Includes a Q1 2021 $450,000 credit by Hilcorp to the Trust due to the settlement of certain audit exceptions

related to compressor maintenance services.

The Royalty Income distributed to the Trust for both the three and six months ended June 30, 2022, was higher than that distributed during the same

period of 2021 due primarily to higher natural gas prices.

The average natural gas price increased from $2.77 per Mcf for the three months ended June 30, 2021, to $4.54 per Mcf for the three months ended June 30, 2022, and the average

natural gas price increased from $2.71 per Mcf for the six months ended June 30, 2021, to $4.67 per Mcf for the six months ended June 30, 2022.

Production of natural gas from the Subject Interests decreased from 7,517,056 Mcf for the three

months ended June 30, 2021, to 6,073,883 Mcf for the three months ended June 30, 2022, and decreased from 13,220,906 Mcf for the six months ended June 30, 2021, to 12,304,960 Mcf for the six months ended June 30, 2022.

Gross Proceeds from Subject Interests.

Total Gross Proceeds increased approximately $6.8 million or 31.6% for the three

months ended March 31, 2022, compared to the three months ended March 31, 2021.

The increase was primarily due to higher natural gas prices.

months ended June 30, 2022, compared to the three months ended June 30, 2021, and increased approximately $22.4 million, or 60% for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

increase was primarily due to higher natural gas prices.

Capital Expenditures .

Capital expenditures by Hilcorp decreased approximately $142,400 for the three months ended March 31, 2022,

compared to the three months ended March 31, 2021.

Capital expenditures by Hilcorp decreased

approximately $56,000 for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, and decreased approximately $198,500 for the six months ended June 30, 2022, compared to the six months ended

June 30, 2021.

The decrease was primarily attributable to differences in timing in the payment of these expenditures along with capital expenditures attributable to the prior years budget.

As referenced above, on February 17, 2022, the Trust announced Hilcorps 2022 capital project plan for the Subject Interests (the

2022 Plan).

The 2022 Plan calls for total capital spending of $1.9 million.

Hilcorps accounting period for capital expenditures runs from January through December 31 of each calendar year, which corresponds and is

reported in Trust distributions months March of the same calendar year through February of the following calendar year.

Aggregate severance taxes increased approximately $3.1 million, or 374%, for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

The percentage increase in the three-month period is

primarily attributable to increased revenue and by corrections made to June 2018 through December 2018 production months which reduced reported severance taxes in the three months ended March 31, 2021 by $1.4 million.

The corrections

included the reversal of severance tax estimates and tax only adjustments associated with the Jicarilla tribe.

Excluding these corrections, severance taxes represented approximately 13% of Gross Proceeds for the three months ended March 31,

2022, compared to approximately 14% for the same period of 2021.

As referenced above, on February 17, 2022, the Trust announced Hilcorps 2022 capital project plan for the Subject Interests.

2022 Plan calls for total capital spending of $1.9 million.

Hilcorps accounting period for capital expenditures runs from January through December 31 of each calendar year, which corresponds and is reported in Trust distributions

made for the months from March of the same calendar year through February of the following calendar year.

Hilcorps capital expenditures for 2021 were $0.3 million.

Severance Taxes.

Aggregate severance taxes decreased approximately $204,000, or 5.3%,

for the three months ended June 30, 2022, compared to the three months ended June 30, 2022, and increased approximately $2.9 million, or 61%, for the six months ended June 30, 2022, compared to the six months ended June 30,

The decrease in severance taxes in the three-month period is primarily attributable to the overestimation of severance taxes of $1.0 million for the February to April 2021 production months which offset the increase in severance taxes

attributable to higher Gross Proceeds.

The increase in severance taxes in the six-month period was primarily attributable to higher Gross Proceeds and also to corrections made in the first quarter of 2021 to

the June 2018 through December 2018 production months, which reduced reported severance taxes for this period by $1.4 million.

The corrections included the reversal of severance tax estimates and tax only adjustments associated with the

Jicarilla Apache Nation.

Severance taxes represented approximately 13% of Gross Proceeds for the three months ended June 30, 2022, compared to approximately 18% for the same period of 2021.

Severance taxes represented approximately 13% of Gross

Proceeds for the six months ended June 30, 2022.

Excluding the $1.4 million correction in the first quarter of 2021, severance taxes were approximately 16% of Gross Proceeds for the six months ended June 30, 2021.

Lease Operating Expenses and Property Taxes.

Lease operating

expenses and property taxes increased $3.7 million, or 103%, for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

The increased expenses include approximately $0.5 million in non-operated lease operating expense true-ups, the payment of approximately $1 million for year-end salaries and bonuses for

Hilcorp employees, and differences in the timing in the receipt and payment of these costs, offset by a $450,000 credit by Hilcorp to the Trust in 2021 due to the settlement of certain audit exceptions related to compressor maintenance services.

Trust and its consultants are conducting a detailed analysis of these expenses associated with the year-end salaries and bonuses for Hilcorp employees to determine if they comport with the Conveyance and other

operative agreements.

Monthly lease operating expenses of the Subject Interests, including property taxes, for the

three months ended March 31, 2022, averaged approximately $2.5 million, compared to $1.2 million for the three months ended March 31, 2021.

Lease operating expenses and property taxes decreased $1.1 million, or 15%, for the

three months ended June 30, 2022, compared to the three months ended June 30, 2021.

The decrease is primarily due to decreased activity at the Subject Interests by Hilcorp.

Specifically, production decreased by 1,603,525 MMBtu, or 19.20%,

for the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

Lease operating expenses and property taxes increased $2.6 million, or 23% for the six months ended June 30, 2022, compared to the six

months ended June 30, 2021.

The increase is primarily due to increased expenses in the first quarter of 2022 which included approximately $0.5 million in non-operated lease operating expense true-ups, the payment of approximately $1 million for year-end salaries and bonuses for Hilcorp employees, and differences in the timing in the receipt and payment of

these costs, offset by a $450,000 credit by Hilcorp to the Trust in 2021 due to the settlement of certain audit exceptions related to compressor maintenance services.

The Trust and its consultants are conducting a detailed analysis of these expenses

associated with the year-end salaries and bonuses for Hilcorp employees to determine if they comport with the Conveyance and other operative agreements.

Monthly lease operating expenses for the Subject Interests, including property taxes, for the three months ended

June 30, 2022, averaged approximately $2.1 million, compared to $2.5 million for the three months ended June 30, 2021.

Monthly lease operating expenses of the Subject Interests, including property taxes, for the six months ended

June 30, 2022, averaged $2.3 million, compared to an average of $1.9 million for the six months ended June 30, 2021.

Distributable Income

Three Months Ended March 31,

Three Months Ended

Six Months Ended

Royalty income

Interest income

Expenditures General and Administrative

General and administrative expenses

Decrease in cash reserves

Distributable income

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Distributable Income increased from $7.2 million ($0.153748 per Unit) for

the three months ended March 31, 2021, to $14.4 million ($0.308294 per Unit) for the three months ended March 31, 2022.

the three months ended June 30, 2021, to $13.3 million ($0.286277 per Unit) for the three months ended June 30, 2022.

The increase in Distributable Income was primarily attributable to higher natural gas prices.

Based on 46,608,796 Units outstanding, the per-Unit

distributions during the first quarter of 2022 were as follows:

Distributable Income

increased by approximately $12.8 million, or 86%, to $27.7 million (0.594571 per Unit) for the six months ended June 30, 2022, from $14.9 million ($0.320052 per Unit) for the six months ended June 30, 2021.

The increase in

Distributable Income was primarily attributable to higher natural gas prices.

Based on 46,608,796 Units outstanding, the per-Unit distributions during the second quarter of 2022 were as follows:

Quarter Total

Interest Income.

Interest income was lower for the three months ended March 31, 2022, as compared

to the same period in 2021 due primarily to lower yields on short-term investments.

General & Administrative

General and administrative expenses increased approximately 13%, for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

The increase was primarily attributable to differences in timing

in the receipt and payment of certain expenses by the Trust.

Interest income was higher for the three and six months ended June 30, 2022, as

compared to the same periods in 2021 due primarily to higher yields on short-term investments.

General & Administrative Expenses.

administrative expenses decreased approximately 4.6 % for the three months ended June 30, 2022, compared to the three months ended June 30, 2021, and increased approximately 4.9% for the six months ended June 30, 2022, compared

to the six months ended June 30, 2021.

The changes for both periods were primarily attributable to differences in timing in the receipt and payment of certain expenses by the Trust.

Cash Reserves.

Total cash reserves were $1.0 million as of

March 31, 2022.

The primary purpose of the cash reserves is to have sufficient funds to cover monthly general and administrative expenses in the event that there is insufficient Royalty Income to cover such expenses.

The Trustee does not

anticipate any increases to the cash reserve above a level of $1.0 million in 2022, although it cannot guarantee that the Trustee will not increase such cash reserves in the future.

Liquidity and Capital Resources

Trusts principal source of liquidity and capital is Royalty Income.

The Trusts distribution of income to Unit Holders is funded by Royalty Income after payment of Trust expenses.

The Trust is not liable for any production costs or

liabilities attributable to the Royalty.

If at any time the Trust receives more than the amount due under the Royalty, it is not obligated to return such overpayment, but the amounts payable to it for any subsequent period are reduced by such

amount, plus interest, at a rate specified in the Conveyance.

If the Trustee determines that the Trust does not have sufficient funds to pay its liabilities, the Trustee may borrow funds on behalf of the Trust, in which case no distributions will be

made to Unit Holders until such borrowings are repaid in full.

The Trustee may not sell or dispose of any part of the assets of the Trust without the affirmative vote of the Unit Holders of 75% of all of the Units outstanding;

however, the Trustee

may sell up to 1% of the value of the Royalty (as determined pursuant to the Indenture) during any 12-month period without the consent of the Unit Holders.

In the event the Trust does not receive Royalty Income from Hilcorp sufficient to pay its liabilities, the Trust believes it has sufficient

capacity to draw upon the cash reserve amount or borrow funds against the Royalty to cover the Trusts operating expenses until its cash reserve can be replenished from subsequent Royalty Income payments from Hilcorp.

Oil and Natural Gas Production

natural gas volumes reported to the Trust by Hilcorp are based on plant residue gas volumes plus equivalent volumes for natural gas liquids.

Hilcorp converts natural gas liquids to six Mcf of natural gas using industry standards.

Royalty Income for the three months ended March 31, 2022, is associated with oil and natural gas production during November 2021 through

January 2022 from the Subject Interests.

Production of oil and natural gas and related average sales prices attributable to each of the Subject Interests and the Royalty for the three months ended March 31, 2022, and 2021 were as follows:

For the Three Months Ended March 31,

Total cash reserves were $1.0 million as of June 30, 2022.

The primary purpose of the cash reserves is to

have sufficient funds to cover monthly general and administrative expenses in the event that there is insufficient Royalty Income to cover such expenses.

The Trustee does not anticipate any increases to the cash reserve above a level of

$1.0 million in 2022, although it cannot guarantee that the Trustee will not increase such cash reserves in the future.

Liquidity and Capital

The Trusts principal source of liquidity and capital is Royalty Income.

The Trusts distribution of income to

Unit Holders is funded by Royalty Income after payment of Trust expenses.

The Trust is not liable for any Production Costs or liabilities attributable to the Royalty.

If at any time the Trust receives more than the amount due under the Royalty, it

is not obligated to return such overpayment, but the amounts payable to it for any subsequent period are reduced by such amount, plus interest, at a rate specified in the Conveyance.

If the Trustee determines that the Trust does not have sufficient

funds to pay its liabilities, the Trustee may borrow funds on behalf of the Trust, in which case no distributions will be made to Unit Holders until such borrowings are repaid in full.

The Trustee may not sell or dispose of any part of the assets of

the Trust without the affirmative vote of the Unit Holders of 75% of all of the Units outstanding;

however, the Trustee may sell up to 1% of the value of the Royalty (as determined pursuant to the Indenture) during

any 12-month period without the consent of the Unit Holders.

In the event the Trust

does not receive Royalty Income from Hilcorp sufficient to pay its liabilities, the Trust believes it has sufficient capacity to draw upon the cash reserve amount or borrow funds against the Royalty to cover the Trusts operating expenses until

its cash reserve can be replenished from subsequent Royalty Income payments from Hilcorp.

Natural gas and Oil Production

The natural gas volumes reported to the Trust by Hilcorp are based on plant residue gas volumes plus equivalent volumes for natural gas

Hilcorp converts one barrel of natural gas liquids to six Mcf of natural gas using industry standards.

Royalty Income for

the three months ended June 30, 2022, is associated with natural gas and oil production during February through April 2022 from the Subject Interests.

Production of natural gas and oil and related average sales prices attributable to each of the Subject Interests and the Royalty for the three

months ended June 30, 2022, and 2021 were as follows:

For the Three Months Ended June 30,

Subject Interests

Average Price (per Mcf/Bbl)

Based on Hilcorps reporting methodology, the Trust recognizes production during the month in which the

related Royalty Income is paid to the Trust.

Royalty Income for a calendar year is based on the actual oil and natural gas production during the period beginning with November of the preceding calendar year through October of the current calendar

Sales volumes attributable to the Royalty are determined by dividing the net profits by the Trust from the sale of oil and natural gas, respectively, by the prices received for sales of such volumes from the Subject Interests, taking into

consideration production taxes attributable to the Subject Interests.

Because the oil and natural gas sales attributable to the Royalty are based upon an allocation formula dependent on such factors as price and cost, including capital expenditures,

the aggregate sales amounts from the Subject Interests may not provide a meaningful comparison to sales attributable to the Royalty.

The fluctuations in natural gas production that have occurred during the three-month period

ended March 31, 2022 and 2021, respectively, generally resulted from non-operated true-ups in February and March 2022 for November 2020 thru October 2021

production, operated true-ups in January and February 2021 for June 2018 thru December 2018 production, and variances in capital spending to generate production from new and existing wells, as offset by the

natural production decline curve.

Also, production from the Subject Interests is influenced by the line pressure of the natural gas gathering systems in the San Juan Basin.

As noted above, oil and natural gas sales attributable to the Royalty are

based on an allocation formula dependent on many factors, including oil and natural gas prices and capital expenditures.

Production of natural gas and oil and related average sales prices attributable to each of the Subject

Interests and the Royalty for the six months ended June 30, 2022, and 2021 were as follows:

For the Six Months Ended June 30,

Subject Interests

Average Price (per Mcf/Bbl)

Based on Hilcorps reporting methodology, the Trust recognizes production during the

month in which the related Royalty Income is paid to the Trust.

Royalty Income for a calendar year is based on the actual natural gas and oil production during the period beginning with November of the preceding calendar year through October of the

current calendar year.

Sales volumes attributable to the Royalty are determined by dividing the net profits by the Trust from the sale of natural gas and oil, respectively, by the prices received for sales of such volumes from the Subject Interests,

taking into consideration production taxes attributable to the Subject Interests.

Because the natural gas and oil sales attributable to the Royalty are based upon an allocation formula dependent on such factors as price and cost, including capital

expenditures, the aggregate sales amounts from the Subject Interests may not provide a meaningful comparison to sales attributable to the Royalty.

The fluctuations in natural gas production that have occurred during the three-month period ended June 30, 2022, and 2021, respectively,

generally resulted from changes in the demand for natural gas during that time, market conditions, and variances in capital spending to generate production from new and existing wells, as offset by the natural production decline curve.

production from the Subject Interests is influenced by the line pressure of the natural gas gathering systems in the San Juan Basin.

As noted above, natural gas and oil sales attributable to the Royalty are based on an allocation formula dependent

on many factors, including natural gas and oil prices and capital expenditures.

There were no changes to the contracts pursuant to which Hilcorp sells production from the Subject Interests and for the gathering and

processing of production during the three months ended March 31, 2022.

Off-Balance Sheet

Accounting Policies and Estimates

For a discussion of significant accounting policies and estimates that impact the Trusts

financial statements, see Part I, Item 1.

processing of production during the three months ended June 30, 2022.

Off-Balance Sheet Arrangements

Critical Accounting Policies

and Estimates

For a discussion of significant accounting policies and estimates that impact the Trusts financial statements, see

Part I, Item 1.

Unaudited Financial Statements, Note 1 Basis of Presentation and Part II, Item 8.

Financial Statements and Supplemental Data contained in the Trusts Annual Report on Form

10-K for the year ended December 31, 2021.

Information Regarding Forward-Looking

Certain information included in this Quarterly Report on Form 10-Q contains, and

other materials filed or to be filed by the Trust with the SEC (as well as information included in oral statements or other written statements made or to be made by the Trust) may contain or include, forward-looking statements within the meaning of

Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act) and Section 27A of the Securities Act of 1933, as amended.

Such forward-looking statements may involve or may concern, among other things, the

amount and variability in capital expenditures by Hilcorp, drilling activity, development activities, production efforts and volumes, hydrocarbon prices, estimated future net revenues, estimates of reserves, the results of the Trusts

activities, the differences between Hilcorps estimated revenue and actual revenue, and regulatory matters.

Such forward-looking statements generally are accompanied by words such as may, will, based,

estimate, expect, predict, project, anticipate, believe, plan, intend, or other words that convey the uncertainty of future events or outcomes.

statements are based on certain assumptions of the Trustee and by Hilcorp, with respect to future events;

Financial Statements and Supplemental Data contained in the Trusts Annual Report on Form 10-K for the

year ended December 31, 2021.

Information Regarding Forward-Looking Information

Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed

or to be filed by the Trust with the SEC (as well as information included in oral statements or other written statements made or to be made by the Trust) may contain or include, forward-looking statements within the meaning of Section 21E of

the Securities Exchange Act of 1934, as amended (the Exchange Act) and Section 27A of the Securities Act of 1933, as amended.

Such forward-looking statements may involve or may concern, among other things, the amount and variability

in capital expenditures by Hilcorp, drilling activity, development activities, production efforts and volumes, hydrocarbon prices, estimated future net revenues, estimates of reserves, the results of the Trusts activities, the differences

between Hilcorps estimated revenue and actual revenue, and regulatory matters.

Such forward-looking statements generally are accompanied by words such as may, will, based, estimate,

expect, predict, project, anticipate, believe, plan, intend, or other words that convey the uncertainty of future events or outcomes.

Such statements are based on

certain assumptions of the Trustee and by Hilcorp, with respect to future events;

are based on an assessment of, and are subject to, a variety of factors deemed relevant by the Trustee and Hilcorp;

and involve risks and

uncertainties.

However, whether actual results and developments will conform with such expectations and predictions is subject to a number of risks and uncertainties which could affect the future results of the energy industry in general, and the

Trust and Hilcorp in particular, and could cause those results to differ materially from those expressed in such forward-looking statements.

The actual results or developments anticipated may not be realized or, even if substantially realized, they

may not have the expected consequences to or effects on Hilcorps business and the Trust.

Such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in such

forward-looking statements.

and involve risks and uncertainties.

whether actual results and developments will conform with such expectations and predictions is subject to a number of risks and uncertainties which could affect the future results of the energy industry in general, and the Trust and Hilcorp in

particular, and could cause those results to differ materially from those expressed in such forward-looking statements.

The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the

expected consequences to or effects on Hilcorps business and the Trust.

Such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in such forward-looking statements.

The Trust undertakes no obligation to publicly update or revise any forward-looking statements, except as required by applicable law.

2 unchanged sentences

the Subject Interests, including the

operations, acreage, well and completion count, working interests, production volumes, sales revenues, capital expenditures, operating expenses, reserves, drilling plans, drilling results and leasehold terms related to the Subject Interests, and

factors and circumstances that have or may affect the foregoing.

1 unchanged sentence

Controls and Procedures.

For information on the

Trusts exposure to market risk, please see Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk contained in the Trusts Annual Report on Form 10-K for the year

ended December 31, 2021.

For information on the Trusts exposure to market risk, please see Part II, Item 7A,

Quantitative and Qualitative Disclosures About Market Risk contained in the Trusts Annual Report on Form 10-K for the year ended December 31, 2021.

Quantitative and Qualitative Disclosures about Market Risk.

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-Q

Item 1. Financial Statements