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Item 8. Financial Statements and Supplementary Data

2023-03-31 compared with 2022-03-31 · 146 added, 151 removed, 211 unchanged (58% of the section changed)

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Report of Independent Registered Public Accounting Firm

PNC Bank, Trustee

San Juan Basin Royalty Trust

PNC Bank, National Association, Trustee

San Juan Basin Royalty

Opinion on the Financial Statements

We have audited the accompanying statements of assets, liabilities, and trust corpus of San Juan Basin Royalty Trust as of December 31,

2021 and 2020, and the related statements of distributable income and changes in trust corpus for the years then ended, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial

statements present fairly, in all material respects, the assets, liabilities and trust corpus of San Juan Basin Royalty Trust as of December 31, 2021 and 2020, and its distributable income and changes in trust corpus for the years then ended,

on the basis of accounting described in Note 3 to the financial statements.

As described in Note 3 to the financial statements, these

financial statements were prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than generally accepted in the United States of America.

We have audited the accompanying statements of assets, liabilities, and trust corpus of San Juan Basin Royalty Trust

(the Trust) as of December 31, 2022 and 2021, and the related statements of distributable income and changes in trust corpus for the years then ended, and the related notes (collectively referred to as the financial

statements).

In our opinion, the financial statements present fairly, in all material respects, the assets, liabilities and trust corpus of San Juan Basin Royalty Trust as of December 31, 2022 and 2021, and its distributable income and

changes in trust corpus for the years then ended, on the basis of accounting described in Note 3 to the financial statements.

described in Note 3 to the financial statements, these financial statements were prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than generally accepted in the United States of America.

Basis for Opinion

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federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to

error or fraud.

The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial

reporting but not for the purpose of expressing an opinion on the effectiveness of the Trusts internal control over financial reporting.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards

require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Trust is not required to have, nor were we engaged to perform, an

audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the

Trusts internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or

fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting

principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audits included performing

procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the

amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are

no critical audit matters.

We determined that there are no critical

audit matters.

WEAVER AND TIDWELL, L.L.P.

have served as San Juan Basin Royalty Trusts auditor since 2001.

Fort Worth, Texas

We have served

as San Juan Basin Royalty Trusts auditor since 2001.

Austin, Texas

March 31, 2023

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

of Assets, Liabilities, and Trust Corpus

December 31, 2021 and 2020

Statements of Assets, Liabilities, and Trust Corpus

Cash and Short-Term Investments

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Cash Reserves

Trust Corpus 46,608,796 Units Authorized and Outstanding

Trust Corpus 46,608,796 Units of Beneficial Interest Authorized and Outstanding

Statements of Distributable Income

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Trust Organization and Provisions

The San Juan Basin Royalty Trust (the Trust) was established on November 1, 1980.

Southland Royalty Company

(Southland) conveyed to the Trust a 75% net overriding royalty interest (the Royalty) which burdens certain of Southlands oil and natural gas interests (the Subject Interests) in properties located in the

San Juan Basin in northwestern New Mexico.

Subsequent to the Conveyance of the Royalty, through a series of sales, assignments and mergers, Southlands successor became Hilcorp San Juan L.P.

(Hilcorp), which acquired the Subject

Interests from Burlington Resources Oil & Gas Company LP (Burlington) on July 31, 2017.

The Trust was established on November 1, 1980.

Southland conveyed to the Trust the Royalty that burdens the Subject Interests in

properties located in the San Juan Basin.

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 on

July 31, 2017.

Burlington is an indirect wholly-owned subsidiary of ConocoPhillips.

Through an acquisition completed on March 24, 2006, Compass

Bank succeeded Texas Bank as Trustee (herein so called) of the Trust.

On September 7, 2007, Compass Bancshares, Inc.

Through an acquisition completed on March 24, 2006, Compass Bank succeeded TexasBank as Trustee (herein so called) of the Trust.

September 7, 2007, Compass Bancshares, Inc.

was acquired by Banco Bilbao Vizcaya Argentaria, S.A.

(BBVA) and became a wholly-owned subsidiary of

(BBVA) and became a wholly-owned subsidiary of BBVA.

Effective June 10, 2019, Compass Bank changed its name to BBVA USA.

On June 1, 2021, The PNC Financial Services Group, Inc.

(PNC) announced that it had completed the purchase of BBVA USA Bancshares, Inc., a financial

holding company, including its U.S.

banking subsidiary, BBVA USA, an Alabama-chartered bank and trustee of the Trust (BBVA USA).

On October 8, 2021, PNC Bank, National Association (PNC Bank), an indirect wholly owned

subsidiary of PNC, succeeded BBVA USA as the trustee of the Trust following BBVA USAs merger with and into PNC Bank.

November 3, 1980, 46,608,796 Units in the Trust were distributed to the Trustee for the benefit of Southland shareholders of record as of November 3, 1980, who received one Unit in the Trust for each share of Southland common stock held.

June 1, 2021, The PNC Financial Services Group, Inc.

(PNC) announced that it had completed the purchase of BBVA USA Bancshares, Inc., a financial holding company, including its U.S.

banking subsidiary, BBVA USA, an Alabama-chartered

bank and trustee of the Trust (BBVA USA).

On October 8, 2021, PNC Bank, an indirect wholly-owned subsidiary of PNC, succeeded BBVA USA as the trustee of the Trust following BBVA USAs merger with and into PNC Bank.

On November 3, 1980, 46,608,796 Units in the Trust were distributed to the Trustee for the benefit of Southland shareholders of record as

of November 3, 1980, who received one Unit in the Trust for each share of Southland common stock held.

The Trusts initial public offering was completed in 1980.

The Units are traded on the New York Stock Exchange.

Holders of Units are referred to herein as Unit Holders.

Holders of Units are

referred to herein as Unit Holders.

The terms of the Trust Indenture provide, among other things, that:

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in any 12-month period, but otherwise may not sell all or any part of the Royalty unless approved by holders of 75% of all Units outstanding.

In either case, the sale must be for cash and the proceeds

promptly distributed;

In either case, the sale must be for cash and the proceeds promptly

The Trustee may establish a cash reserve for the payment of any liability which is contingent or uncertain in

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The Trust will generally terminate upon the first to occur of the following events:

(a) at such time as the

Trusts gross revenue for each of two successive years is less than $1.0 million per year or (b) the Unit Holders of at least 75% of all of the Units outstanding vote in favor of termination.

(i) at such time as the

Trusts gross revenue for each of two successive years is less than $1.0 million per year or (ii) the Unit Holders of at least 75% of all of the Units outstanding vote in favor of termination.

Net Overriding Royalty Interest and Distribution to Unit Holders

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Unit Holders of record will be entitled to receive the calculated Monthly Distribution

Notes to Financial Statements (Continued)

each month on or before 10 business days after the monthly record date, which is generally the last business day of each calendar month.

Amount for each month on or before 10 business days after the monthly record date, which is generally the last business day of each calendar month.

The cash received by the Trustee consists of the Net Proceeds generated by the owner of the Subject Interests multiplied by 75%.

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The Royalty Income recorded for a month is the amount computed and paid by the owner of the Subject Interests,

Hilcorp San Juan L.P.

Hilcorp, the present owner of the Subject Interests, to the Trustee for the Trust.

Royalty Income consists of the Net Proceeds generated by Hilcorp, multiplied by 75%.

The calculation of Net Proceeds by Hilcorp for

any month includes true-ups and adjustments to Net Proceeds for prior months and impacts the Royalty Income paid to the Trust and the distribution to Unit Holders for that month.

The calculation of Net Proceeds by Hilcorp for any month includes true-ups and adjustments to Net Proceeds for prior months and impacts the Royalty Income paid to the Trust and the distribution to Unit Holders for that month.

Although permitted under the Conveyance, Hilcorp has informed the Trust that, for wells operated by Hilcorp, it

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and amortization of the Royalty calculated on a unit-of-production basis is charged directly to trust corpus instead of as an expense.

accounting pronouncements apply to entities whose financial statements are prepared in accordance with U.S.

generally accepted accounting principles, directing such entities to accrue or defer revenues and expenses in a period other than when such

revenues were received or expenses were paid.

accounting pronouncements apply to entities whose financial statements are prepared in accordance with GAAP, directing such entities to accrue or defer revenues and expenses in a period other than when such revenues were received or expenses were

Because the Trusts financial statements are prepared on the modified cash basis, as described above, most accounting pronouncements are not applicable to the Trusts financial statements.

comprehensive basis of accounting corresponds to the accounting permitted for royalty trusts by the U.S.

This comprehensive basis of accounting

corresponds to the accounting permitted for royalty trusts by the U.S.

Securities and Exchange Commission, as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.

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the carrying amount of an asset may not be recoverable.

If an impairment event

Notes to Financial Statements (Continued)

occurs and it is determined that the carrying value of the Trusts royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which the carrying

amount of the royalty interests exceeds the fair value of these assets, which would likely be measured by discounting projected cash flows and recorded as a reduction of trust corpus.

There was no impairment of the assets as of December 31,

2021 or 2020.

If an impairment event occurs and it is determined that the carrying value of the Trusts royalty interests may not be recoverable, an impairment will be recognized as measured by the

amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely be measured by discounting projected cash flows and recorded as a reduction of trust corpus.

There was no impairment of the

assets as of December 31, 2022 or 2021.

Federal Income Taxes

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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.

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.

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

Trust has on file technical advice memoranda confirming such tax treatment.

Under present law, the Trusts production and sale of

natural gas from Coal Seam Wells does not qualify for tax credit under Section 45K of the Code (the Section 45 Tax Credit).

Congress has at various times since 2002 considered energy legislation, including provisions to

reinstate the Section 45 Tax Credit in various ways and to various extents, but no legislation that would qualify the Trusts current production for such credit has been enacted.

No prediction can be made as to what future tax legislation

affecting Section 45K of the Code may be proposed or enacted or, if enacted, its impact, if any, on the Trust and the Unit Holders.

The Trust is a WHFIT classified as a 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

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.

The Royalty is treated as a single property

for depletion purposes.

The Trust has on file technical advice memoranda confirming such tax treatment.

Under present law, the

Trusts production and sale of natural gas from Coal Seam Wells does not qualify for tax credit under Section 45K of the Code (the Section 45 Tax Credit).

Congress has at various times since 2002 considered energy

legislation, including provisions to reinstate the Section 45 Tax Credit in various ways and to various extents, but no legislation that would qualify the Trusts current production for such credit has been enacted.

No prediction can be

made as to what future tax legislation affecting Section 45K of the Code may be proposed or enacted or, if enacted, its impact, if any, on the Trust and the Unit Holders.

The classification of the Trusts income for purposes of the passive loss rules may be important to a Unit Holder.

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the Trustee, have access to Burlington and its successors books and records, which protocol has been adopted by Hilcorp.

Notes to Financial Statements (Continued)

Significant Customers

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to wells not operated by Hilcorp, Hilcorps share of capital expenditures may not be paid until the following year(s) after those expenses were incurred by the operator.

Hilcorps 2021 capital expenditures plan for the Subject Interests estimated capital expenditures of $0.3 million for facility

projects primarily related to natural gas compression.

Hilcorps 2022 capital expenditures plan for the Subject Interests estimated capital expenditures of $1.9 million for well

recompletions and workovers, for facility projects primarily related to natural gas compression, and for permitting and surveying costs for future new drill projects.

Actual capital expenditures of approximately $1.0 million were included in

calculating royalty income paid to the Trust in calendar year 2022.

Hilcorp estimated its 2021 capital expenditure budget at

$0.3 million.

Actual capital expenditures of approximately $0.3 million were included in calculating royalty income paid to the Trust in calendar year 2021.

Hilcorp estimated its 2020 capital expenditure budget at $0.3 million.

Actual capital expenditures of approximately $0.3 million

were included in calculating royalty income paid to the Trust in calendar year 2020.

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.

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.

Settlements and Litigation

Oil and Gas Reserve Information (Unaudited)

Supplemental Oil and Gas Reserve Information (Unaudited)

Proved Oil and Natural Gas Reserves

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Proved reserves are those quantities of oil and natural

gas, which, by analysis of geoscience and engineering data can be estimated

Notes to Financial Statements (Continued)

with reasonable certainty to be economically producible from a given date forward, from known reservoirs and under existing economic conditions, operating methods, and government regulation

before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain.

Proved developed reserves are the quantities expected to be recovered through existing wells with existing

equipment and operating methods in which the cost of the required equipment is relatively minor compared with the cost of a new well.

Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are subject to change as

additional information becomes available.

gas, which, by analysis of geoscience and engineering data can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs and under existing economic conditions, operating methods, and

government regulation before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain.

Proved developed reserves are the quantities expected to be recovered through existing

wells with existing equipment and operating methods in which the cost of the required equipment is relatively minor compared with the cost of a new well.

Due to the inherent uncertainties and the limited nature of reservoir data, such estimates are

subject to change as additional information becomes available.

The reserves actually recovered and the timing of production of these reserves may be substantially different from the original estimate.

Revisions result primarily from new information obtained from

development drilling and production history and from changes in economic factors.

The following table presents a reconciliation of proved

reserve quantities attributable to the Royalty from December 31, 2018 to December 31, 2021:

Revisions result primarily from new information

obtained from development drilling and production history and from changes in economic factors.

The following table presents a reconciliation of proved reserve quantities attributable to

the Royalty from December 31, 2019, to December 31, 2022:

Crude Oil and

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no provision for income taxes has been made in the following disclosure.

Trust prices may differ from posted NYMEX prices due to differences in product quality and property location.

The impact of changes in current prices on reserves could vary

significantly from year to year.

Accordingly, the information presented below should not be viewed as an

Notes to Financial Statements (Continued)

estimate of the fair market value of the Trusts oil and natural gas reserves or the costs that would be incurred to acquire equivalent reserves.

A market value determination would require

the analysis of additional parameters.

Trust prices may differ from posted New York Mercantile Exchange prices due to differences in product quality and property location.

The impact of changes in current prices on

reserves could vary significantly from year to year.

Accordingly, the information presented below should not be viewed as an estimate of the fair market value of the Trusts oil and natural gas reserves or the costs that would be incurred to

acquire equivalent reserves.

A market value determination would require the analysis of additional parameters.

(in thousands)

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These prices were based on a 12-month unweighted average of the

first-day-of-the-month pricing of $3.598 per MMBtu of Henry Hub natural gas and $66.56

per Bbl of West Texas Intermediate oil.

first-day-of-the-month pricing of $6.36 per MMBtu of Henry Hub natural gas and $93.67 per

Bbl of West Texas Intermediate oil.

The increase in reserve quantities for 2022 is due primarily to higher natural gas prices.

For 2020, $1.44 per Mcf of natural gas and $29.57 per Bbl of oil were used in determining future net revenue.

These prices were based on a 12-month unweighted average of the

first-day-of-the-month pricing of $1.985 per MMBtu of Henry Hub natural gas and $39.57

per Bbl of West Texas Intermediate oil.

The decrease in reserve quantities for 2020 is due primarily to lower natural gas prices.

Notes to Financial Statements (Continued)

2021, $3.05 per Mcf of natural gas and $55.73 per Bbl of oil were used in determining future net revenue.

These prices were based on a 12-month unweighted average of the first-day-of-the-month pricing of $3.598 per MMBtu of Henry Hub natural gas and $66.56 per Bbl of West Texas Intermediate oil.

The increase in reserve quantities for 2021 is due primarily to higher natural gas prices.

Quarterly Schedule of Distributable Income (Unaudited)

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

Gross Proceeds and Severance

Tax Estimates.

Hilcorps process of reconciling actual revenue and severance taxes to previously reported estimates (which the Trust refers to as true-ups) during fiscal years 2018 and

2020 are 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 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 will reverse and rebook revenue for certain prior periods.

Thus, distributions to the Trust from Hilcorp in any given month may be

subject to adjustments based upon prior months true-ups and rebooking, plus interest.

2020, Hilcorp made true-up and rebooking adjustments resulting in a reduction of $0.5 million gross ($0.4 million net) Royalty Income to the Trust based on the production months of August through

December 2017, January through May 2018, and January 2019 through June 2020.

The Trust continues to request periodic updates from Hilcorp as to its production and financial expectations with respect to the Subject Interests due to any effects caused by the ongoing

Covid-19 pandemic and the recent fluctuations in oil and gas pricing.

Hilcorp has informed the Trust that, given the current natural gas pricing environment, Hilcorp does not anticipate materially reducing any

of the Subject Interests production or taking any of the Subject Interests wells offline;

however, both the Trust and 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 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 the Trust.

However, the impact of the

Notes to Financial Statements (Continued)

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.

Covid-19 Pandemic .

The Trust continues to request periodic updates from Hilcorp as to its production and financial expectations with respect to the Subject Interests due to any effects caused by the Covid-19 pandemic and the recent fluctuations in oil and gas pricing.

Hilcorp informed the Trust 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 and it does not have anything else to specifically to comment on regarding the Covid-19

Geo-Political Uncertainties.

Prices for goods and services have risen during

2022, and inflationary pressures have accelerated during 2022, as regional and global commodity prices have risen in response to the conflict in Ukraine.

Hilcorp informed the Trust that it does not have anything specifically to comment on regarding

the war in Ukraine.

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 and 2022.

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, Hilcorpho 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 and 2022 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

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

Hilcorp made total actualizations and other adjustments resulting in $10,951,453 additional Royalty Income paid to the Trust.

Of this amount, $1,391,619 was for prior period non-operated true-ups and revenue for granted audit exceptions and interest, and $9,559,834 was related to adjustments associated with Hilcorp process reviews and adjustments.

Hilcorp has informed the Trustee that it has

implemented additional controls to enhance the reporting process and reduce the need for future corrections.

As of December 31, 2022, Hilcorp has informed the Trust that it believes that all prior month actualizations have occurred, and does

not expect to need to report any further actualizations in future distribution reports.

However, 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 payments made by Hilcorp to the Trust, inclusive of sales revenues, production costs, capital expenditures,

adjustments, actualizations, and recoupments.

The Trusts auditing process has also included detailed analysis of Hilcorps pricing and rates charged.

As previously disclosed in the Trusts filings, these revenues and costs (along

with all costs) are the subject of the Trusts ongoing comprehensive audit process by our professional consultants and outside counsel to ensure full compliance with all the underlying operative Trust agreements and evaluating all available

potential remedies in the event there is evidence of non-compliance.

Subsequent Events

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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 8. Financial Statements and Supplementary Data