What changed in this filing

/stocks — the workspaceLOADING

Item 2. Properties

2024-04-01 compared with 2023-03-31 · 247 added, 157 removed, 147 unchanged (73% of the section changed)

9 unchanged sentences

wells, of which approximately 998 gross (287.9 net) wells were Multiple Completion Wells, resulting in a total of 5,444 gross (1,148.5 net) completions.

Hilcorp has informed the Trust that all of the subject acreage is held by production, and even though it has not been fully developed in every

formation, Hilcorp has classified all of such acreage as developed.

Production from conventional natural gas wells is primarily from the Pictured Cliffs, Mesaverde and Dakota formations, ranging in depth from 1,500 to 8,000 feet.

production is attributable to coal seam reserves in the Fruitland Coal formation.

Coal seam natural gas constituted approximately 23.1%

of our proved natural gas reserves as of December 31, 2022.

Hilcorp has informed the Trust that all of the subject acreage is held by production, and

even though it has not been fully developed in every formation, Hilcorp has classified all of such acreage as developed.

Production from conventional natural gas wells is primarily from the Pictured Cliffs, Mesaverde and Dakota formations, ranging

in depth from 1,500 to 8,000 feet.

Additional production is attributable to coal seam reserves in the Fruitland Coal formation.

natural gas constituted approximately 10.6% of the Trusts proved natural gas reserves as of December 31, 2023.

The process of removing coal seam natural gas is often referred to as degasification or desorption.

Millions of years ago, natural gas was generated in the process of coal formation

and absorbed into the coal.

Millions of years ago,

natural gas was generated in the process of coal formation and absorbed into the coal.

Water later filled the natural fracture system.

When the water is removed from the natural fracture system, reservoir pressure is lowered, and the natural gas desorbs from the coal.

The desorbed natural gas then flows

through the fracture system and is produced at the well bore.

The volume of formation water production typically declines with time and the natural gas production may increase for a period of time before starting to decline.

Typically, the volumes

of natural gas produced from a Coal Seam Well decline more rapidly than those of Conventional Wells.

In order to dispose of the formation water, surface facilities including pumping units are required.

The price of coal seam natural gas is typically

lower than the price of conventional natural gas.

This is because the heating value of coal seam natural gas is much lower than that of conventional natural gas due to (i) ever increasing percentages of carbon dioxide in coal seam natural gas

(carbon dioxide has no heating value), and (ii) the absence of heavier hydrocarbons such as ethanes, propanes, and butanes, which are present in conventional natural gas.

Furthermore, the production costs and processing fees for coal seam

natural gas are typically higher than the processing fees for conventional natural gas due to the cost of extracting the carbon dioxide.

The Royalty conveyed to the Trust is limited to the base of the Dakota formation, which is

currently the deepest significant producing formation under acreage affected by the Royalty.

When the water is removed from the natural fracture system, reservoir pressure is lowered, and the natural gas

desorbs from the coal.

The desorbed natural gas then flows through the fracture system and is produced at the well bore.

The volume of formation water production typically declines with time and the natural gas production may increase for a period

of time before starting to decline.

Typically, the volumes of natural gas produced from a Coal Seam Well decline more rapidly than those of Conventional Wells.

In order to dispose of the formation water, surface facilities including pumping units

are required.

The price of coal seam natural gas is typically lower than the price of conventional natural gas.

This is because the heating value of coal seam natural gas is much lower than that of conventional natural gas due to (i) ever

increasing percentages of carbon dioxide in coal seam natural gas (carbon dioxide has no heating value), and (ii) the absence of heavier hydrocarbons such as ethanes, propanes, and butanes, which are present in conventional natural gas.

Furthermore, the production costs and processing fees for coal seam natural gas are typically higher than the processing fees for conventional natural gas due to the cost of extracting the carbon dioxide.

The Royalty conveyed to the Trust is limited to the base of the Dakota formation, which is currently the deepest significant producing

formation under acreage affected by the Royalty.

Rights to production, if any, from deeper formations are retained by Hilcorp.

Capital Expenditure Budget

On February 17, 2023, the Trust announced that Hilcorp had provided the Trust with its 2023 capital project plan for the Subject Interests

(the 2023 Plan), and Hilcorp has estimated its 2023 capital expenditures for the Subject Interests to be $4.4 million.

Hilcorp informed the Trust that its 2023 Plan will allocate approximately $3.7 million of the 2023 Plans budget toward 25 well

recompletions and workovers scheduled to be completed in the Mesaverde, Pictured Cliffs and Fruitland Coal formations.

Approximately $0.5 million of the 2023 Plans budget will be allocated to facilities projects related to natural gas

compression, and approximately $0.2 million will be spent for permitting costs for potential future new drill projects.

Hilcorp further informed the Trust that its planned project status for 2023 is subject to revision if Hilcorp revises its

assumptions underlying the 2023 Plan, and that actual capital costs may vary from these estimates.

On February 16, 2024, the Trust announced that Hilcorp had provided the Trust with its 2024 capital

project plan for the Subject Interests (the 2024 Plan), and Hilcorp has estimated its 2024 capital expenditures for the Subject Interests to be $36.0 million.

This plan was updated on March 6, 2024, with a reduction of

approximately $2.0 million, bringing the total estimate of 2024 capital expenditures to $34.0 million.

Hilcorp informed the

Trust that its 2024 Plan will allocate approximately $25.0 million of the 2024 Plans budget toward two drilling projects in the Mancos formation.

Approximately $8.0 million of the 2024 Plans budget will be allocated to 36 well

recompletions and workovers scheduled to be completed in the Mesaverde and Fruitland Coal formations.

Approximately $1.0 million of the 2024 Plans budget will be allocated to facilities projects related to natural gas compression.

further informed the Trust that its planned project status for 2024 is subject to revision if Hilcorp revises its assumptions underlying the 2024 Plan, in which event the actual capital costs may vary from these estimates.

Oil and Natural Gas Production

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Hilcorp sells natural gas produced from the Subject Interests under various contracts.

Hilcorps sales contracts with Chevron Natural Gas (Chevron) and EDF

Trading North America LLC (EDF) automatically renewed for an additional one-year term and now expire on March 31, 2024.

Each of Hilcorps sales contracts with EDF and Chevron provides for

(i) the delivery of such natural gas at various delivery points through their respective termination dates and (ii) the sale of such natural gas at prices that fluctuate in accordance with published indices for natural gas sold in the San

Hilcorps sales contracts with Chevron Natural Gas (Chevron) and EDF Trading North America LLC (EDF)

automatically renewed for an additional one-year term and now expire on March 31, 2025.

Each of Hilcorps sales contracts with EDF and Chevron provides for (i) the delivery of such natural gas

delivery points through their respective termination dates and (ii) the sale of such natural gas at prices that fluctuate in accordance with published indices for natural gas sold in the San

Hilcorps natural gas sales contract with New Mexico Gas Company, Inc.

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Proved Undeveloped Reserves

Based on information provided by Hilcorp and analysis by our independent reserve engineer, there were no proved undeveloped reserves identified

as of December 31, 2022 or 2021.

Based on information provided by Hilcorp and analysis by the Trusts independent reserve engineer, there were 9,135 MMcf of proved

undeveloped reserves identified as of December 31, 2023.

There were no proved undeveloped reserves identified in 2022.

The increase in proved undeveloped reserves was due to Hilcorps plan for two drilling projects in the Mancos formation

Internal Controls over Reserves Estimates

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The technical person at CG&A primarily responsible for overseeing the reserve estimate with respect to the Trust is Zane Meekins.

Meekins has been a practicing petroleum engineering consultant since 1989, with over 34 years

of practice experience in petroleum engineering and is a registered professional engineer in the State of Texas (License No.

Meekins graduated from Texas A&M University in 1987, summa cum laude , with a B.S.

Petroleum Engineering.

Meekins has been a practicing petroleum engineering consultant since 1989, with over

35 years of practice experience in petroleum engineering and is a registered professional engineer in the State of Texas (License No.

Meekins graduated from Texas A&M University in 1987, summa cum

laude , with a B.S.

in Petroleum Engineering.

Both CG&A and Mr.

Meekins have indicated that they meet or exceed all requirements set forth in Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of

Petroleum Engineers.

Meekins have indicated that they meet or exceed all requirements set forth in Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information

promulgated by the Society of Petroleum Engineers.

Exploration for and production and sale of oil and natural gas are extensively regulated at the national, state, and local levels.

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frequently increasing the regulatory burden on operations.

Numerous governmental departments and agencies are authorized by statute to issue, and have issued, rules and regulations binding on the oil and natural gas industry.

Compliance with

applicable laws is often difficult and costly, while non-compliance may result in substantial penalties.

Such costs and penalties may affect the amount of Net Proceeds attributable to the Royalty that are paid

to the Trust by Hilcorp or by subsequent operators of the Subject Interests.

The transportation and resale of natural gas in interstate commerce, historically, have been regulated pursuant to several laws enacted by

Congress and the regulations promulgated under these laws by the Federal Energy Regulatory Commission (FERC) and its predecessor.

In the past, the federal government has regulated the prices at which natural gas could be sold in

interstate commerce.

Congress removed all price and non-price controls affecting wellhead sales of natural gas under the Natural Gas Wellhead Decontrol Act effective January 1, 1993.

could, however, reenact controls in the future.

Sales of natural gas are affected by the availability, terms, and cost of transportation.

Numerous governmental departments and agencies are authorized by statute to issue, and have issued, rules and regulations binding on the

oil and natural gas industry.

Compliance with applicable laws is often difficult and costly, while non-compliance may result in substantial penalties.

costs and penalties may affect the amount of Net Proceeds attributable to the Royalty that are paid to the Trust by Hilcorp or by subsequent operators of the Subject Interests.

transportation and resale of natural gas in interstate commerce, historically, have been regulated pursuant to several laws enacted by Congress and the regulations promulgated under these laws by the Federal Energy Regulatory Commission

(FERC) and its predecessor.

In the past, the federal government has regulated the prices at which natural gas could be sold in interstate commerce.

Congress removed all price and

non-price controls affecting wellhead sales of natural gas under the Natural Gas Wellhead Decontrol Act effective January 1, 1993.

Congress could, however, reenact controls in the future.

Any transportation of crude oil, natural gas liquids and purity components (ethane, propane, butane,

iso-butane, and natural gasoline) by rail is also subject to regulation by the DOTs Pipeline and Hazardous Materials Safety Administration (PHMSA) and the DOTs Federal Railroad

Administration (FRA) under the Hazardous Materials Regulations at 49 CFR Parts 171-180 (HMR), including Emergency Orders by the FRA and new regulations being proposed by the PHMSA,

arising due to the consequences of train accidents and the increase in the rail transportation of flammable liquids.

Sales of natural gas

are affected by the availability, terms, and cost of transportation.

The price and terms for pipeline transportation remain subject to extensive federal and state regulation.

Several major regulatory changes have been implemented by Congress and FERC from 1985 to the present that affect the economics of natural gas

production, transportation, and sales.

In addition, FERC continues to promulgate revisions to various aspects of the rules and regulations affecting those segments of the natural gas industry, most notably interstate natural gas transmission

companies, that remain subject to FERCs jurisdiction.

Several major regulatory changes have been implemented by Congress and

FERC from 1985 to the present that affect the economics of natural gas production, transportation, and sales.

In addition, FERC continues to promulgate revisions to various aspects of the rules and regulations affecting those segments of the natural

gas industry, most notably interstate natural gas transmission companies, that remain subject to FERCs jurisdiction.

These initiatives may also affect the intrastate transportation of gas under certain circumstances.

The stated purpose of many of these regulatory changes is to promote competition among

the various sectors of the natural gas industry.

Additional proposals and proceedings that might affect the natural gas industry are

considered from time to time by Congress, FERC, state regulatory bodies and the courts.

The Trust cannot predict when or if any such proposals might become effective, or their effect, if any, on the Trust.

The natural gas industry historically has

been very heavily regulated;

The stated purpose of many

of these regulatory changes is to promote competition among the various sectors of the natural gas industry.

Additional proposals and

proceedings that might affect the natural gas industry are considered from time to time by Congress, FERC, state regulatory bodies and the courts.

The Trust cannot predict when or if any such proposals might become effective, or their effect, if

any, on the Trust.

The natural gas industry historically has been very heavily regulated;

therefore, there is no assurance that the less stringent regulatory approach to natural gas sales pursued since 1993 by FERC and Congress will continue.

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that is paid to the Trust by Hilcorp or subsequent operators of the Subject Interests.

Cyber Security

The Trust falls under PNC Banks Operational Risk Management Framework and cyber security program.

The cyber security program is designed

to identify risks to sensitive information, protect that information, detect threats and events, and maintain an appropriate response and recovery capability to help ensure resilience against information security incidents.

The program includes,

among other things, annual security and privacy training for all PNC Bank employees (including those assigned to the Trust) and quarterly phishing exercises to raise employee awareness.

PNC Banks cyber security program is also regularly

examined by federal regulators for compliance with financial regulations and standards.

The program also establishes expectations for information asset management, system development security, identity and access management, incident management,

threat and vulnerability management, security operations management and third- and fourth-party security.

Environmental Regulation

Activities on the Subject Interests are subject to existing stringent and complex federal, state and local

laws (including case law) and regulations governing health, safety, environmental quality and pollution control.

Activities on the Subject Interests are subject to existing stringent and complex federal, state and local laws (including

case law) and regulations governing health, safety, environmental quality and pollution control.

Those requirements have frequently changed, and new programs may be even more stringent.

Failure to comply with applicable health,

safety and environmental laws, rules and regulations may result in the assessment of administrative, civil or criminal penalties;

Failure to comply with applicable health, safety and

environmental laws, rules and regulations may result in the assessment of administrative, civil or criminal penalties;

the imposition of investigatory or remedial obligations;

and the issuance of injunctions limiting or preventing some or

all of the operations on the Subject Interests.

Under certain environmental laws and regulations, the operators of

the Subject Interests could be subject to strict, joint and several liability for the removal or remediation of property contamination, whether at a drill site or a waste disposal facility, even when the operators did not cause the contamination, or

their activities were in compliance with all applicable laws at the time the actions were taken.

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as the superfund law, for example,

imposes liability, regardless of fault or the legality of the original conduct, on certain classes of persons for releases into the environment of a hazardous substance. Liable persons may include the current or previous owner and

operator of a site where a hazardous substance has been disposed and persons who arranged for the disposal of a hazardous substance at a site.

Under CERCLA and similar statutes, government authorities or private parties may take actions in response

to threats to the public health or the environment and sue responsible persons for the associated costs;

and the issuance of injunctions limiting or preventing some or all of the

operations on the Subject Interests.

Accordingly, these regulations often require difficult and costly compliance measures.

Waste Handling.

The Resource Conservation and Recovery Act (RCRA), as

amended, and comparable state statutes and regulations promulgated thereunder, affect oil and natural gas exploration, development and production activities by imposing requirements regarding the generation, transportation, treatment, storage,

disposal and cleanup of hazardous and non-hazardous wastes.

With federal approval, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more

stringent requirements.

Although most wastes associated with the exploration, development and production of oil and natural gas are exempt from regulation as hazardous wastes under RCRA and its state analogs, it is possible that some wastes the

operators of the Subject Interests generate presently or in the future could be subject to regulation under RCRA and state analogs.

Legislation has been proposed from time to time in Congress to

re-categorize certain oil and natural gas exploration, development and production wastes as hazardous wastes. If the EPA proposes a rulemaking for revised oil and gas waste regulations in the

future, any such changes in the laws and regulations could have a resulting increase in production costs that may affect the amount of Royalty and Royalty Income that is paid to the Trust by Hilcorp or subsequent operators of the Subject Interests.

Under certain environmental laws and regulations, the operators of the Subject Interests could be subject to strict,

joint and several liability for the removal or remediation of property contamination, whether at a drill site or a waste disposal facility, even when the operators did not cause the contamination, or their activities were in compliance with all

applicable laws at the time the actions were taken.

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as the superfund law, for example, imposes liability, regardless of fault or

the legality of the original conduct, on certain classes of persons for releases into the environment of a hazardous substance. Liable persons may include the current or previous owner and operator of a site where a hazardous substance

has been disposed and persons who arranged for the disposal of a hazardous substance at a site.

Under CERCLA and similar statutes, government authorities or private parties may take actions in response to threats to the public health or the

environment and sue responsible persons for the associated costs;

government authorities also may direct responsible persons to implement cleanup measures.

In the course of operations, the working interest

owner and/or the operator of Subject Interests may have generated and may generate materials that could trigger cleanup liabilities.

In addition, the Subject Interests have produced oil and/or natural gas for many years, and previous operators may

have disposed or released hydrocarbons, wastes or hazardous substances at the Subject Interests.

The operator of the Subject Interests or the working interest owners may be responsible for all or part of the costs to clean up any such contamination.

Although the Trust is not the operator of any Subject Interests, or the owner of any working interest, its ownership of the Royalty could cause it to be responsible for all or part of such costs to the extent CERCLA, or any similar statute, imposes

responsibility on such parties as owners.

Although CERCLA excludes petroleum from the definition of hazardous substance, in

the course of operations, the working interest owner and/or the operator of Subject Interests may have generated and may generate materials that fall outside of this exclusion and that could trigger cleanup liabilities.

In addition, the Subject

Interests have produced oil and/or natural gas for many years, and previous operators may have disposed or released hydrocarbons, wastes or hazardous substances at the Subject Interests.

The operator of the Subject Interests or the working interest

owners may be responsible for all or part of the costs to clean up any such contamination.

Although the Trust is not the operator of any Subject Interests, or the owner of any working interest, its ownership of the Royalty could cause it to be

responsible for all or part of such costs to the extent CERCLA, or any similar statute, imposes responsibility on such parties as owners.

Water Discharges.

The Federal Water Pollution Control Act of 1972, as amended, also known as the Clean Water Act

(CWA), the Safe Drinking Water Act, the Oil Pollution Act of 1990 (OPA), and analogous state laws and regulations promulgated thereunder impose restrictions and strict controls regarding the unauthorized discharge of

pollutants, including produced waters and other gas and oil wastes, into waters of the United States (WOTUS), as well as state waters for analogous state programs.

The discharge of pollutants into regulated waters is prohibited, except

in accordance with the terms of a permit issued by the EPA or applicable state analog.

The CWA and regulations implemented thereunder also prohibit the discharge of dredge and fill material into regulated waters, including jurisdictional wetlands,

unless authorized by an appropriately issued permit from the U.S.

Army Corps of Engineers (the Corps).

In May 2023, the U.S.

Supreme Courts decision in Sackett v.

EPA narrowed federal jurisdiction over wetlands to

traditional navigable waters and wetlands or other waters that have a continuous surface connection with or are otherwise indistinguishable from traditional navigable water.

In September 2023, the EPA and the Corps published

a direct-to-final rule that conforms the regulatory definition of WOTUS to the Supreme Courts May 2023 decision in Sackett .

In the wake of the

Sackett decision, several states have developed their own wetlands policies or regulatory programs to address discharges to intra-state waters that may no longer be regulated as WOTUS.

The EPA has also adopted regulations requiring certain oil and natural gas exploration and production facilities to obtain individual permits

or coverage under general permits for storm water discharges.

associated with the treatment of wastewater or developing and implementing storm water pollution prevention plans, as well as for monitoring and sampling the storm water runoff from certain of

our facilities.

Some states also maintain groundwater protection programs that require permits for discharges or operations that may impact groundwater conditions.

EPA and various states also impose permitting requirements for the disposal of

produced water by underground injection.

The OPA is the primary federal law for oil spill liability and contains numerous requirements

relating to the prevention of and response to petroleum releases into WOTUS, including the requirement that operators of offshore facilities and certain onshore facilities near or crossing waterways must develop and maintain facility response

contingency plans and maintain certain significant levels of financial assurance to cover potential environmental cleanup and restoration costs.

The OPA subjects owners of facilities to strict, joint and several liability for all containment and

cleanup costs and certain other damages arising from a release, including, but not limited to, the costs of responding to a release of oil to surface waters.

These permitting requirements could create additional production costs, and any noncompliance with the CWA or the OPA may result in

substantial administrative, civil and criminal penalties, as well as injunctive obligations that the operator of the Subject Interests or the working interest owners may be responsible.

Climate Change .

Mitigating climate change has become the subject of an important

public policy debate and the basis for new legislation proposed by the United States Congress and certain states.

Some states have adopted climate change statutes and regulations, and in one of the first acts of his administration, President Biden

signed an executive order to rejoin the Paris Climate Agreement, which sets out an international framework to limit the increase in global average temperature to well below two degrees Celsius (or less).

Participating countries prepare,

maintain and publish national greenhouse gas (GHG) reduction targets.

Mitigating climate change has become the subject of an important public policy debate and the basis for new

legislation proposed by the United States Congress and certain states.

Some states have adopted climate change statutes and regulations, and the Biden Administration has pursued executive actions to address climate change.

At the international

level, the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change (UNFCCC) resulted in nearly 200 countries, including the United States, coming together to develop the Paris Agreement, intended to

nationally determine their contributions and set greenhouse gas (GHG) emission reduction goals every five years beginning in 2020.

In February 2021, as a party to the Paris Agreement, the U.S.

announced a target to achieve a 50% to 52%

reduction from 2005 levels in economy-wide GHG emissions by 2030.

Accordingly, the Biden administration has set ambitious domestic targets for curbing climate change, such as making the U.S.

power sector climate neutral by 2035 and

achieving a net-zero emissions economy by 2050.

The Inflation Reduction Act (IRA) was

signed into law in August 2022 and contains many provisions that address climate change by creating incentives to use alternative fuels and sources of energy.

The Biden administration expects the IRA to reduce U.S.

GHG emissions by approximately 40%

by 2030 compared with 2005 levels and put the United States on course for a net-zero economy by 2050.

power sector climate neutral by 2035 and achieving a net-zero emissions economy by 2050.

In addition, in September 2021, President Biden publicly announced the Global Methane Pledge, a pact that aims to reduce global methane emissions at least 30% below 2020 levels by

2030, including all feasible reductions in the energy sector.

The Inflation Reduction Act (IRA) was signed into

law in August 2022 and contains many provisions that address climate change by creating incentives to use alternative fuels and sources of energy:

Methane Emissions and Waste Reduction Incentive Program, which requires the EPA to impose a

waste emissions charge on certain natural gas and oil sources that are already required to report under the EPAs Greenhouse Gas Reporting Program.

To implement the program, the IRA requires revisions to GHG reporting regulations

for petroleum and natural gas systems (Subpart W) by 2024.

In July 2023, the EPA proposed to expand the scope of the Greenhouse Gas Reporting Program for petroleum and natural gas facilities, as required by the IRA.

Among other things, the proposed

rule would expand the emissions events that are subject to reporting requirements to include other large release events and apply reporting requirements to certain new sources and sectors.

The rule is expected to be finalized in the

spring of 2024 and become effective on January 1, 2025, in advance of the deadline for GHG reporting for 2024 (March 2025).

The fee imposed under the Methane Emissions and Waste Reduction Incentive Program for 2024 would be $900 per ton emitted

over annual methane emissions thresholds, and would increase to $1,200 in 2025, and $1,500 in 2026.

The Methane Emissions Reduction Program in the IRA (Sec.

60113) gives the Environmental Protection Agency

(EPA) the ability to impose charges on methane emitted by certain oil and gas companies.

The charges will start in 2024 and apply to facilities that emit over 25,000 metric tons of carbon dioxide equivalent unless exemptions are

The impact such regulation may have on the amount of Royalty and Royalty Income paid to the Trust by Hilcorp or subsequent operators of the Subject Interests is difficult to predict.

In addition, federal agencies are building upon their existing programs to impose new climate controls.

In 2009, EPA issued an

Endangerment Finding under Section 202(a) of the Clean Air Act, concluding GHG pollution threatens the public health and welfare of future generations.

And EPA has required annual reporting of greenhouse gases for persons operating

certain types of industrial facilities, including oil and natural gas production, transmission and storage operations that emit 25,000 metric tons or more of carbon dioxide equivalent per year.

The data collected through the reporting rules has

helped to provide a basis for promulgating greenhouse gas emission limits.

A number of those rules have addressed emissions from the oil

and gas industry.

On August 16, 2012, for example, EPA issued a final rule that established new source performance standards for volatile organic compounds (VOCs) and sulfur dioxide, an air toxics standard for sources of oil and

natural gas production, and an air toxics standard for sources of natural gas transmission and storage.

60113) also gives the Environmental Protection Agency (EPA) the ability to

impose charges on methane emitted by certain oil and gas companies.

The charges will start in 2024 and apply to facilities that emit over 25,000 metric tons of carbon dioxide equivalent unless exemptions are available.

Funding under the IRA also

provides grant money for methane and greenhouse gas emission mitigation activities.

The IRA aims to reduce U.S.

GHG emissions by

approximately 40% by 2030 compared with 2005 levels and put the United States on course for its commitment to attain a net-zero economy by 2050.

In addition, many state and local governments have intensified

or stated their intent to intensify efforts to support international

climate commitments and treaties, in addition to developing programs that are aimed at reducing GHG emissions by means of cap and trade programs, carbon taxes, the development of greenhouse gas

inventories or encouraging the use of renewable energy or alternative low-carbon fuels.

The impact such regulation may have on the amount of Royalty and Royalty Income paid to the Trust by Hilcorp or

subsequent operators of the Subject Interests is difficult to predict.

In addition, federal agencies are building upon their existing

programs, like those governed by the Clean Air Act, as amended (the CAA), to impose new climate controls.

In 2009, EPA issued an Endangerment Finding under Section 202(a) of the CAA, concluding GHG pollution threatens

the public health and welfare of future generations.

And EPA has required annual reporting of GHG for persons operating certain types of industrial facilities, including oil and natural gas production, transmission and storage operations that emit

25,000 metric tons or more of carbon dioxide equivalent per year.

The data collected through the reporting rules has helped to provide a basis for promulgating GHG emission limits.

Air Emissions.

The CAA and comparable state and local laws and regulations, regulate emissions of various air pollutants

through the issuance of permits and the imposition of other requirements.

The EPA has developed, and continues to develop, stringent regulations governing emissions of air pollutants at specified sources.

New facilities may be required to obtain

permits before work can begin, and modified and existing facilities may be required to obtain additional permits.

As a result, operators may need to incur capital costs in order to remain in compliance.

Obtaining or renewing permits also has the

potential to delay the development of oil and natural gas projects.

Federal and state regulatory agencies can impose administrative, civil and criminal penalties and seek injunctive relief for non-compliance

with air permits or other requirements of the CAA and associated state laws and regulations.

The operators of the Subject Interests are responsible for maintaining compliance with all applicable air emissions regulations and holding all necessary

and valid construction and operating permits for operations.

A number of those rules have addressed emissions from the oil and gas

On August 16, 2012, for example, the EPA issued a final rule that established new source performance standards for volatile organic compounds (VOCs) and sulfur dioxide, an air toxics standard for sources of oil and natural

gas production, and an air toxics standard for sources of natural gas transmission and storage.

That rule generally required all hydraulically fractured or refractured natural gas wells to be completed using

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issued a suite of new final regulations, referred to as NSPS Subpart OOOOa, designed to limit methane, VOCs, and other emissions from new and existing sources in the oil and natural gas sector.

Among other things, these rules applied green completion

requirements to newly fractured and re-fractured oil wells.

Among other things, these rules applied green

completion requirements to newly fractured and re-fractured oil wells.

Rulemaking concerning regulation of greenhouse gas and other emissions from the oil and natural gas industry continues.

In 2022, EPA proposed new

rules for oil and gas sources that would (i) ensure all wells are routinely monitored for leaks, (ii) encourage use of innovative and advanced monitoring, (iii) impose strengthened emission standards for certain equipment, and

(iv) require states to reduce methane emissions from existing sources.

The ultimate scope of these regulations remains uncertain;

however, any resulting increase in production costs may affect the amount of Royalty and Royalty Income that is

paid to the Trust by Hilcorp or subsequent operators of the Subject Interests.

The oil and gas industry also is likely to be indirectly

affected by EPA rulemakings covering other industry sectors.

For example, in 2015 EPA promulgated its Clean Power Plan, which imposed greenhouse gas emissions limits on U.S.

In December 2023,

EPA finalized new rules for oil and gas sources that would (i) ensure all wells are routinely monitored for leaks, (ii) encourage use of innovative and advanced monitoring, (iii) impose strengthened emission standards for certain

equipment, and (iv) require states to reduce methane emissions from existing sources.

The final rule gives states, along with federal tribes that wish to regulate existing sources, two years to develop and submit their plans for reducing

methane emissions from existing sources.

The final emissions guidelines under Subpart OOOOc provide three years from the plan submission deadline for existing sources to comply.

States have also begun to regulate through their New Source Performance

Standards (NSPS) and other air emissions programs the emission of VOCs and methane from oil and gas production process equipment, storage tanks and produced water impoundments and other assets.

The ultimate scope of these regulations

remains uncertain;

however, any resulting increase in production costs may affect the amount of Royalty and Royalty Income that is paid to the Trust by Hilcorp or subsequent operators of the Subject Interests.

The oil and gas industry also is likely to be indirectly affected by EPA rulemakings covering other industry sectors.

For example, in 2015 EPA

promulgated its Clean Power Plan, which imposed greenhouse gas emissions

limits on U.S.

power plants.

In the Trump Administration, EPA replaced the Clean Power

Plan with the Affordable Clean Energy rule, which interpreted the Clean Air Act as limiting the scope of the federal governments authority to establishing only source-specific (or inside the fence line) emissions reduction

requirements for coal-fired power plants.

Circuit vacated the Affordable Clean Energy rule, but the Supreme Court reversed the vacatur and ruled the Clean Power Plan was invalid.

EPA has indicated that it has started work to replace the

Affordable Clean Energy rule with new standards governing emissions from fossil-fuel-fired power plants.

EPA under President Bidens administration therefore will have a further opportunity to adopt more stringent limits on GHG emissions and

incentivize alternative energy sources.

Adoption of any such requirements could reduce demand for oil and gas generally, including oil and natural gas produced from the Subject Interests, and could increase the cost of operations of the Subject

Interests, which could result in a loss of reserves or revenues to the Trust.

The impact such regulation may have on the amount of Royalty and Royalty Income paid to the Trust by Hilcorp or subsequent operators of the Subject Interests is difficult

The cumulative effect of the various climate change measures is likewise uncertain.

Due to factors such as environmental concerns and

increased competition from renewables, the International Energy Agency (IEA) estimates that natural gas demand in established markets such as the U.S.

and the European Union will begin to deteriorate by the

mid-2020s, and oil demand will plateau after 2030.

Notwithstanding potential risks related to climate change, the IEA estimates that global energy demand will continue to rise and will not peak until after

2040 and that oil and natural gas will continue to represent a substantial percentage of global energy use over that time.

In the Trump Administration, EPA replaced the Clean Power Plan with the Affordable Clean Energy rule, which interpreted the Clean Air Act as limiting the scope of the

federal governments authority to establishing only source-specific (or inside the fence line) emissions reduction requirements for coal-fired power plants.

Circuit vacated the Affordable Clean Energy rule, but the Supreme

Court reversed the vacatur and ruled the Clean Power Plan was invalid.

On May 11, 2023, the EPA issued a proposed rulemaking to replace the Affordable Clean Energy rule with new standards governing emissions from fossil-fuel-fired power plants (EPA-HQ-OAR-2023-0072) and supplemented its proposal on November 15, 2023.

The EPA therefore may adopt more stringent limits on

GHG emissions and incentivize alternative energy sources.

Adoption of any such requirements could reduce demand for oil and gas generally, including oil and natural gas produced from the Subject Interests, and could increase the cost of operations

of the Subject Interests, which could result in a loss of reserves or revenues to the Trust.

The impact such regulation may have on the amount of Royalty and Royalty Income paid to the Trust by Hilcorp or subsequent operators of the Subject

Interests is difficult to predict.

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 Bureau of Land Management (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.

informed the Trust that it does not believe that actions undertaken by President Bidens administration to curtail future leases for natural gas and oil drilling on federally owned land will impact the Subject Interests because, at the present

time, they do not impact current leases.

The Biden administration announced in September 2023 that it has moved to shut down future

development of oil, gas and mining activity on approximately 4,200 acres in Sandoval County, New Mexico for the next 50 years.

Hilcorp has informed the Trust that the proposed tracts are not within the production area of the Subject Interests

or part of any future proposed development plans.

Certain Tax Considerations

9 unchanged sentences

the Withholding Tax Act and other tax matters to distributions received from the Trust by a Unit Holder.

LEGAL PROCEEDINGS

MINE SAFETY DISCLOSURES

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 2. Properties