What changed in this filing

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Item 1. Financial Statements

2021-05-14 compared with 2020-11-09 · 275 added, 425 removed, 82 unchanged (90% of the section changed)

1 unchanged sentence

VOC ENERGY TRUST

CONDENSED STATEMENTS OF DISTRIBUTABLE

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME

Three months ended

September 30,

Nine months ended

September 30,

Income from net profits interest

Cash on hand used (withheld) for Trust expenses

Cash on hand used for Trust expenses

General and administrative expenses (1)

Distributable income

Distributions per Trust unit (17,000,000 Trust units issued and outstanding at September 30, 2020 and 2019)

Includes $26,685 and $51,320 paid to VOC Brazos Energy Partners, LP (“VOC Brazos”) during the three months ended September 30, 2020 and 2019, respectively, and $78,005 and $75,995 during the nine months ended September 30, 2020 and 2019, respectively.

Also includes $37,500 paid to The Bank of New York Mellon Trust Company, N.A.

during each of the three-month periods ended September 30, 2020 and 2019 and $112,500 during each of the nine-month periods ended September 30, 2020 and 2019, respectively.

CONDENSED STATEMENTS OF ASSETS AND TRUST

September 30,

Distributions

per Trust unit (17,000,000 Trust units issued and outstanding at March 31, 2021 and 2020)

Includes $26,685 and $51,320 paid to VOC Brazos Energy Partners, LP (“VOC Brazos”) during the three months ended March 31, 2021 and 2020, respectively, and $37,500 paid to The Bank of New York Mellon Trust Company, N.A.

during each of the three months ended March 31, 2021 and 2020.

CONDENSED STATEMENTS OF ASSETS AND TRUST CORPUS

Cash and cash equivalents

3 unchanged sentences

(122,182,408 )

Trust corpus, 17,000,000 Trust units issued and outstanding at September 30, 2020 and December 31, 2019

CONDENSED STATEMENTS OF CHANGES IN TRUST

Trust corpus, 17,000,000 Trust units issued and outstanding at March 31, 2021and December 31, 2020

CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS

Three months ended

September 30,

Nine months ended

September 30,

Trust corpus, beginning of period

2 unchanged sentences

Trust expenses

Amortization of net profits interest (includes impairment expense of $41,261,354 during the nine months ended September 30, 2020)

Amortization of net profits interest (includes impairment expense of $41,261,354 in 2020)

(42,729,084 )

Trust corpus, end of period

The accompanying notes are an integral part

of these condensed financial statements.

The accompanying notes are an integral part of

these condensed financial statements.

VOC ENERGY TRUST

1 unchanged sentence

Organization of the Trust

VOC Energy Trust (the “Trust”)

is a statutory trust formed on November 3, 2010 (capitalized on December 17, 2010), under the Delaware Statutory Trust

Act pursuant to a Trust Agreement dated November 3, 2010 (as amended and restated on May 10, 2011, the “Trust Agreement”)

among VOC Brazos Energy Partners, L.P., a Texas limited partnership (“VOC Brazos”), as trustor, The Bank of New York

Mellon Trust Company, N.A., as Trustee (the “Trustee”), and Wilmington Trust Company, as Delaware Trustee (the “Delaware

Trustee”).

VOC Energy Trust (the “Trust”) is

a statutory trust formed on November 3, 2010 (capitalized on December 17, 2010), under the Delaware Statutory Trust Act pursuant

to a Trust Agreement dated November 3, 2010 (as amended and restated on May 10, 2011, the “Trust Agreement”) among

VOC Brazos Energy Partners, L.P., a Texas limited partnership (“VOC Brazos”), as trustor, The Bank of New York Mellon Trust

Company, N.A., as Trustee (the “Trustee”), and Wilmington Trust Company, as Delaware Trustee (the “Delaware Trustee”).

The Trust was created to acquire and hold a term net profits interest for the benefit of the Trust unitholders.

VOC Brazos is a privately held limited

partnership engaged in the production and development of oil and natural gas from properties located in Texas.

VOC Kansas Energy

Partners, L.L.C., a Kansas limited liability company (“VOC Kansas”), is a privately held limited liability company

engaged in the production and development of oil and natural gas from properties primarily located in Kansas along with a limited

number of Texas properties.

In connection with the closing of the initial public offering of units of beneficial interest in the

Trust (“Trust Units”) in May 2011, VOC Brazos acquired all of the membership interests in VOC Kansas in exchange

for newly issued limited partner interests in VOC Brazos pursuant to a Contribution and Exchange Agreement, dated August 30,

2010, as amended, by and between VOC Brazos and VOC Kansas.

This resulted in VOC Kansas becoming a wholly-owned subsidiary of VOC

In connection with the May 2011 closing

of the initial public offering and in exchange for 17,000,000 Trust Units, VOC Brazos and VOC Kansas conveyed a term net profits

interest representing the right to receive 80% of the net proceeds (calculated as described below in Note 6) from production from

the underlying properties (as defined below) (the “net profits interest”).

The net profits interest consists of net

interests in all of the oil and natural gas properties held by VOC Brazos and VOC Kansas in the states of Kansas and Texas as of

the date of the conveyance of the net profits interest to the Trust.

We refer to the properties in which the Trust holds the net

profits interest as the “underlying properties.”

The net profits interest is passive in

nature, and the Trustee has no management control over and no responsibility relating to the operation of the underlying properties.

The net profits interest entitles the Trust to receive 80% of the net proceeds attributable to VOC Brazos’

interest from

the sale of production from the underlying properties during the term of the Trust.

The net profits interest will terminate on

the later to occur of (1) December 31, 2030 or (2) the time when 10.6 million barrels of oil equivalent (“MMBoe”)

(which is the equivalent of 8.5 MMBoe in respect of the net profits interest) have been produced from the underlying properties

and sold, and the Trust will soon thereafter wind up its affairs and terminate.

The Trustee can authorize the Trust to

borrow money to pay administrative or incidental expenses of the Trust that exceed cash held by the Trust.

The Trustee may authorize

the Trust to borrow from the Trustee or the Delaware Trustee as a lender provided the terms of the loan are similar to the terms

it would grant to a similarly situated commercial customer with whom it did not have a fiduciary relationship.

The Trustee may

also deposit funds awaiting distribution in an account with itself and make other short-term investments with the funds distributed

to the Trust.

VOC Brazos is a privately held limited partnership

engaged in the production and development of oil and natural gas from properties located in Texas.

VOC Kansas Energy Partners, L.L.C.,

a Kansas limited liability company (“VOC Kansas”), is a privately held limited liability company engaged in the production

and development of oil and natural gas from properties primarily located in Kansas along with a limited number of Texas properties.

connection with the closing of the initial public offering of units of beneficial interest in the Trust (“Trust Units”) in

May 2011, VOC Brazos acquired all of the membership interests in VOC Kansas in exchange for newly issued limited partner interests

in VOC Brazos pursuant to a Contribution and Exchange Agreement, dated August 30, 2010, as amended, by and between VOC Brazos and

This resulted in VOC Kansas becoming a wholly-owned subsidiary of VOC Brazos.

In connection with the May 2011 closing of

the initial public offering and in exchange for 17,000,000 Trust Units, VOC Brazos and VOC Kansas conveyed a term net profits interest

representing the right to receive 80% of the net proceeds (calculated as described below in Note 6) from production from the underlying

properties (as defined below) (the “net profits interest”).

The net profits interest consists of net interests in all of the

oil and natural gas properties held by VOC Brazos and VOC Kansas in the states of Kansas and Texas as of the date of the conveyance of

the net profits interest to the Trust.

We refer to the properties in which the Trust holds the net profits interest as the “underlying

properties.”

The net profits interest is passive in nature,

and the Trustee has no management control over and no responsibility relating to the operation of the underlying properties.

The net profits

interest entitles the Trust to receive 80% of the net proceeds attributable to VOC Brazos’

interest from the sale of production

from the underlying properties during the term of the Trust.

The net profits interest will terminate on the later to occur of (1) December 31,

2030 or (2) the time when 10.6 million barrels of oil equivalent (“MMBoe”) (which is the equivalent of 8.5 MMBoe in respect

of the net profits interest) have been produced from the underlying properties and sold, and the Trust will soon thereafter wind up its

affairs and terminate.

The Trustee can authorize the Trust to borrow

money to pay administrative or incidental expenses of the Trust that exceed cash held by the Trust.

The Trustee may authorize the Trust

to borrow from the Trustee or the Delaware Trustee as a lender provided the terms of the loan are similar to the terms it would grant

to a similarly situated commercial customer with whom it did not have a fiduciary relationship.

The Trustee may also deposit funds awaiting

distribution in an account with itself and make other short-term investments with the funds distributed to the Trust.

Basis of Presentation

The accompanying Condensed Statements of

Assets and Trust Corpus as of December 31, 2019, which has been derived from audited financial statements, and the unaudited

interim condensed financial statements as of September 30, 2020 and for the three- and nine-month periods ended September 30,

2020 and September 30, 2019, have been prepared pursuant to the rules and regulations of the Securities and Exchange

Commission (the “SEC”).

Accordingly, certain information and note disclosures normally included in annual financial

statements have been condensed or omitted pursuant to those rules and regulations.

The preparation of financial statements

requires the Trust to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure

of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses

during the reporting period.

The accompanying Condensed Statements of Assets

and Trust Corpus as of December 31, 2020, which has been derived from audited financial statements, and the unaudited interim condensed

financial statements as of March 31, 2021 and for the three-month periods ended March 31, 2021 and 2020, have been prepared

pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Accordingly, certain information

and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and

The preparation of financial statements requires

the Trust to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets

and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

The Trustee believes such information includes all

the disclosures necessary to make the information presented not misleading.

The information furnished reflects all adjustments

that are, in the opinion of the Trustee, necessary for a fair presentation of the results of the interim period presented.

financial information should be read in conjunction with the financial statements and notes thereto included in the Trust’s

Annual Report on Form 10-K for the year ended December 31, 2019.

The Trustee believes such information includes all the disclosures necessary to make

the information presented not misleading.

The information furnished reflects all adjustments that are, in the opinion of the Trustee,

necessary for a fair presentation of the results of the interim period presented.

The financial information should be read in conjunction

with the financial statements and notes thereto included in the Trust’s Annual Report on Form 10-K for the year ended December 31,

Trust Accounting Policies

The Trust uses the modified cash basis

of accounting to report receipts of the net profits interest and payments of expenses incurred.

The net profits interest represents

the right to receive revenues (oil and natural gas sales), less direct operating expenses (lease operating expenses, lease maintenance,

lease overhead, and production and property taxes) and an adjustment for lease equipment costs and lease development expenses (which

are capitalized in financial statements prepared in accordance with accounting principles generally accepted in the United States

of America (“U.S.

The Trust uses the modified cash basis of accounting

to report receipts of the term net profits interest and payments of expenses incurred.

The term net profits interest represents the right

to receive revenues (oil and natural gas sales), less direct operating expenses (lease operating expenses, lease maintenance, lease overhead,

and production and property taxes) and an adjustment for lease equipment costs and lease development expenses (which are capitalized in

financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”)) of the underlying properties, times 80%.

Actual cash receipts may vary due to timing delays

of actual cash receipts from the property operators or purchasers and due to wellhead and pipeline volume balancing agreements

or practices.

The actual cash distributions of the Trust will be made based on the terms of the conveyance creating the Trust’s

net profits interest.

Expenses of the Trust, which include accounting, engineering, legal and other professional fees, Trustee

fees, an administrative fee paid to VOC Brazos and out-of-pocket expenses, are recognized when paid.

GAAP, revenues

and expenses would be recognized on an accrual basis.

Amortization of the investment in net profits interest is recorded on a unit-of-production

method in the period in which the cash is received with respect to such production.

Such amortization does not reduce distributable

income, rather it is charged directly to Trust corpus.

This comprehensive basis of accounting

other than U.S.

GAAP 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.

Investment in the net profits interest

was recorded initially at the historical cost of VOC Brazos and is periodically assessed to determine whether its aggregate value

has been impaired below its total capitalized cost based on the underlying properties.

The Trust will provide a write-down to its

investment in the net profits interest if and when total capitalized costs, less accumulated amortization, exceeds undiscounted

future net revenues attributable to the proved oil and gas reserves of the underlying properties.

Based on the substantial decline

of the oil future markets at March 31, 2020, the Trust determined that its aggregate value of the underlying properties was

impaired, which resulted in an impairment expense of $41,261,354 during the quarter ended March 31, 2020.

The impairment was

charged directly to Trust corpus and did not affect distributable income.

The Trust has determined that no additional impairment

has been incurred during the quarter ended September 30, 2020.

No new accounting pronouncements have been

adopted or issued during the quarter ended September 30, 2020 that would impact the financial statements of the Trust.

Actual cash receipts may vary due to timing delays of actual cash receipts from

the property operators or purchasers and due to wellhead and pipeline volume balancing agreements or practices.

The actual cash distributions

of the Trust will be made based on the terms of the conveyance creating the Trust’s net profits interest.

Expenses of the Trust,

which include accounting, engineering, legal and other professional fees, Trustee fees, an administrative fee paid to VOC Brazos and out-of-pocket

expenses, are recognized when paid.

GAAP, revenues and expenses would be recognized on an accrual basis.

Amortization of the

investment in net profits interest is recorded on a unit-of-production method in the period in which the cash is received with respect

to such production.

Such amortization does not reduce distributable income, rather it is charged directly to Trust corpus.

This comprehensive basis of accounting other than

GAAP 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.

Investment in the net profits interest was recorded

initially at the historical cost of VOC Brazos and is periodically assessed to determine whether its aggregate value has been impaired

below its total capitalized cost based on the underlying properties.

The Trust will provide a write-down to its investment in the net

profits interest if and when total capitalized costs, less accumulated amortization, exceeds undiscounted future net revenues attributable

to the proved oil and gas reserves of the underlying properties.

Based on the substantial decline of the oil future markets at March 31,

2020, the Trust determined that its aggregate value of the underlying properties was impaired, which resulted in an impairment expense

of $41,261,354 during the quarter ended March 31, 2020.

The impairment was charged directly to Trust corpus and did not affect distributable

There was no impairment of the investment in the net profits interest during the quarter ended March 31, 2021.

No new accounting pronouncements have been adopted

or issued during the quarter ended March 31, 2021 that would impact the financial statements of the Trust.

Investment in Net Profits Interest

The net profits interest was recorded at

the historical cost of VOC Brazos on May 10, 2011, the date of the conveyance of the net profits interest to the Trust, and

was calculated as follows:

The net profits interest was recorded at the historical

cost of VOC Brazos on May 10, 2011, the date of the conveyance of the net profits interest to the Trust, and was calculated as follows:

Oil and gas properties

9 unchanged sentences

Three months ended

September 30,

Nine months ended

September 30,

Excess (deficit) of revenues over direct operating expenses and lease equipment and development costs(1)

Excess of revenues over direct operating expenses and lease equipment and development costs(1)

Times 80% net profits interest to Trust

Income (loss) from net profits interest before reserve adjustments

Income from net profits interest before reserve adjustments

VOC Brazos reserve for future development, maintenance or operating expenditures(2)

Income from net profits interest(3)

Excess of revenues over direct operating expenses and lease equipment and development costs reflect expenses and costs incurred by VOC Brazos during each of the March through May production periods for the three months ended September 30 and during each of the September through May production periods for the nine months ended September 30.

Excess of revenues over direct operating expenses and lease equipment and development costs reflect expenses and costs incurred by VOC Brazos during the September through November production period.

Pursuant to the terms of the conveyance of the net profits interest, lease equipment and development costs are to be deducted when calculating the distributable income to the Trust.

Pursuant to the terms of the conveyance of the net profits interest, VOC Brazos can reserve up to $1.0 million for future development, maintenance or operating expenditures at any time.

During the three and nine months ended September 30, 2020, VOC Brazos released $7,045 previously held for future development, maintenance or operating expenditures to to cover the Trust deficit for the three months ended September 30, 2020.

During the three and nine months ended September 30, 2019, VOC Brazos did not withhold or release any dollar amounts due to the Trust from the reserve.

The reserve balance was $992,955 at September 30, 2020 and $1,000,000 at September 30, 2019.

During the three months ended March 31, 2021 and 2020, VOC Brazos did not withhold or release any dollar amounts due to the Trust from the reserve.

The reserve balance was $1,000,000 at March 31, 2021 and 2020, respectively.

The income from net profits interest is based upon the cash receipts from VOC Brazos for the oil and gas production.

The revenues from oil production are typically received by VOC Brazos one month after production;

thus, the cash received by the Trust during the three months ended September 30, 2020 substantially represents production by VOC Brazos from March 2020 through May 2020 and the cash received by the Trust during the three months ended September 30, 2019 substantially represents production by VOC Brazos from March 2019 through May 2019.

The cash received by the Trust during the nine months ended September 30, 2020 substantially represents production by VOC Brazos from September 2019 through May 2020 and the cash received by the Trust during the nine months ended September 30, 2019 substantially represents production by VOC Brazos from September 2018 through May 2019.

For the three and nine months ended September 30,

2020 and 2019, MV Purchasing, LLC, an affiliate of VOC Brazos, purchased a significant portion of the production of the underlying

Sales to MV Purchasing, LLC are under short-term arrangements, ranging from one to six months, using market sensitive

The Trust is a Delaware statutory trust

and is not required to pay federal or state income taxes.

Accordingly, no provision for federal or state income taxes has been

thus, the cash received by the Trust during the three months ended March 31, 2021 substantially represents production by VOC Brazos from September 2020 through November 2020.

The cash received by the Trust during the three months ended March 31, 2020 substantially represents production by VOC Brazos from September 2019 through November 2019.

For the three months ended March 31, 2021

and 2020, MV Purchasing, LLC, an affiliate of VOC Brazos, purchased a significant portion of the production of the underlying properties.

Sales to MV Purchasing, LLC are under short-term arrangements, ranging from one to six months, using market sensitive pricing.

The Trust is a Delaware statutory trust and is

not required to pay federal or state income taxes.

Accordingly, no provision for federal or state income taxes has been made.

Distributions to Unitholders

VOC Brazos makes quarterly payments of

the net profits interest to the Trust.

The Trustee determines for each quarter the amount available for distribution to the Trust

This distribution is expected to be made on or before the 45th day following the end of each quarter to the Trust

unitholders of record on the 30th day of the month following the end of each quarter (or the next succeeding business day).

amounts will be equal to the excess, if any, of the cash received by the Trust relating to the preceding quarter, over the expenses

of the Trust paid for such quarter, subject to adjustments for changes made by the Trustee during such quarter in any cash reserves

established for future expenses of the Trust.

The West Texas Intermediate spot

price of crude oil has declined since the beginning of 2020, from $63.27 per barrel on January 6, 2020 to $38.79 per

barrel on November 5, 2020.

During this time frame, the monthly average price, which is the base price that crude oil

sales are based on, reached a low of $16.70 for April 2020.

The decline in oil prices is primarily attributable to the

economic effects of the COVID-19 pandemic and the dispute over production levels between Russia and the members of the

Organization of Petroleum Exporting Countries, which resulted in an oversupply of crude oil and exacerbated the decline in

crude oil prices.

If commodity prices for crude oil remain at reduced levels, subsequent distributions in 2020 will be

substantially lower than historical distributions, and in certain periods there may be no distribution to unitholders.

light of the current uncertain economic environment, the Trustee withheld an amount from the second quarterly distribution in

2020 that is estimated to be sufficient to pay Trust expenses through approximately April 2021.

The first quarterly distribution during

2020 was $1,870,000, or $0.11 per Trust Unit, and was made on February 14, 2020 to Trust unitholders owning Trust Units as

of January 30, 2020.

Such distribution included the net proceeds of production collected by VOC Brazos from October 1,

2019 through December 31, 2019.

The second quarterly distribution during

2020 was $510,000, or $0.03 per Trust Unit, and was made on May 15, 2020 to Trust unitholders owning Trust Units as of April 30,

Such distribution included the net proceeds of production collected by VOC Brazos from January 1, 2020 through March 31,

There was no third quarterly distribution

during 2020 to Trust unitholders owning Trust units as of July 30, 2020.

The revenue collected by VOC Brazos from April 1, 2020

through June 30, 2020 was not sufficient to cover the costs paid during the period.

VOC Brazos applied $7,045 from the reserve

for future expenditures to cover the deficit.

The first quarterly distribution during

2019 was $2,465,000, or $0.145 per Trust Unit, and was made on February 14, 2019 to Trust unitholders owning Trust Units as

of January 30, 2019.

Such distribution included the net proceeds of production collected by VOC Brazos from October 1,

2018 through December 31, 2018.

The second quarterly distribution during

2019 was $2,720,000, or $0.16 per Trust Unit, and was made on May 15, 2019 to Trust unitholders owning Trust Units as of April 30,

Such distribution included the net proceeds of production collected by VOC Brazos from January 1, 2019 through March 31,

The third quarterly distribution during

2019 was $3,485,000, or $0.205 per Trust Unit, and was made on August 14, 2019 to Trust unitholders owning Trust Units as of July

Such distribution included the net proceeds of production collected by VOC Brazos from April 1, 2019 through June 30,

VOC Brazos makes quarterly payments of the net

profits interest to the Trust.

The Trustee determines for each quarter the amount available for distribution to the Trust unitholders.

This distribution is expected to be made on or before the 45th day following the end of each quarter to the Trust unitholders of record

on the 30th day of the month following the end of each quarter (or the next succeeding business day).

Such amounts will be equal to the

excess, if any, of the cash received by the Trust relating to the preceding quarter, over the expenses of the Trust paid for such quarter,

subject to adjustments for changes made by the Trustee during such quarter in any cash reserves established for future expenses of the

The first quarterly distribution during 2021 was

$510,000, or $0.03 per Trust Unit, and was made on February 12, 2021 to Trust unitholders owning Trust Units as of February 1,

Such distribution included the net proceeds of production collected by VOC Brazos from October 1, 2020 through December 31,

The first quarterly distribution during 2020 was

$1,870,000, or $0.11 per Trust Unit, and was made on February 14, 2020 to Trust unitholders owning Trust Units as of January 30,

Such distribution included the net proceeds of production collected by VOC Brazos from October 1, 2019 through December 31,

Advance for Trust Expenses

Under the terms of the Trust Agreement,

the Trustee is allowed to borrow money to pay Trust expenses.

During the three and nine months ended September 30, 2020 and

2019, there were no borrowings or amounts owed for money borrowed in previous quarters.

Under the terms of the Trust Agreement,

VOC Brazos has provided a letter of credit in the amount of $1,700,000 to the Trustee to protect the Trust against the risk that

it does not have sufficient cash to pay future expenses.

Under the terms of the Trust Agreement, the Trustee

is allowed to borrow money to pay Trust expenses.

During the three months ended March 31, 2021 and 2020, there were no borrowings

or amounts owed for money borrowed in previous quarters.

Under the terms of the Trust Agreement, VOC Brazos has provided a letter of credit

in the amount of $1,700,000 to the Trustee to protect the Trust against the risk that it does not have sufficient cash to pay future expenses.

Subsequent Events

On October 20, 2020, the Trust announced

a Trust distribution of net profits for the fourth quarterly distribution during 2020.

Unitholders of record on October 30,

2020 will receive a distribution amounting to $1,445,000, or $0.085 per Trust Unit, which will be paid on November 13, 2020.

Trustee’s Discussion and Analysis of Financial

Condition and Results of Operations.

On April 20, 2021, the Trust announced a

Trust distribution of net profits for the first quarterly payment period ended March 31, 2021.

Unitholders of record on April 30,

2021 will receive a distribution amounting to $2,040,000, or $0.12 per Trust Unit, which will be paid on May 14, 2021.

Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of the Trust’s

financial condition and results of operations should be read in conjunction with the financial statements and notes thereto.

Trust’s purpose is, in general, to hold the net profits interest, to distribute to the Trust unitholders cash that the Trust

receives in respect of the net profits interest and to perform certain administrative functions in respect of the net profits interest

and the Trust Units.

The Trust’s

purpose is, in general, to hold the net profits interest, to distribute to the Trust unitholders cash that the Trust receives in respect

of the net profits interest and to perform certain administrative functions in respect of the net profits interest and the Trust Units.

The Trust derives substantially all of its income and cash flows from the net profits interest.

All information

regarding operations has been provided to the Trustee by VOC Brazos.

The recent outbreak of the novel form of coronavirus known as COVID-19 and its development into

a global pandemic is negatively impacting has had, and continues to have, a negative impact on worldwide economic and

commercial activity and financial markets, as well as global demand for crude oil and natural gas.

The West Texas

Intermediate spot price of crude oil has declined since the beginning of 2020, from $63.27 per barrel on January 6, 2020 to

$38.79 per barrel on November 5, 2020.

During this time frame, the monthly average price, which is the base price that crude

oil sales are based on, reached a low of $16.70 for April 2020.

The decline in oil prices is primarily attributable to

the economic effects of the COVID-19 pandemic and the dispute over production levels between Russia and the members of the

Organization of Petroleum Exporting Countries, which resulted in an oversupply of crude oil and exacerbated the decline in

crude oil prices.

COVID-19 and the responses by federal, state and local governmental authorities to the pandemic have

also resulted in significant business and operational disruptions, including business closures, supply chain disruptions,

travel restrictions, stay-at-home orders and limitations on the availability of workforces.

The full impact

of COVID-19 is unknown and is rapidly evolving.

The extent to which COVID-19 negatively impacts the

operators of and production from the underlying properties will depend on the severity, location and duration of the effects

and spread of COVID-19, the actions undertaken by federal, state and local governments and health officials to

contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business

and operating conditions resume.

A prolonged period of low crude oil prices would adversely affect the operators of the

underlying properties.

As a result of the decreased price of crude oil during the second quarter of 2020, there was no

distribution made to unitholders in the third quarter of 2020.

If commodity prices for crude oil remain at reduced levels,

quarterly cash distributions to unitholders will be substantially lower than historical distributions, and in certain periods

there may be no distribution to unitholders.

All information regarding operations has

been provided to the Trustee by VOC Brazos.

The 2020 outbreak of the novel form of coronavirus known as COVID-19 and its development into a global pandemic

negatively impacted worldwide economic and commercial activity and financial markets, as well as global demand for crude oil and natural

The West Texas Intermediate (“WTI”) spot price of crude oil dropped sharply in the beginning of 2020, from $61.18 per

barrel on January 2, 2020 to $12.34 per barrel on April 28, 2020, primarily attributable to the economic effects of the COVID-19

pandemic and the dispute over production levels between Russia and the members of the Organization of Petroleum Exporting Countries (“OPEC”)

which resulted in an oversupply of crude oil and exacerbated the decline in crude oil prices.

The responses by federal, state and local

governmental authorities to the pandemic have also resulted in significant business and operational disruptions, including business closures,

supply chain disruptions, travel restrictions, stay-at-home orders and limitations on the availability of workforces.

After April 28,

2020, the WTI price started increasing slowly and averaged $40.18 for the months of September 2020 through November 2020 ,

which is the production period represented in the cash received by the Trust for the quarter ended March 31, 2021.

As of April 2021,

the WTI price has increased to pre-COVID levels .

Nevertheless, prices could decline again, and the Trust’s

quarterly cash distibutions could similarly decline, depending on future actions by OPEC or the future course of the ongoing COVID-19

of Net Profits Interest.

Based on the substantial decline of the oil future markets at March 31, 2020, the Trust

determined that its aggregate value of the underlying properties was impaired, which has resulted in an impairment expense of $41,261,354

during the quarter ended March 31, 2020.

The impairment was charged directly to Trust corpus and did not affect distributable

The Trust has determined that no additional impairment has been incurred during the quarters ended June 30 or September

Based on the substantial decline of the oil future markets at March 31, 2020, the Trust determined

that its aggregate value of the underlying properties was impaired, which resulted in an impairment expense of $41,261,354 during the

quarter ended March 31, 2020.

The impairment was charged directly to Trust corpus and did not affect distributable income.

was no impairment of the investment in the net profits interest during the quarter ended March 31, 2021.

Results of Operations

Results of Operations for the Quarters Ended September 30,

2020 and 2019

The following is a summary of income (loss)

from net profits interest received by the Trust for the three months ended September 30, 2020 and 2019 consisting of the July distribution

Results of Operations for the Quarters Ended

March 31, 2021 and 2020

The following is a summary of income from net

profits interest received by the Trust for the three months ended March 31, 2021 and 2020 consisting of the January distribution

for each respective year:

Three months ended

September 30,

Sales volumes:

10 unchanged sentences

Development expenses

Excess (deficit) of revenues over direct operating expenses and lease equipment and development costs

Times net profits interest over the term of the Trust

Income (loss) from net profits interest before reserve adjustments

VOC Brazos reserve for future development, maintenance or operating expenditures

Income from net profits interest

The cash received by the Trust from VOC

Brazos during the quarter ended September 30, 2020 substantially represents the production by VOC Brazos from March 2020

through May 2020.

The cash received by the Trust from VOC Brazos during the quarter ended September 30, 2019 substantially

represents the production by VOC Brazos from March 2019 through May 2019.

The revenues from oil production are typically

received by VOC Brazos one month after production.

Oil and natural gas sales were $2,889,592 for the three months ended September 30, 2020, a decrease of

$6,039,600 or 67.6% from $8,929,192 for the three months ended September 30, 2019.

Revenues are a function of oil and natural

gas sales volumes and prices received.

The decrease in gross proceeds was due to a decrease in oil sales volumes, partially offset

by an increase in natural gas sales volumes, and decreases in market prices for oil and natural gas sales during the third quarter

During the three months ended September 30, 2020, the average price for oil decreased 61.6% to $22.53 per Bbl and

the average price for natural gas decreased 56.2% to $1.24 per Mcf.

Oil sales volumes were 122,672 Bbls for the three months ended

September 30, 2020, a decrease of 25,824 Bbls or 17.4% from 148,496 Bbls for the three months ended September 30, 2019,

while natural gas sales volumes were 100,804 Mcf, an increase of 22,018 Mcf or 27.9% from 78,786 Mcf for the same period in 2019.

Lease operating expenses were $2,251,208 for the three months ended September 30, 2020, a decrease of $918,949 or 29.0% from

$3,170,157 for the three months ended September 30, 2019.

Production and property taxes were $262,775 for the three months

ended September 30, 2020, a decrease of $288,195 or 52.3% from $550,970 for the same period in 2019.

Such decrease is the

result of an decrease of $104,242 in property taxes resulting primarily from a timing difference as to when payments are normally

made and a decrease of $183,953 or 67.8% in production taxes due primarly to lower sales volumes for oil.

Development expenses

were $384,415 for the three months ended September 30, 2020, a decrease of $134,208 or 25.9% from $518,623 for the same period

Such decrease was primarily due to a decrease in drilling activity and development expenses.

Included in the $384,415

is $290,204 in payments made to the operator from net revenue received from the Hawkwood Development wells during the three months

ended September 30, 2020.

of revenues over direct operating expenses and lease equipment and development costs .

The deficit of revenues over direct

operating expenses and lease equipment and development costs from the underlying properties was $(8,806) for the three months ended

September 30, 2020, a decrease of $4,698,248 or 100.2% from $4,689,442 for the three months ended September 30, 2019.

The Trust’s 80% net profits interest of these totals was $(7,045) and $3,751,554, respectively.

During the three months ended

September 30, 2020, VOC Brazos released $7,045 from the previously established cash reserve for future development, maintenance

or operating expenditures to cover the deficit.

This resulted in income from the net profits interest of $0 and $3,751,554 for

such periods, respectively.

These amounts were reduced by a Trust holdback for future expenses of $0 and $266,554 for the three

months ended September 30, 2020 and 2019, respectively.

The Trustee paid general and administrative expenses of $139,230 for

the three months ended September 30, 2020, a decrease of $61,692 from $200,922 for the three months ended September 30,

This decrease was primarily due to the differences in timing of receipt and payment of recurring general and administrative

These factors resulted in distributable income for the three months ended September 30, 2020 of $0, a decrease of

$3,485,000 from $3,485,000 for the three months ended September 30, 2019.

Results of Operations for the Nine Months Ended September 30,

2020 and 2019

The following is a summary of income from

net profits interest received by the Trust for the nine months ended September 30, 2020 and 2019 consisting of the January,

April and July distributions for each respective year:

Nine months ended

September 30,

Sales volumes:

Natural gas (Mcf)

Average sales prices:

Oil (per Bbl)

Natural gas (per Mcf)

Gross proceeds:

Natural gas sales

Total gross proceeds

Production and development costs:

Lease operating expenses

Production and property taxes

Development expenses

Excess of revenues over direct operating expenses and lease equipment and development costs

3 unchanged sentences

Income from net profits interest

The cash received by the Trust from VOC

Brazos during the nine months ended September 30, 2020 substantially represents the production by VOC Brazos from September 2019

through May 2020.

The cash received by the Trust from VOC Brazos during the nine months ended September 30, 2019

substantially represents the production by VOC Brazos from September 2018 through May 2019.

The revenues from oil

production are typically received by VOC Brazos one month after production.

Oil and natural gas sales were $20,734,685 for the nine months ended September 30, 2020, a decrease

of $3,762,557 or 15.4% from $24,497,242 for the nine months ended September 30, 2019.

Revenues are a function of oil

and natural gas sales prices and volumes sold.

The decrease in gross proceeds was due to increases in oil and natural gas

sales volumes during the first nine months of 2020 that were offset by decreases in market prices for oil and natural gas.

During the nine months ended September 30, 2020, the average price for oil decreased 20.7% to $45.08 per Bbl and the average

price for natural gas decreased 41.1% to $1.89 per Mcf.

Oil sales volumes were 447,635 Bbls for the nine months ended September 30,

2020, an increase of 30,034 Bbls or 7.2% from 417,601 Bbls for the nine months ended September 30, 2019, while natural gas

sales volumes were 293,592 Mcf, an increase of 61,094 Mcf or 26.3% from 232,498 Mcf for the same period in 2019.

Lease operating expenses were $8,778,426 for the nine months ended September 30, 2020, a decrease of $612,788 or 6.5% from

$9,391,214 for the nine months ended September 30, 2019.

Production and property taxes were $1,639,104 for the nine months

ended September 30, 2020, an increase of $121,280 or 8.0% from $1,517,824 for the nine months ended September 30, 2019.

Such increase is primarily due to an increase of $205,013 or 24.8% in property taxes partially offset by a decrease of $83,733

or 12.1% in production taxes due to lower prices for oil and natural gas.

Development expenses were $5,937,342 for the nine months

ended September 30, 2020, an increase of $4,000,508 or 206.5% from $1,936,834 for the same period in 2019.

Included in the

$5,937,342 are payments totaling $4,940,967 made to the operator from net revenue received from the Hawkwood Development wells

during the nine months ended September 30, 2020.

The cash received by the Trust from VOC Brazos

during the quarter ended March 31, 2021 substantially represents the production by VOC Brazos from September 2020 through November 2020.

The cash received by the Trust from VOC Brazos during the quarter ended March 31, 2020 substantially represents the production by

VOC Brazos from September 2019 through November 2019.The revenues from oil production are typically received by VOC Brazos one

month after production.

Oil and natural gas sales were $5,151,821 for the three months ended March 31, 2021, a decrease of $3,218,436

or 38.5% from $8,370,257 for the three months ended March 31, 2020.

Revenues are a function of oil and natural gas sales prices and

volumes sold.

The decrease in gross proceeds was due to a decrease in oil sales volumes, partially offset by an increase in natural gas

sales volumes during the first quarter of 2021, compounded by a decrease in market prices for oil during the first quarter of 2021.

the three months ended March 31, 2021, oil sales volumes were 136,583 Bbls for the three months ended March 31, 2021, a decrease

of 17,192 Bbls or 11.2% from 153,775 Bbls for the three months ended March 31, 2020, while natural gas sales volumes were 95,986

Mcf, an increase of 5,501 Mcf or 6.1% from 90,485 Mcf for the same period in 2020.

During the three months ended March 31, 2021,

the average price for oil decreased 31.9% to $36.26 per Bbl and the average price for natural gas remained the same at $2.07 per Mcf.

Lease operating expenses were $2,691,487 for the three months ended March 31, 2021, a decrease of $806,039 or 23.0% from $3,497,526

for the three months ended March 31, 2020.

Production and property taxes were $751,557 for the three months ended March 31,

2021, a decrease of $142,894 or 16.0% from $894,451 for the same period in 2020.

Such decrease is primarily due to a $98,007 or 40.7%

decrease in production taxes due to lower sales volumes and sales prices and a decrease in property taxes of $44,887 or 6.9%.

expenses were $1,014,161 for the three months ended March 31, 2021, a decrease of $372,544 or 26.9% from $1,386,705 for the same

period in 2020.

Such decrease was primarily due to decreased development expenses during the three months ended March 31, 2021, compared

to the three months ended March 31, 2020.

of revenues over direct operating expenses and lease equipment and development costs .

The excess of revenues over

direct operating expenses and lease equipment and development costs from the underlying properties was $4,379,813 for the nine

months ended September 30, 2020, a decrease of $7,271,557 or 62.4% from $11,651,370 for the nine months ended September 30,

The Trust’s 80% net profits interest of these totals were $3,503,850 and $9,321,096, respectively.

nine months ended September 30, 2020, VOC Brazos released $7,045 from the previously established cash reserve for future development,

maintenance or operating expenditures to cover the deficit for the three months ended September 30, 2020 but did not withhold or

release any dollar amounts due to the Trust from the previously established cash reserve for future development, maintenance or

operating expenditures for the nine months ended September 30, 2019, which resulted in income from the net profits interest of

$3,510,895 and $9,321,096 for such periods, respectively.

These amounts were further reduced by a Trust holdback for future

expenses of $1,130,895 and $651,096 for the nine months ended September 30, 2020 and 2019, respectively.

This increase of

$479,799 includes an amount estimated to be sufficient to pay estimated Trust expenses through approximately April 2021.

Trustee paid general and administrative expenses of $661,579 for the nine months ended September 30, 2020, a decrease of $77,086

from $738,665 for the nine months ended September 30, 2019.

This decrease was primarily due to the differences in timing

of receipt and payment of recurring general and administrative expenses.

These factors resulted in distributable income of $2,380,000

for the nine months ended September 30, 2020 and $8,670,000 for the nine months ended September 30, 2019.

The excess of revenues over direct operating

expenses and lease equipment and development costs from the underlying properties was $694,616 for the three months ended March 31,

2021, a decrease of $1,896,959 or 73.2% from $2,591,575 for the three months ended March 31, 2020.

The Trust’s 80% net profits

interest of these totals were $555,693 and $2,073,260, respectively.

During the three months ended March 31, 2021 and 2020, VOC Brazos

did not withhold or release any dollar amounts due to the Trust from the previously established cash reserve for future development, maintenance

or operating expenditures, which resulted in income from the net profits interest of $555,693 and $2,073,260 for such periods, respectively.

These amounts were reduced by a Trust holdback for future expenses of $45,693 and $203,260 for the three months ended March 31, 2021

and 2020, respectively.

The Trustee paid general and administrative expenses of $396,399 for the three months ended March 31, 2021,

an increase of $105,941 from $290,458 for the three months ended March 31, 2020.

This increase was primarily due to the differences

in timing of receipt and payment of recurring general and administrative expenses.

These factors resulted in distributable income for

the three months ended March 31, 2021 of $510,000, a decrease of $1,360,000 from $1,870,000 for the three months ended March 31,

Liquidity and Capital Resources

Other than Trust administrative expenses,

including any reserves established by the Trustee for future liabilities, the Trust’s only use of cash is for distributions

to Trust unitholders.

Administrative expenses include payments to the Trustee as well as a quarterly administrative fee to VOC

Brazos pursuant to an administrative services agreement.

Each quarter, the Trustee determines the amount of funds available

for distribution.

Available funds are the excess cash, if any, received by the Trust from the net profits interest and other sources

(such as interest earned on any amounts reserved by the Trustee) in that quarter, over the Trust’s expenses paid for that

Available funds are reduced by any cash that the Trustee decides to reserve for future development, maintenance

or operating expenses.

As of September 30, 2020, $795,448 was held by the Trustee as such a reserve.

The Trustee may cause the Trust to borrow

funds required to pay expenses if the Trustee determines that the cash on hand and the cash to be received are insufficient to

cover the Trust’s expenses.

If the Trust borrows funds, the Trust unitholders will not receive distributions until

the borrowed funds are repaid.

During the three and nine months ended September 30, 2020 and 2019, there were no such

VOC Brazos has provided a letter of credit in the amount of $1,700,000 to the Trustee to protect the Trust against

the risk that it does not have sufficient cash to pay future expenses.

Income to the Trust from the net profits

interest is based on the calculation and definitions of “gross proceeds”

Other than Trust administrative expenses, including

any reserves established by the Trustee for future liabilities, the Trust’s only use of cash is for distributions to Trust unitholders.

Administrative expenses include payments to the Trustee as well as a quarterly administrative fee to VOC Brazos pursuant to an administrative

services agreement.

Each quarter, the Trustee determines the amount of funds available for distribution.

Available funds are the

excess cash, if any, received by the Trust from the net profits interest and other sources (such as interest earned on any amounts reserved

by the Trustee) in that quarter, over the Trust’s expenses paid for that quarter.

Available funds are reduced by any cash

that the Trustee decides to reserve for future development, maintenance or operating expenses.

As of March 31, 2021, $252,298 was

held by the Trustee as such a reserve.

The Trustee may cause the Trust to borrow funds

required to pay expenses if the Trustee determines that the cash on hand and the cash to be received are insufficient to cover the Trust’s

If the Trust borrows funds, the Trust unitholders will not receive distributions until the borrowed funds are repaid.

During the three months ended March 31, 2021 and 2020, there were no such borrowings.

VOC Brazos has provided a letter of credit

in the amount of $1,700,000 to the Trustee to protect the Trust against the risk that it does not have sufficient cash to pay future expenses.

Income to the Trust from the net profits interest

is based on the calculation and definitions of “gross proceeds”

and “net proceeds”

the conveyance.

As substantially all of the underlying

properties are located in mature fields, VOC Brazos does not expect future costs for the underlying properties to change significantly

compared to recent historical costs other than changes due to fluctuations in the general cost of oilfield services.

Brazos may establish a cash reserve of up to $1.0 million in the aggregate at any given time from the dollar amount otherwise distributable

to the Trust to reduce the impact on distributions of uneven capital expenditure timing.

The cash reserve balance was $992,955

and $1,000,000 at September 30, 2020 and 2019, respectively.

In 2018, VOC Brazos entered into a joint

venture agreement with Hawkwood Energy East Texas, LLC (“Hawkwood”).

Under the terms of the joint venture agreement,

Hawkwood carried VOC Brazos for its share of drilling and completion costs for four wells in the Lower Woodbine Organic Shale (the

“Hawkwood Earning Wells”).

In exchange, Hawkwood earned a working interest representing 50% of VOC Brazos’

in each Hawkwood Earning Well and up to a 50% interest in VOC Brazos’

acreage in the south half of the Kurten Woodbine Unit.

After the Hawkwood Earning Wells were completed, Hawkwood had the right to propose and drill up to eight wells in the Lower Woodbine

Organic Shale (“LWOS”) in 2019 and twelve LWOS wells in 2020, with no contractual limitation of the number of wells

per year to propose and drill after 2020 (collectively, the “Hawkwood Development Wells”).

contained in the conveyance.

As substantially all of the underlying properties

are located in mature fields, VOC Brazos does not expect future costs for the underlying properties to change significantly compared to

recent historical costs other than changes due to fluctuations in the general cost of oilfield services.

VOC Brazos may establish

a cash reserve of up to $1.0 million in the aggregate at any given time from the dollar amount otherwise distributable to the Trust to

reduce the impact on distributions of uneven capital expenditure timing.

The cash reserve balance was $1,000,000 at March 31, 2021

and 2020, respectively.

2018, VOC Brazos entered into a joint venture agreement with Hawkwood Energy East Texas, LLC (“Hawkwood”).

Under the terms

of the joint venture agreement, Hawkwood carried VOC Brazos for its share of drilling and completion costs for four wells in the Lower

Woodbine Organic Shale (the “Hawkwood Earning Wells”).

In exchange, Hawkwood earned a working interest representing 50% of

VOC Brazos’

interest in each Hawkwood Earning Well and up to a 50% interest in VOC Brazos’

acreage in the south half of the

Kurten Woodbine Unit.

After the Hawkwood Earning Wells were completed, Hawkwood had the right to propose and drill up to eight wells in

the Lower Woodbine Organic Shale (“LWOS”) in 2019 and twelve LWOS wells in 2020, with no contractual limitation of the number

of wells per year to propose and drill after 2020 (collectively, the “Hawkwood Development Wells”).

In 2019, Hawkwood drilled

and completed four Hawkwood Development Wells.

VOC Brazos is paying Vess Oil, as the operator, for its share of costs and related

interest in the Hawkwood Development Wells, as net revenue from each of the wells is received, thereby having no current effect

on Trust distributions.

The unpaid balance thru September 30, 2020 was $595,873.

VOC Brazos is paying Vess Oil, as the operator, for its share of costs and related interest

in the Hawkwood Development Wells, as net revenue from each of the wells is received, thereby having no current effect on Trust distributions.

The remaining balance was paid in full on December 31, 2020.

No new Hawkwood Development Wells were drilled in 2020 or through

the date of this Form 10-Q.

Note Regarding Forward-Looking Statements

1 unchanged sentence

statements”

within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the

Securities Exchange Act of 1934, as amended.

All statements other than statements of historical fact included in this Form 10-Q,

including without limitation the statements under “Trustee’s Discussion and Analysis of Financial Condition and Results

of Operations”, are forward-looking statements.

within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities

Exchange Act of 1934, as amended (the “Exchange Act”).

All statements other than statements of historical fact included in

this Form 10-Q, including without limitation the statements under “Trustee’s Discussion and Analysis of Financial Condition

and Results of Operations”

are forward-looking statements.

Although VOC Brazos advised the Trust that it believes that the expectations

reflected in the forward-looking statements contained herein are reasonable, no assurance can be given that such expectations will

prove to have been correct.

Important factors that could cause actual results to differ materially from expectations (“Cautionary

Statements”) are disclosed in this Form 10-Q, including under the section “Item 1A.

Risk Factors”

of this Form 10-Q, and in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2019 (the

“Form 10-K”), including under the section “Item 1A.

reflected in the forward-looking statements contained herein are reasonable, no assurance can be given that such expectations will prove

to have been correct.

Important factors that could cause actual results to differ materially from expectations (“Cautionary Statements”)

are disclosed in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”),

including under the section “Item 1A.

Risk Factors”.

All subsequent written and

oral forward-looking statements attributable to the Trust or persons acting on its behalf are expressly qualified in their entirety

by the Cautionary Statements.

Quantitative and Qualitative Disclosures About Market

The Trust is a smaller reporting company

as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and is not required to provide the information

under this Item.

All subsequent written and oral forward-looking statements attributable

to the Trust or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements.

Quantitative and Qualitative Disclosures About Market Risk.

The Trust is a smaller reporting company as defined

by Rule 12b-2 of the Exchange Act and is not required to provide the information under this Item.

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