What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-03-20 compared with 2023-03-16 · 143 added, 469 removed, 463 unchanged (57% of the section changed)

VOC Energy Trust, which we refer to herein as the “trust,” was formed in November 2010 by VOC Brazos Energy Partners, L.P., which we refer to herein as “VOC Brazos.” Much of the information disclosed herein has been provided to the trust by VOC Brazos, including information associated with the underlying properties such as production and well counts, major producing areas, customer relationships, competition, marketing and post-production services, and certain information on which reserve data is based.

The trust is a statutory trust created under the Delaware Statutory Trust Act.

The business and affairs of the trust are managed by The Bank of New York Mellon Trust Company, N.A., as trustee.

VOC Energy Trust (the “Trust”) was formed in November 2010 by VOC Brazos Energy Partners, L.P.

(“VOC Brazos”).

Much of the information disclosed in this Form 10-K has been provided to the Trust by VOC Brazos, including information associated with the Underlying Properties (as defined below) such as production and well counts, major producing areas, customer relationships, competition, marketing and post-production services, and certain information on which reserve data is based.

The Trust is a statutory trust created 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, 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 does not have any employees, and the business and affairs of the Trust are managed by the Trustee.

The Trust maintains its offices at the office of the Trustee, at 601 Travis Street, Floor 16, Houston, Texas 77002.

The telephone number of the Trustee is 1-855-802-1094.

In addition, Wilmington Trust Company acts as the Delaware trustee of the trust.

The Delaware Trustee has only minimal rights and duties as are necessary to satisfy the requirements of the Delaware Statutory Trust Act.

The trust does not have any employees, and the business and affairs of the trust are managed by the trustee.

The trustee does not maintain a website for filings by the trust with the Securities and Exchange Commission, which we refer to herein as the “SEC.” Electronic filings by the trust with the SEC are available free of charge through the SEC’s website at www.sec.gov and at http://voc.q4web.com/home/default.aspx .

On May 10, 2011, VOC Brazos and the trust completed an initial public offering of units of beneficial interest in the trust, which are referred to herein as the “trust units.” In connection with the closing of the initial public offering, on May 10, 2011, VOC Brazos conveyed a net profits interest to the trust, which entitles the trust to receive 80% of the net proceeds (calculated as described below) from the sale and production of substantially all of the interests in oil and natural gas properties in the states of Kansas and Texas held by VOC Brazos as of May 10, 2011, which is referred herein as the “net profits interest.” VOC Brazos’ net interests in such properties, after deduction of all royalties and other burdens on production thereon as of May 10, 2011, is referred to herein as the “underlying properties.” As of December 31, 2022, the underlying properties included interests in 739 gross (454.6 net) producing wells and included 81,095 gross (50,310.7 net) acres.

The Trustee does not maintain a website for filings by the Trust with the Securities and Exchange Commission (the “SEC”).

Electronic filings by the Trust with the SEC are available free of charge through the SEC’s website at www.sec.gov and at http://voc.q4web.com/home/default.aspx .

On May 10, 2011, VOC Brazos and the Trust completed an initial public offering of units of beneficial interest in the Trust (the “Trust Units”).

In connection with the closing of the initial public offering, on May 10, 2011, VOC Brazos conveyed a net profits interest to the Trust, which entitles the Trust to receive 80% of the net proceeds (calculated as described below) from the sale and production of substantially all of the interests in oil and natural gas properties in the states of Kansas and Texas held by VOC Brazos as of May 10, 2011 (the “net profits interest”), pursuant to the Conveyance of Net Profits Interest dated as of May 10, 2011 (the “Conveyance”).

VOC Brazos’ net interests in such properties, after deduction of all royalties and other burdens on production thereon as of May 10, 2011, is referred to in this Form 10-K as the “Underlying Properties.” As of December 31, 2023, the Underlying Properties included interests in 735 gross (450.8 net) producing wells and included 81,095 gross (50,310.7 net) acres.

The net profits interest will terminate on the later to occur of (1) December 31, 2030, or (2) the time from and after January 1, 2011 when 10.6 MMBoe have been produced from the Underlying Properties and sold (which amount is the equivalent of 8.5 MMBoe in respect of the Trust’s right to receive 80% of the net proceeds from the Underlying Properties pursuant to the net profits interest), and the Trust will soon thereafter wind up its affairs and terminate.

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The business and affairs of the Trust are managed by the Trustee, and neither VOC Brazos nor any of its affiliates has the ability to manage or influence the operations of the Trust.

Vess Oil Corporation, which we refer to herein as “Vess Oil,” L.D.

Vess Oil Corporation (“Vess Oil”) L.D.

Drilling, Inc.

and Davis Petroleum, Inc., which are collectively referred to herein as the “VOC Operators,” are currently the operator or contract operator of substantially all of the underlying properties.

and Davis Petroleum, Inc.

(collectively, the “VOC Operators”) are currently the operator or contract operator of substantially all of the Underlying Properties.

Effective September 1, 2022, Vess Oil took over, from Davis Petroleum, Inc., operations of the Underlying Properties in which VOC Brazos had an ownership interest;

and effective July 1, 2023, Vess Oil took over, from L.D.

Drilling, Inc., operations of the Underlying Properties in which VOC Brazos had an ownership interest.

VOC Brazos does not, as a matter of course, make public projections as to future sales, earnings or other results relating to the Underlying Properties.

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Each Trust Unit is a unit of beneficial interest in the Trust and is entitled to receive cash distributions from the Trust on a pro rata basis.

Each trust unitholder has the same rights regarding each of his trust units as every other trust unitholder has regarding his units.

Each Trust unitholder has the same rights regarding each of his or her Trust Units as every other Trust unitholder has regarding his or her units.

The Trust Units are in book-entry form only and are not represented by certificates.

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Quarterly cash distributions during the term of the Trust are made by the Trustee on or before the 45th day following the end of each quarter to the Trust unitholders of record on the 30th day following the end of each quarter (or the next succeeding business day).

Unless otherwise advised by counsel or the Internal Revenue Service, which we refer to herein as the “IRS,” the trustee will treat the income and expenses of the trust for each quarter as belonging to the trust unitholders of record on the quarterly record date.

Unless otherwise advised by counsel or the Internal Revenue Service (the “IRS”), the Trustee will treat the income and expenses of the Trust for each quarter as belonging to the Trust unitholders of record on the quarterly record date.

For federal income tax purposes, Trust unitholders must take into account items of income, gain, loss, deduction and credit consistent with their methods of accounting and without regard to the taxable year or accounting method employed by the Trust and without regard to the quarter in which the Trust makes distributions related to those items to the Trust unitholders.

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The Trustee or Trust unitholders owning at least 10% of the outstanding Trust Units may call meetings of Trust unitholders.

The trust is responsible for all costs associated with calling a meeting of trust unitholders unless such meeting is called by the trust unitholders, in which case the trust unitholders are responsible for all costs associated with calling such meeting of trust unitholders.

Meetings must be held in such location as is designated by the trustee in the notice of such meeting.

The Trust is responsible for all costs associated with calling a meeting of Trust unitholders unless such meeting is called by Trust unitholders, in which case the Trust unitholders calling the meeting are responsible for all such costs.

Meetings must be held in such location as the Trustee designates in the notice of such meeting.

The Trustee must send written notice of the time and place of the meeting and the matters to be acted upon to all of the Trust unitholders at least 20 days and not more than 60 days before the meeting.

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Each Trust unitholder is entitled to one vote for each Trust Unit owned.

Unless otherwise required by the trust agreement, a matter may be approved or disapproved by the vote of a majority of the trust units held by the trust unitholders at a meeting where there is a quorum.

This is true even if a majority of the total trust units did not approve it.

Unless otherwise required by the Trust Agreement, a matter may be approved or disapproved by the vote of Trust unitholders owning a majority of the Trust Units at a meeting where there is a quorum.

This is true even if holders owning a majority of the total Trust Units did not approve it.

The affirmative vote of the holders of a majority of the outstanding Trust Units is required to:

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approve the sale of all or any material part of the assets of the Trust.

In addition, certain amendments to the trust agreement may be made by the trustee without approval of the trust unitholders.

In addition, the Trustee may make certain amendments to the Trust Agreement without approval of the Trust unitholders.

The Trustee must consent before all or any part of the Trust assets can be sold except in connection with the dissolution of the Trust or limited sales directed by VOC Brazos in conjunction with its sale of Underlying Properties.

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The following information summarizes the material information contained in the Conveyance related to the computation of the net proceeds.

For more detailed provisions concerning the net profits interest, please see the conveyance, which is referenced as an exhibit to this Form 10-K.

For more detailed provisions concerning the net profits interest, please see the Conveyance, which is included as an exhibit to this Form 10-K.

Net Profits Interest

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The fee is adjusted annually and will increase or decrease each year based on changes in the Overhead Adjustment Index (“OAI”) published by the Council of Petroleum Accountants Society (“COPAS”) for that year.

In the event that the net proceeds for any computation period is a negative amount, the trust will receive no payment for that period, and any such negative amount plus accrued interest at the prime rate will be deducted from gross proceeds in the following computation period for purposes of determining the net proceeds for that following computation period.

If the net proceeds for any computation period is a negative amount, the Trust will receive no payment for that period, and any such negative amount plus accrued interest at the prime rate will be deducted from gross proceeds in the following computation period for purposes of determining the net proceeds for that following computation period.

Gross proceeds and net proceeds are calculated on a cash receipts and cash disbursements basis except that certain costs, primarily ad valorem taxes and expenditures of a material amount, may be determined on an accrual basis.

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Except in certain cases where the net profits interest is released, following a sale or transfer, the Underlying Properties will continue to be subject to the net profits interest, and the net proceeds attributable to the transferred property will be calculated as part of the computation of net proceeds described in this Form 10-K.

In addition, VOC Brazos may, without the consent of the trust unitholders, require the trust to release the net profits interest associated with any lease that accounts for less than or equal to 0.25% of the total production from the underlying properties in the prior 12 months and provided that the net profits interest covered by such releases cannot exceed, during any 12-month period, an aggregate fair market value to the trust of $500,000.

In addition, VOC Brazos may, without the consent of the Trust unitholders, require the Trust to release the net profits interest associated with any lease that accounts for no more than 0.25% of the total production from the Underlying Properties in the prior 12 months and provided that the net profits interest covered by such releases cannot exceed, during any 12-month period, an aggregate fair market value to the Trust of $500,000.

These releases will be made only in connection with a sale by VOC Brazos to a non-affiliate of the relevant Underlying Properties and are conditioned upon the Trust receiving an amount equal to the fair value to the Trust of such net profits interest.

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federal income tax matters that may be relevant to Trust unitholders.

This summary is based upon current provisions of the Internal Revenue Code of 1986, as amended, which we refer to herein as the “Code,” existing and proposed Treasury regulations thereunder and current administrative rulings and court decisions, all of which are subject to changes that may or may not be retroactively applied.

This summary is based upon current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury regulations thereunder and current administrative rulings and court decisions, all of which are subject to changes that may or may not be retroactively applied.

No attempt has been made in the following summary to comment on all U.S.

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Tax counsel to the Trust advised the Trust at the time of formation that, for federal income tax purposes, in its opinion the Trust will be treated as a grantor trust and not as an unincorporated business entity.

ruling has been or will be requested from the IRS with respect to the federal income tax treatment of the trust, including as to the status of the trust as a grantor trust for such purposes.

No ruling has been or will be requested from the IRS with respect to the federal income tax treatment of the Trust, including as to the status of the Trust as a grantor trust for such purposes.

Thus, no assurance can be provided that the tax treatment of the Trust would be sustained by a court if contested by the IRS or another taxing authority.

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Available Trust Tax Information

In compliance with the reporting requirements for WHFITs and the dissemination of trust tax reporting information, the trustee provides a generic tax information reporting booklet that is intended to

be used only to assist unitholders in the preparation of their 2022 federal and state income tax returns.

In compliance with the reporting requirements for WHFITs and the dissemination of Trust tax reporting information, the Trustee provides a generic tax information reporting booklet that is intended to be used only to assist Trust unitholders in the preparation of their 2023 federal and state income tax returns.

The projected payment schedule for the net profits interest is included with the tax information booklet.

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This engineering department accumulates historical production data for the Underlying Properties, calculates historical lease operating expenses and differentials, updates working interests and net revenue interests, and obtains logs, 3-D seismic and other geological and geophysical information.

This data is forwarded to Cawley, Gillespie & Associates, Inc., which we refer to herein as “CG&A”, thereby allowing CG&A to prepare estimated proved reserves in their entirety based on such data.

This data is forwarded to Cawley, Gillespie & Associates, Inc.

(“CG&A”), thereby allowing CG&A to prepare estimated proved reserves in their entirety based on such data.

Estimates of the proved oil and gas reserves attributable to the Trust as of December 31, 2021, 2022 and 2023 are based on reports prepared by CG&A.

CG&A has been in business since 1961 and serves many organizations and individuals in the petroleum industry, including owners and operators of oil and gas properties, exploration groups, planners, and professionals in investment and finance.

CG&A has been in business since 1961 and serves many organizations and individuals in the petroleum industry, including owners and operators of oil and gas

properties, exploration groups, planners, and professionals in investment and finance.

One of the principal businesses of CG&A is providing detailed assessment of producing reservoirs.

CG&A is an independent firm of petroleum engineers, geologists, geophysicists and petrophysicists and does not own an interest in the

underlying properties and is not employed on a contingent basis.

CG&A is an independent firm of petroleum engineers, geologists, geophysicists and petrophysicists and does not own an interest in the Underlying Properties and is not employed on a contingent basis.

Todd Brooker, President, is the technical person at CG&A who is primarily responsible for overseeing CG&A’s preparation of the reserve estimates.

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VOC Brazos has not filed reserve estimates covering the Underlying Properties with any other federal authority or agency.

The following table summarizes the changes in estimated proved reserves of the trust for the periods indicated.

The following table summarizes the changes in estimated proved reserves attributable to the Trust for the periods indicated.

VOC Energy Trust

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The estimates of proved reserves have not been filed with or included in reports to any federal authority or agency.

The discounted cash flow value shown in the table is not intended to represent the current market value of the trust’s estimated oil and natural gas reserves.

The discounted cash flow value shown in the table is not intended to represent the current market value of the estimated oil and natural gas reserves attributable to the Trust’s interests.

Non-Producing

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Future Development Costs

80% Net Profits Interest Net Operating Income

80% Net Profits Interest Net Operating Income (NPI) (1)

Before interest and taxes.

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As specified by the SEC, these prices are 12-month averages based upon the price on the first day of each month during 2023.

The price adjustments were based on oil price differentials forecast at −$4.50 per Bbl for the Kansas underlying properties, −$1.00 per Bbl for the Kurten (Woodbine) Field wells in Texas, −$2.75 per Bbl for the Sand Flat Unit and Hitts Lake North Field wells in Texas and −$1.00 per Bbl for all other Texas underlying properties.

The price adjustments were based on oil price differentials forecast at −$4.50 per Bbl for all Kansas Underlying Properties.

For Texas properties, oil price differentials were applied at −$1.00 per Bbl for the Kurten (Woodbine) Field and Madisonville West Field wells, −$3.25 per Bbl for the Sand Flat Unit Field Wells and -$4.50 per Bbl for the Hitts Lake North Field wells.

Oil price differentials were not escalated.

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Non-productive

In 2020, no wells were drilled or completed.

The former MD Earning Well was still awaiting completion at December 31, 2020.

In 2021, the former MD Earning Well was completed and one other well was drilled, deemed non-productive and plugged.

Total capital expenditures in 2021 for the former MD Earning Well was $1,695,593.

Total capital expenditures in 2021 for the former MD Earning Well were $1,695,593.

In 2022, two wells were drilled and completed.

Total capital expenditures for these wells were $1,655,613.

In 2023, no wells were drilled and completed.

VOC Brazos continues to develop further proved undeveloped reserves pursuant to its planned development and workover program.

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Kansas (149 Fields)

Adell Nortwest

Spivey-Grabs-Basil

Rosa Northwest

Texas (4 Fields)

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This yielded a base price for oil of $78.22 per barrel and a base price for natural gas of $2.64 per MMBtu.

Because the trust bears no federal tax expense and taxable income is passed through to the unitholders of the trust, no provision for federal or state income taxes is included in the summary reserve reports

Because the Trust bears no federal tax expense and taxable income is passed through to the Trust unitholders, no provision for federal or state income taxes is included in the summary reserve reports

and therefore the standardized measure of discounted future net cash flows attributable to the Underlying Properties is equal to the pre-tax PV-10 value.

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Marketing and Post-Production Services

Pursuant to the terms of the conveyance that created the net profits interest, VOC Brazos has the responsibility to market, or cause to be marketed, the oil and natural gas production attributable to the underlying properties.

The terms of the conveyance that created the net profits interest do not permit VOC Brazos to charge any marketing fee when determining the net proceeds upon which the net profits interest is calculated.

Pursuant to the terms of the Conveyance, VOC Brazos has the responsibility to market, or cause to be marketed, the oil and natural gas production attributable to the Underlying Properties.

The terms of the Conveyance do not permit VOC Brazos to charge any marketing fee when determining the net proceeds calculated under the net profits interest.

As a result, the net proceeds to the Trust from the sales of oil and natural gas production from the Underlying Properties are determined based on the same price that VOC Brazos receives for oil and natural gas production attributable to VOC Brazos’ remaining interest in the Underlying Properties.

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As a result, Kansas operators benefit from the competitive marketing conditions for their oil production as a result of the high demand from the refineries located in Kansas.

Vess Oil Corporation generally sells production from the underlying properties to several purchasers, including MV Purchasing, LLC, an affiliate of VOC Brazos, which we refer to herein as “MV Purchasing,” under short-term arrangements using market sensitive pricing.

Vess Oil Corporation generally sells production from the Underlying Properties to several purchasers, including MV Purchasing, LLC, an affiliate of VOC Brazos (“MV Purchasing”), under short-term arrangements using market-sensitive pricing.

These sales to purchasers are under terms ranging from one month to six months, using market-sensitive pricing.

Five purchasers, including MV Purchasing, have been purchasing substantially all of the crude oil production, and a substantial portion of the crude oil production may continue be acquired by one or more single purchasers.

For the years ended December 31, 2020, 2021 and 2022, MV Purchasing purchased 31%, 35% and 35%, respectively, of the production sold from the underlying properties.

For the years ended December 31, 2021, 2022 and 2023, MV Purchasing purchased 35%, for each year, of the production sold from the Underlying Properties.

VOC Brazos does not believe that loss of any of these parties as a purchaser would have a material adverse impact on the business of VOC Brazos, as substitute purchasers are generally available;

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VOC Brazos generally may sell all or a portion of its interests in the Underlying Properties, subject to and burdened by the net profits interest, without the consent of the Trust unitholders.

In addition, VOC

Brazos may, without the consent of the trust unitholders, require the trust to release the net profits interest associated with any lease that accounts for less than or equal to 0.25% of the total production from the underlying properties in the prior 12 months and provided that the net profits interest covered by such releases cannot exceed, during any 12-month period, an aggregate fair market value to the trust of $500,000.

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VOC Brazos also has informed the Trustee that VOC Brazos believes that the existing burdens and obligations do not, in the aggregate, materially interfere with the use of the Underlying Properties and do not materially adversely affect the value of the net profits interest.

VOC Brazos recorded the conveyance of the net profits interest in Kansas and Texas in the real property records in each Kansas or Texas county in which the underlying properties are located.

VOC Brazos recorded the Conveyance in Kansas and Texas in the real property records in each Kansas or Texas county in which the Underlying Properties are located.

Although under Texas law it is well-established that the recording in the appropriate real property records of an interest such as the net profits interest constitutes the Conveyance of a fully vested real property interest to the Trust, the law in Kansas is less certain.

VOC Brazos and the Trust believe that the recording in the appropriate real property records in Kansas of the net profits interest should constitute the conveyance of a fully vested real property interest, interests in hydrocarbons in place or to be produced or a production payment as such is defined under the United States Bankruptcy Code.

In a bankruptcy of VOC Brazos, creditors of VOC Brazos would be able to claim the net profits interest as an asset of the bankruptcy estate to satisfy

obligations to them if the conveyance of the net profits interest did not constitute the conveyance of a real property interest or interests in hydrocarbons in place or to be produced under applicable state law or a production payment, in which case the trust would be an unsecured creditor of VOC Brazos at risk of losing the entire value of the net profits interest to senior creditors.

In a bankruptcy of VOC Brazos, creditors of VOC Brazos would be able to

claim the net profits interest as an asset of the bankruptcy estate to satisfy obligations to them if the conveyance of the net profits interest did not constitute the conveyance of a real property interest or interests in hydrocarbons in place or to be produced under applicable state law or a production payment, in which case the Trust would be an unsecured creditor of VOC Brazos at risk of losing the entire value of the net profits interest to senior creditors.

VOC Brazos believes that its title to the Underlying Properties is, and the Trust’s title to the net profits interest is, good and defensible in accordance with standards generally accepted in the oil and gas industry, subject to such exceptions as are not so material to detract substantially from the use or value of such properties or royalty interests.

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The following is a summary of the more significant existing environmental, health and safety laws and regulations, each as amended from time to time, to which VOC Brazos’ business operations are subject:

Hazardous substance and wastes.

The Comprehensive Environmental Response, Compensation and Liability Act, or “CERCLA,” also known as the Superfund law, and comparable state laws impose liability without regard to fault or the legality of the original conduct on certain classes of persons who are considered to be jointly and severally responsible for the release of a “hazardous substance” into the environment.

Hazardous Substances and Wastes.

The Comprehensive Environmental Response, Compensation, and Liability Act, as amended (“CERCLA”), also known as the Superfund law, and comparable state laws impose liability without regard to fault or the legality of the original conduct on certain classes of persons who are considered to be jointly and severally responsible for the release of a “hazardous substance” into the environment.

These persons include current and prior owners or operators of the site where the release occurred and entities that disposed or arranged for the disposal of the hazardous substances found at the site.

Under CERCLA, these “responsible persons” may be liable for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources, and for the costs of certain health studies.

CERCLA also authorizes the Environmental Protection Agency, or the “EPA” and, in some instances, third parties to act in response to threats to the public health or the environment and then to seek to recover from the responsible classes of persons the costs they incur.

CERCLA also authorizes the U.S.

Environmental Protection Agency (“EPA”) and, in some instances, third parties to act in response to threats to the public health or the environment and then to seek to recover from the responsible classes of persons the costs they incur.

It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other pollutants into the environment.

VOC Brazos generates materials in the course of its operations that may be regulated as hazardous substances.

The Resource Conservation and Recovery Act, or “RCRA,” and comparable state laws regulate the generation, storage, treatment, transportation, disposal and cleanup of hazardous and non-hazardous wastes.

Under the auspices of the EPA, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements.

Drilling fluids, produced waters and most of the other wastes associated with the exploration, production and development of crude oil or natural gas are currently regulated under the RCRA as non-hazardous wastes.

Nevertheless, it is possible that these wastes could be classified as hazardous wastes in the future.

For example, in December 2016, the EPA and environmental groups entered into a consent decree to address the EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations exempting certain exploration and production-related oil and natural gas wastes from regulation as hazardous wastes under RCRA.

The consent decree required the EPA to propose a rulemaking no later than March 15, 2019 for revision of certain Subtitle D criteria regulations pertaining to oil and natural gas wastes or to sign a determination that revision of the regulations is not necessary.

EPA fulfilled its obligation under the consent decree by issuing a determination on April 23, 2019 that revisions to existing RCRA Subtitle D regulations governing oil and natural gas wastes are not necessary, along with a report supporting that determination.

Any future change in the exclusion for such wastes could potentially result in an increase in the cost of managing and disposing of those wastes.

Although petroleum, natural gas, and natural gas liquids are excluded from the definition of “hazardous substance” under CERCLA, VOC Brazos handles materials in the course of its operations that may be regulated as CERCLA hazardous substances, despite the so-called “petroleum exclusion.”

VOC Brazos also generates solid and hazardous wastes that are subject to the requirements of the Resource Conservation and Recovery Act, as amended (“RCRA”), and comparable state statutes.

RCRA imposes strict requirements on the generation, storage, treatment, transportation and disposal of hazardous wastes.

In the course of its operations, VOC Brazos generates petroleum hydrocarbon wastes and ordinary industrial wastes that may be classified as hazardous wastes under RCRA and comparable state laws.

Drilling fluids, produced waters, and most of the other wastes associated with the exploration, production, and development of crude oil or natural gas are currently regulated under RCRA as non-hazardous wastes.

While many exploration and production wastes are exempt from regulation as hazardous waste, these wastes are generally subject to non-hazardous waste regulation under RCRA and applicable state regulations.

Many state governments have specific regulations and guidance for exploration and production wastes, including the wastes associated with hydraulic fracturing activities.

The real properties upon which VOC Brazos conducts its operations have been used for oil and natural gas exploration and production for many years.

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Water Discharges and Hydraulic Fracturing.

The federal Clean Water Act, or “CWA,” and analogous state laws impose restrictions and strict controls regarding the discharge of pollutants into waters of the

United States and waters of the state, respectively.

Pursuant to the CWA and analogous state laws, permits must be obtained to discharge pollutants into state waters or waters of the United States.

Any such discharge of pollutants into regulated waters must be performed in accordance with the terms of the permit issued by the EPA or the analogous state agency.

The discharge of wastewater from most onshore oil and gas activities exploration and production activities is currently prohibited east of the 98 th meridian.

Additionally, in June 2016, the EPA issued a final rule implementing wastewater pretreatment standards that prohibit onshore unconventional oil and natural gas extraction facilities from sending wastewater directly to publicly owned treatment works, or POTW.

Unconventional extraction facilities are in certain circumstances allowed by federal regulations to send wastewater to an off-site private centralized wastewater treatment facility, or CWT, in most circumstances.

The federal Clean Water Act (“CWA”) and analogous state laws impose restrictions and strict controls on the discharge of pollutants into “waters of the United States” and waters within the scope of state law, respectively.

Pursuant to the CWA and applicable state laws, permits must be obtained to discharge pollutants into regulated waters.

Any such discharge of pollutants into regulated waters must be performed in accordance with the terms of the permit issued by the EPA or the applicable state agency or both.

The discharge of wastewater from most onshore oil and gas activities

exploration and production activities is currently prohibited east of the 98 th meridian.

CWT facilities can either discharge treated water directly to surface waters or send it to a POTW.

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The discharge of dredge and fill material in waters of the United States, including wetlands, is also prohibited unless authorized by a permit issued under CWA Section 404 by the U.S.

Army Corps of Engineers, or USACE.

CWA Section 401 provides that the applicant for an individual Section 404 USACE permit for the discharge of dredge and fill material must notify the state in which the discharge will occur and provide an opportunity for the state to determine if the discharge will comply with the state’s approved water quality program.

In some instances, this process could result in delay in issuance of the permit, more stringent permit requirements, or denial of the permit.

How the EPA and the USACE define “waters of the United States,” or “WOTUS,” which defines the extent of geographic jurisdiction under the CWA, can impact VOC Brazos’ regulatory and permitting obligations under the CWA.

In 2023, the EPA and the USACE issued a final rule, or the “2023 rule,” that is described by the EPA and the USACE as following the 1986 regulations as modified by subsequent U.S.

Army Corps of Engineers (“USACE”).

CWA Section 401 provides that the applicant for a Section 404 USACE permit for the discharge of dredge and fill material must seek a Section 401 water quality certification by applying to the state in which the discharge will occur for the state to determine if the discharge will comply with the state’s approved water quality program.

In some instances, this process could result in a delay in issuance of the permit, more stringent permit requirements, or denial of the permit.

How the EPA and the USACE define “waters of the United States” (“WOTUS”), which defines the extent of geographic jurisdiction under the CWA, can impact VOC Brazos’ regulatory and permitting obligations under the CWA.

In 2023, the EPA and the USACE issued a final rule (the “2023 rule”) that is described by the EPA and the USACE as following the 1986 regulations as modified by subsequent U.S.

Supreme Court decisions and guidance issued by the EPA and USACE interpreting the decisions.

The 2023 rule is already subject to litigation, including motions for preliminary injunctions to prevent the 2023 rule from going into effect.

One issue raised in the litigation is that a U.S.

Supreme Court decision in the Sackett II case is expected in mid-2023 and will likely address the definition of wetlands in the 2023 rule.

VOC Brazos’ regulatory obligations and permitting costs will continue to be subject to remaining uncertainty around the definition of WOTUS and the scope of CWA regulation, given the pending litigation over the 2023 rule and expected Supreme Court decision.

USACE Nationwide Permits, or “NWPs,” are a streamlined form of permitting used to authorize development activities with minimal individual or cumulative adverse effects in wetlands or other waters of the United States under the CWA and/or Rivers and Harbors Act.

Shortly thereafter, the Supreme Court issued its decision in Sackett II which overturned a substantial portion of the basis for the 2023 Rule.

USACE and the EPA subsequently amended the 2023 rule and excluded a number of types of wetlands and streams from CWA jurisdiction, but the rule is subject to litigation regarding the sufficiency of the agencies’ interpretation of the Sackett II decision.

USACE Nationwide Permits (“NWPs”) are a streamlined form of permitting used to authorize activities related to development activities with minimal individual or cumulative adverse effects in wetlands or other waters of the United States under the CWA.

Some NWPs are also used to authorize activities that impact traditional navigable waters under the Rivers and Harbors Act.

The current administration has stated an intention to re-visit NWP 12, which is used to authorize regulated impacts related to construction of oil and gas pipelines, through notice and comment rulemaking before its current expiration date of February 2026.

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This could result in additional cost and time for permitting projects.

The Oil Pollution Act of 1990, as amended (“OPA”), which amends the CWA, establishes standards for prevention, containment and cleanup of oil spills into waters of the United States.

The OPA requires measures to be taken to prevent the accidental discharge of oil into waters of the United States from onshore production facilities.

Measures under the OPA and the CWA include inspection and maintenance programs to minimize spills from oil storage and conveyance systems;

the use of secondary containment systems to prevent spills from reaching nearby waterbodies;

proof of financial responsibility to cover environmental cleanup and restoration costs that could be incurred in connection with an oil spill;

and the development and implementation of spill prevention, control and countermeasure (“SPCC”) plans to prevent and respond to oil spills.

The OPA also subjects owners and operators of facilities to strict, joint and several liability for all containment and cleanup costs and certain other damages arising from a spill.

VOC Brazos has developed and implemented SPCC plans for the underlying properties as required under the CWA.

It is customary to recover oil and natural gas from deep shale and tight sand formations through the use of hydraulic fracturing, combined with sophisticated horizontal drilling.

Hydraulic fracturing involves the injection of water, sand and chemical additives under pressure into rock formations to stimulate gas production.

Hydraulic fracturing involves the injection of water, sand and chemical additives under pressure into rock formations to stimulate gas

The federal Energy Policy Act of 2005 amended the Underground Injection Control provisions of the federal Safe Drinking Water Act to exclude certain hydraulic fracturing activities from the definition of “underground injection.” At present, hydraulic fracturing is regulated at the state and local level.

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Many states have adopted rules that required operators to disclose chemicals and water volumes associated with hydraulic fracturing.

addition, the EPA finalized a study of the potential environmental impacts of hydraulic fracturing activities in 2016, finding that under certain circumstances the “water cycle” activities associated with hydraulic fracturing could impact drinking water resources.

In addition, the EPA finalized a study of the potential environmental impacts of hydraulic fracturing activities in 2016, finding that under certain circumstances the “water cycle” activities associated with hydraulic fracturing could impact drinking water resources.

More recently, the injection of water produced as a result of hydraulic fracturing has been associated with seismic activity leading to restrictions on injection in some areas.

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Air Emissions.

The federal Clean Air Act, or “CAA,” and comparable state laws restrict the emission of air pollutants from many sources through air emissions permitting programs and also impose various monitoring and reporting requirements.

In addition, the EPA has developed, and continues to develop, stringent regulations governing emissions of toxic air pollutants at specified sources and has recently proposed rules that define the terms used to determine whether a source is considered to be a major source under the CAA.

Federal and state regulatory agencies may impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the CAA and associated state laws and regulations.

The Clean Air Act, as amended (“CAA”), and comparable state laws and regulations restrict the emission of air pollutants from many sources and also impose various monitoring and reporting requirements.

These laws and regulations may require VOC Brazos to obtain pre approval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, and to comply with stringent air permit or regulatory requirements or utilize specific equipment or technologies to control emissions.

Obtaining permits has the potential to delay the development of VOC Brazos’ properties.

The EPA has established pollution control standards for oil and gas sources under the CAA.

In 2012, the EPA adopted federal New Source Performance Standards, or “NSPS,” that require the reduction of volatile organic compound emissions from certain fractured and refractured natural gas wells for which well completion operations are conducted and further require that most wells use reduced emission completions, also known as “green completions.” These regulations also establish specific new requirements regarding emissions from production-related wet seal and reciprocating compressors, and from pneumatic controllers and storage vessels.

In June 2016, the EPA published a second NSPS for oil and gas sources that requires operators to reduce volatile organic compound (and methane) emissions from certain oil and gas facilities, including production, processing, transmission and storage activities, that are constructed, modified, or reconstructed after September 18, 2015.

More recently, the EPA issued a November 15, 2021 proposal and a November 11, 2022 supplemental proposal that would establish volatile organic compound and methane emissions standards for oil and gas sources that are constructed, modified, or reconstructed after November 15, 2021, as well as a set of volatile organic compound and methane emissions guidelines that would apply to existing oil and gas sources for the first time under the CAA.

The EPA plans to issue a final rule from the pending proposal in 2023.

The EPA is also charged with establishing National Ambient Air Quality Standards, or “NAAQS,” the implementation of which can indirectly impact VOC Brazos’ operations.

In 2012 and 2016, the EPA adopted federal New Source Performance Standards (“NSPS”) that require the reduction of volatile organic compound and sulfur dioxide emissions from certain fractured and refractured natural gas wells for which well completion operations are conducted and further require that most wells use reduced emission completions, also known as “green completions.” These regulations also establish specific requirements regarding emissions from production-related wet seal and reciprocating compressors, pumps, and from pneumatic controllers and storage vessels, and for equipment leaks.

These NSPS apply to sources that are newly constructed or modified after the rules’ applicability dates.

More recently, in December 2023 the EPA adopted a final rule that will directly regulate volatile organic compound and methane emissions from oil and gas sources constructed or modified after December 2022 and will require reductions in both pollutants through its regulation of flaring, compressors, pumps, storage vessels, process controllers, well completions and liquids unloading, and equipment leaks.

Additionally, the EPA for the first time adopted emissions guidelines that will apply to existing oil and gas sources and that require reductions in volatile organic compound and methane emissions that are largely equivalent to the requirements for new sources.

The existing source emissions guidelines are to be implemented through state plans, with expected compliance dates for existing sources arriving in 2029.

The EPA is also charged with establishing National Ambient Air Quality Standards (“NAAQS”), the implementation of which can indirectly impact VOC Brazos’ operations.

The CAA directs the EPA to review each NAAQS every five years to ensure that the standards are protective of public health and welfare.

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In December 2020, the EPA published a final rule that retained without revision the 2015 NAAQS ozone standard.

The current administration will have an opportunity to revisit the ozone NAAQS.

State or federal implementation of the NAAQS could result in stricter permitting or regulatory requirements, delay or prohibit VOC Brazos’ ability to obtain such permits, and result in increased expenditures for pollution control equipment, the costs of which could be significant.

More recently, however, in February 2024, the EPA announced a final rule that will lower the annual standard for fine particulate matter from 12 micrograms per cubic meter to 9 micrograms per cubic meter.

Although VOC Brazos may be required to incur certain

capital expenditures during the next few years for air pollution control equipment or other air emissions-related issues, at this time VOC Brazos does not expect that such requirements will have a material adverse effect on its operations.

Climate Change.

In response to certain scientific studies suggesting that emissions of certain gases, commonly referred to as greenhouse gases, or “GHGs,” and including carbon dioxide and methane, are contributing to the warming of the Earth’s atmosphere and other climatic conditions the EPA issued regulations restricting GHGs.

These restrictions include additional reductions of volatile organic compounds, hazardous air pollutants and methane emissions from the oil and gas sector.

Such regulations limiting emissions of GHGs from the equipment and operations of VOC Brazos could require VOC Brazos to incur costs to monitor and report on GHG emissions or reduce emissions of GHGs associated with its operations, and such requirements also could adversely affect demand for the oil and natural gas that VOC Brazos produces.

In December 2015, the EPA finalized rules that added new sources to the scope of its GHG monitoring and reporting rule.

These new sources include gathering and boosting facilities.

The revisions also include

the addition of well identification reporting requirements for certain facilities.

In addition, in June 2016 the EPA published a final rule that requires operators to reduce methane emissions from certain oil and gas facilities, including production, processing, transmission and storage activities, that are constructed, modified, or reconstructed after September 18, 2015, or the “Methane Rule.” More recently, the EPA issued a November 15, 2021 proposal and a November 11, 2022 supplemental proposal that would establish volatile organic compound and methane emissions standards for oil and gas sources that are constructed, modified, or reconstructed after November 15, 2021, as well as a set of volatile organic compound and methane emissions guidelines that would apply to existing oil and gas sources for the first time under the CAA.

The EPA plans to issue a final rule from the pending proposal in 2023, which would then trigger a requirement for states to develop rules that will make the federal emissions guidelines enforceable as state rules over a three- to four-year period.

The ultimate fate of the proposed GHG control requirements for existing oil and gas sources is unclear.

Nevertheless, regulations promulgated under the CAA may require VOC Brazos to incur development expenses to install and utilize specific equipment, technologies, or work practices to control methane emissions from its operations.

Apart from the EPA, almost one-half of the states have already taken legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs.

Most of these cap and trade programs work by requiring either major sources of emissions or major producers of fuels to acquire and surrender emission allowances, with the number of allowances available for purchase reduced each year until the overall GHG emission reduction goal is achieved.

These allowances would be expected to escalate significantly in cost over time.

Although it is not possible at this time to predict if Congress may pass climate change legislation, any future federal or state laws that may be adopted to address GHG emissions could require VOC Brazos to incur increased operating costs and could adversely affect demand for the oil and natural gas VOC Brazos produces.

Finally, some scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods, drought and other climatic events.

If any such effects were to occur, they could adversely affect or delay demand for the oil or natural gas produced by VOC Brazos or otherwise cause VOC Brazos to incur significant costs in preparing for or responding to those effects.

At the international level, the U.S.

joined the international community at the 21st Conference of the Parties of the United Nations Framework Convention on Climate Change in Paris, France, which resulted in an agreement intended to nationally determine their contributions and set greenhouse gas emission reduction goals every five years beginning in 2020.

While the Agreement did not impose direct requirements on emitters, national plans to meet its pledge could have resulted in new regulatory requirements.

In November 2019, however, plans were formally announced for the U.S.

to withdraw from the Paris Agreement, and the U.S.’s withdrawal from the Paris Agreement took effect on November 4, 2020.

On January 20, 2021, President Biden issued an executive order commencing the process to reenter the Paris Agreement, although the emissions pledges in connection with that effort have not yet been updated.

formally rejoined the Paris Agreement in February 2021.

The trust cannot predict whether re-entry into the Paris Agreement or pledges made in connection therewith will result in new regulatory requirements or whether such requirements will cause VOC Brazos to incur material costs.

In a separate executive order issued on January 20, 2021, President Biden asked the heads of all executive departments and agencies to review and take action to address any federal regulations, orders, guidance documents, policies and any similar agency actions promulgated during the prior administration that may be inconsistent with or present obstacles to the administration’s stated goals of protecting public health and the environment, and conserving national monuments and refuges.

The executive order also established an Interagency Working Group on the Social Cost of Greenhouse Gases, or the “Working Group,” which is called on to, among other things, capture the full costs of greenhouse gas emissions, including the “ social cost of carbon,” “ social cost of nitrous oxide” and “ social cost of methane,” which are “ the monetized damages associated with incremental increases in greenhouse gas emissions,” including “changes in net agricultural productivity, human health, property damage from increased flood risk, and the value of ecosystem services.” In late 2022, the Working Group proposed to significantly increase the social cost of carbon used in assessing the costs and benefits of government actions.

The adoption and implementation of regulations imposing reporting obligations on, or limiting emissions of GHGs from, VOC Brazos’ equipment and operations could require VOC Brazos to incur costs to reduce emissions of GHGs associated with its operations or could adversely affect demand for the natural gas it produces.

Legislation or regulations that may be adopted to address climate change could also affect the markets for VOC Brazos’ products by making its products more or less desirable than competing sources of energy.

In response to findings that emissions of carbon dioxide, methane and other greenhouse gases (“GHGs”) may present an endangerment to public health and the environment, the EPA has issued regulations to restrict emissions of greenhouse gases under existing provisions of the CAA.

These regulations include limits on tailpipe emissions from motor vehicles, preconstruction and operating permit requirements for certain large stationary sources, and methane emissions standards for certain new, modified and reconstructed oil and gas sources — as well as the EPA’s recently adopted methane emissions guidelines for existing oil and gas sources.

The EPA also has adopted rules requiring the reporting of GHG emissions from specified large greenhouse gas emission sources in the United States, as well as certain onshore oil and natural gas production facilities, on an annual basis.

In addition, the EPA has recently proposed rules to implement the mandatory Waste Emissions Charge set forth in the Inflation Reduction Act of 2022 (the “IRA”), which will charge a fee based on the methane emissions from applicable facilities in the oil and gas sector starting in 2024.

The EPA has established pollution control standards for oil and gas sources under the CAA.

In 2012 and 2016, the EPA adopted federal New Source Performance Standards (“NSPS”) that require the reduction of volatile organic compound and sulfur dioxide emissions from certain fractured and refractured natural gas wells for which well completion operations are conducted and further require that most wells use reduced emission completions, also known as “green completions.” These regulations also establish specific requirements limiting emissions from production-related wet seal and reciprocating compressors, pumps, and from pneumatic controllers and storage vessels, and for equipment leaks.

These NSPS apply to sources that are newly constructed or modified after the rules’ applicability dates.

More recently, in December 2023 the EPA adopted a final rule that will directly regulate volatile organic compound and methane emissions from new oil and gas sources and will require further reductions in emissions through its regulation of flaring, compressors, pumps, storage vessels, process controllers, well completions and liquids unloading, and equipment leaks.

At the same time, the EPA adopted emissions guidelines that will apply to existing oil and gas sources and that require reductions in volatile organic compound and methane emissions that are largely equivalent to the requirements for new sources.

The existing source emissions guidelines are to be implemented through state plans, with expected compliance dates for existing sources arriving in 2029.

The IRA included new Clean Air Act section 136(c) directing the EPA to collect the Waste Emissions Charge from facilities in the oil and gas sector that report more than 25,000 tons of carbon dioxide equivalent emissions in a calendar year.

The charge will first apply to methane emissions from calendar year 2024.

The charge is determined by comparing actual reported methane emissions to statutorily established “methane intensity figures” that are based on gas production or throughput, with a charge assessed for every ton of methane emissions that exceeds the facility’s allowable emissions based on the applicable methane intensity figure.

The charge will be $900 per ton for 2024 emissions and will increase to $1,200 and then $1,500 per ton in subsequent years.

The program includes key exemptions, most notably a regulatory compliance exemption that applies to and exempts the emissions from facilities that are subject to and in complete compliance with EPA’s new or existing source methane requirements.

The EPA proposed new rules to implement the Waste Emissions Charge program in January 2024.

Additionally, more than one third of the states have begun taking actions to control and/or reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs.

Although most of the state level initiatives have to date focused on large sources of GHG emissions, such as coal fired electric plants, it is possible that smaller sources of emissions could become subject to GHG emission limitations or allowance purchase requirements in the future.

In addition, from time to time Congress has considered adopting legislation to reduce emissions of greenhouse gases.

Any one of these climate change regulatory and legislative initiatives could have a material adverse effect on VOC Brazos’ business, capital expenditures, financial condition and results of operations .

Legislation or regulations that may be adopted to address climate change could

also affect the markets for VOC Brazos’ products by making its products more or less desirable than competing sources of energy.

To the extent that its products are competing with higher GHG-emitting energy sources, VOC Brazos’ products may become more desirable in the market with more stringent limitations on GHG emissions.

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VOC Brazos cannot predict with any certainty at this time how these possibilities may affect its operations.

The operations of the underlying properties are not adversely impacted by the current state and local climate change initiatives and, at this time, it is not possible to accurately estimate how potential future laws or regulations addressing greenhouse gas emissions would impact the operations of the properties.

Finally, some scientists have theorized that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events.

If any such significant physical effects were to occur, they could have an adverse effect on VOC Brazos’ assets and operations and cause VOC Brazos to incur costs in preparing for and responding to them.

Additionally, energy needs could increase or decrease as a result of extreme weather conditions, depending on the duration and magnitude of those conditions.

Endangered Species Act.

The federal Endangered Species Act, or “ESA,” restricts or prohibits activities that may affect endangered and threatened species or their habitats.

If endangered species are located in areas of the underlying properties where seismic surveys, development activities or abandonment operations may be conducted, the work could be prohibited or delayed, or expensive mitigation may be required.

The federal Endangered Species Act, as amended (“ESA”), prohibits taking of listed endangered, and in some cases threatened, species.

Under the ESA, federal agencies are obligated to consult with the U.S.

Fish and Wildlife Service or National Marine Fisheries Service if an agency’s actions, including permit actions, may affect listed species or designated critical habitat.

If endangered species are located in areas of the Underlying Properties where seismic surveys, development activities or abandonment operations may be conducted, the work could be prohibited or delayed or expensive mitigation may be required, depending on the implications for protected species and designated critical habitat.

On August 27, 2019, the U.S.

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In January 2021, President Biden issued an Executive Order announcing that the new administration would initiate a review of the 2019 amendments to the ESA rules.

The Biden Administration has rescinded one of the rules adopted by the prior administration, dealing with critical habitat, and has stated its intention to revise other rules, but that has not yet occurred.

The Biden Administration has rescinded one of the rules adopted by the prior administration, dealing with critical habitat, and has issued a proposed rule that would make significant changes to the federal consultation process.

That rule is expected to be finalized by the Biden Administration.

Changes to these rules could make a federal review process occasioned by the application for permits, rights of way, or leases more complex.

Designation of new species as threatened or endangered could cause VOC Brazos to incur additional costs arising from species protection measures, could result in limitations on activities, and could require a more complex regulatory compliance process.

While some of VOC Brazos’ facilities or leased acreage may be located in areas that are designated as habitat for endangered or threatened species, VOC Brazos believes that it is in substantial compliance with the ESA.

In addition, designation of new species as threatened or endangered could cause VOC Brazos to incur additional costs arising from species protection measures, could result in limitations on activities, and could require a more complex regulatory compliance process.

National Environmental Policy Act.

The National Environmental Policy Act, or “NEPA,” requires the federal government to undertake an environmental review prior to making a decision on most proposed federal actions — such as permits, leases, and rights-of-way.

The National Environmental Policy Act (“NEPA”) requires the federal government to undertake an environmental review prior to making a decision on most proposed federal actions — such as permits, leases, and rights-of-way.

The Trump Administration significantly revised the regulations implementing NEPA in 2020 in an effort to make the review process more efficient and more narrowly tailored to the agency’s specific action.

The Biden Administration undertook an initial revision to the NEPA regulations which were finalized in 2022, essentially reverting to the pre-2020 rule language for a few elements of the rules.

The White House Council on Environmental Quality, or “CEQ,” is expected to publish a round-two rulemaking in early 2023 that will make more significant revisions to the Trump-era rule.

In addition, in early 2023 CEQ issued guidance to the federal agencies on how agencies should consider greenhouse gas emissions and climate impacts in the course of their reviews under NEPA.

The 2022 regulatory changes may not have a significant impact on federal reviews related to VOC Brazos actions because the Trump Administration rule was never fully implemented by the agencies;

however, the 2023 CEQ guidance may increase agency review times as may future regulatory changes.

In 2023, the Biden Administration issued a second proposed rule that would make significant changes to the Trump Administration regulations.

The proposed rule is expected to be finalized in April 2024.

In addition, in early 2023 the White House Council on Environmental Quality issued Guidance to the federal agencies on how agencies should consider greenhouse gas emissions and climate impacts in the course of their reviews under NEPA.

Although the Trump Administration regulations were never fully implemented, the Biden Administration changes may have a meaningful impact on federal reviews related to VOC Brazos, especially as those reviews relate to climate and environmental justice.

Employee Health and Safety.

The operations of VOC Brazos are subject to a number of federal and state laws and regulations, including the federal Occupational Safety and Health Act, or “OSHA,” and comparable state statutes, whose purpose is to protect the health and safety of workers.

In addition, the OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state statutes require in certain circumstances that information be maintained concerning hazardous materials used or produced in VOC Brazos’ operations and that this information be provided to employees, state and local government authorities and citizens.

circumstances that information be maintained concerning hazardous materials used or produced in VOC Brazos’ operations and that this information be provided to employees, state and local government authorities and citizens.

VOC Brazos believes that it is in substantial compliance with all applicable laws and regulations relating to worker health and safety.

TABLE OF CONTENTS

Risk Factors.

Operating Risks

Prices of oil and natural gas fluctuate, and lower prices could reduce proceeds to the trust and cash distributions to trust unitholders.

The reserves attributable to the underlying properties and quarterly cash distributions of the trust are highly dependent upon the prices realized from the sale of oil and natural gas.

Prices of oil and natural gas can fluctuate widely on a quarter-to-quarter basis in response to a variety of factors that are beyond the control of the trust and VOC Brazos.

These factors include, among others:

regional, domestic and foreign supply and perceptions of supply of oil and natural gas;

the level of demand and perceptions of demand for oil and natural gas;

political conditions or hostilities in oil and natural gas producing regions, including the Middle East, North Africa and South America;

the armed conflict between Russia and Ukraine and the potential destabilizing effect such conflict may pose for the global oil and gas markets;

the occurrence or threat of epidemic or pandemic diseases, such as the COVID-19 pandemic, or any government response to such occurrence or threat;

the actions of OPEC and other foreign, oil-exporting countries;

anticipated future prices of oil and natural gas and other commodities;

weather conditions and seasonal trends;

technological advances affecting energy consumption and energy supply;

and worldwide economic conditions;

the price and availability of alternative fuels;

the proximity, capacity, cost and availability of gathering and transportation facilities;

the volatility and uncertainty of regional pricing differentials;

governmental regulations and taxation;

energy conservation and environmental measures;

acts of force majeure.

Crude oil prices have been volatile over the last several years, and in 2022 ranged from a high of $123.70 to a low of $71.02.

The NYMEX crude oil spot prices per Bbl were $48.52, $75.21 and $80.26 as of December 31, 2020, 2021 and 2022, respectively.

Commodity prices displayed dramatic volatility in 2020, when the COVID-19 pandemic and various governmental actions taken to mitigate the impact of COVID-19 resulted in an unprecedented decline in demand for oil and natural gas.

Although worldwide demand for oil and natural gas recovered in 2021 and 2022, governmental responses to COVID-19 remain dynamic, with certain countries, such as China, continuing to impose periodic lockdowns in response to rising case numbers.

To the extent strains or variants of COVID-19 resurge, or if other epidemic or pandemic diseases or other public health event were to occur, the negative impact to global demand for oil and natural gas could be material.

Neither VOC Brazos nor the trust can predict the timing or the duration of any economic cycle and, depending on the prices realized, the operating results of VOC Brazos and the financial condition of the trust could be materially and adversely affected.

Low prices of oil and natural gas will reduce the amount of the net proceeds to which the trust is entitled and may ultimately reduce the amount of oil and natural gas that is economic to produce from the underlying properties.

As a result, the operator of any of the underlying properties could determine during periods of low commodity prices to shut in or curtail production from wells on the underlying properties, or to plug and abandon marginal wells that otherwise may have been allowed to continue to produce for a

longer period under conditions of higher prices.

Specifically, VOC Brazos may abandon any well or property if it reasonably believes that the well or property can no longer produce oil or natural gas in commercially paying quantities.

This could result in termination of the net profits interest relating to the abandoned well or property.

In making such decisions, VOC Brazos and any transferee will be required under the applicable conveyance to operate, or to use commercially reasonable efforts to cause the operators of the underlying properties to operate, these properties as would a reasonably prudent operator, acting with respect to its own properties (without regard to the existence of the net profits interest).

Because substantially all the underlying properties are located in mature fields, decreases in commodity prices could have a more significant effect on the economic viability of these properties compared to more recently discovered properties.

The commodity price sensitivity of these mature wells is due to a variety of factors that vary from well-to-well, including the additional costs associated with water handling and disposal, chemicals, surface equipment maintenance, downhole casing repairs and reservoir pressure maintenance activities that are necessary to maintain production.

As a result, the volatility of commodity prices may cause the amount of future cash distributions to trust unitholders to fluctuate, and a substantial decline in the price of oil or natural gas, such as the significant and rapid decline that occurred in 2020, will reduce the amount of cash available for distribution to the trust unitholders.

The volatility of commodity prices also reduces the accuracy of estimates of future cash distributions to trust unitholders.

Actual reserves and future production may be less than current estimates of proved reserves, which could reduce cash distributions by the trust and the value of the trust units.

The value of the trust units and the amount of future cash distributions to the trust unitholders will depend upon, among other things, the accuracy of the reserves and future production estimated to be attributable to the underlying properties and the net profits interest.

It is not possible to measure underground accumulations of oil and natural gas in an exact manner, and estimating reserves is inherently uncertain.

Ultimately, actual production and revenues for the underlying properties could vary negatively and in material amounts from estimates.

Furthermore, development expenditures and production costs relating to the underlying properties could be higher than current estimates.

Petroleum engineers are required to make subjective estimates of underground accumulations of oil and natural gas based on factors and assumptions that include:

historical production from the area compared with production rates from other producing areas;

oil and natural gas prices, production levels, Btu content, production expenses, transportation costs, severance and excise taxes and development expenditures;

the effect of expected governmental regulation.

Changes in these assumptions and amounts of actual production and development costs could materially decrease reserve estimates.

The estimated reserves attributable to the net profits interest and the estimated future net revenues attributable to the net profits interest are based on estimates of reserve quantities and revenues for the underlying properties.

Business — Description of the Underlying Properties — Reserves” for a discussion of the method of allocating proved reserves to the underlying properties and the net profits interest.

The quantities of reserves attributable to the underlying properties and the net profits interest may decrease in the future as a result of future decreases in the price of oil, natural gas or natural gas liquids.

The processes of drilling and completing wells are high risk activities.

The processes of drilling and completing wells are subject to numerous risks beyond the trust’s and VOC Brazos’ control, including risks that could delay VOC Brazos’ current drilling schedule and the risk that drilling will not result in commercially viable oil production.

VOC Brazos is not obligated to undertake any development activities, so any drilling and completion activities will be subject to the reasonable discretion of VOC Brazos.

Furthermore, VOC Brazos’ future business, financial condition, results of operations, liquidity or ability to finance its share of planned development expenditures could be materially and adversely affected by any factor that may curtail, delay or cancel drilling, including the following:

delays imposed by or resulting from compliance with regulatory requirements, including permitting;

unusual or unexpected geological formations;

shortages of or delays in obtaining equipment and qualified personnel;

equipment malfunctions, failures or accidents;

unexpected operational events and drilling conditions;

reductions in oil or natural gas prices;

market limitations for oil or natural gas;

pipe or cement failures;

casing collapses;

lost or damaged drilling and service tools;

loss of drilling fluid circulation;

uncontrollable flows of oil and natural gas;

fires and natural disasters;

environmental hazards, such as oil and natural gas leaks, pipeline ruptures and discharges of toxic gases;

adverse weather conditions;

oil or natural gas property title problems.

If drilling of development wells is delayed or cancelled, or development wells have lower than anticipated production, due to one or more of the factors above or for any other reason, estimated future distributions to trust unitholders may be reduced.

Risks associated with the production, gathering, transportation and sale of oil and natural gas could adversely affect cash distributions by the trust.

The amount of cash to be received by the trust from VOC Brazos with respect to the net profits interest, the value of the trust units and the amount of cash distributions to the trust unitholders will depend upon, among other things, oil and natural gas production and prices and the costs incurred by VOC Brazos to develop and produce oil and natural gas reserves attributable to the underlying properties.

Drilling, production or transportation accidents as well as adverse weather conditions that temporarily or permanently halt the production and sale of oil or natural gas at any of the underlying properties will reduce trust distributions by reducing the amount of net proceeds received by the trust and available for distribution.

For example, accidents may occur that result in personal injuries, property damage, damage to productive formations or equipment and environmental damages.

To the extent VOC Brazos is not able to recover from insurance any costs incurred by VOC Brazos in connection with any such accidents, the net proceeds available for distribution to the trust may be reduced or delayed.

In addition, curtailments or damage to pipelines used by VOC Brazos to transport oil and natural gas production to markets for sale could reduce the amount of net proceeds received by the trust and available for distribution.

Any such curtailment or damage to the gathering systems used by VOC Brazos could also require VOC Brazos to find alternative means to transport the oil and natural gas production from the underlying properties, which could require VOC Brazos to incur additional costs that will have the effect of reducing net proceeds received by the trust and available for distribution.

The trust does not maintain any type of insurance against any of the risks of conducting oil and gas exploration and production or related activities.

The ability or willingness of OPEC and other oil exporting nations to set and maintain production levels has a significant impact on oil and natural gas commodity prices, which could reduce the amount of cash available for distribution to Trust unitholders.

OPEC is an intergovernmental organization that seeks to manage the price and supply of oil on the global energy market.

Actions taken by OPEC members, including those taken alongside other oil exporting

nations, have a significant impact on global oil supply and pricing.

For example, OPEC and certain other oil exporting nations have previously agreed to take measures, including production cuts, to support crude oil prices.

There can be no assurance that OPEC members and other oil exporting nations will agree to future production cuts or other actions to support and stabilize oil prices, nor can there be any assurance that they will not further reduce oil prices or increase production.

Uncertainty regarding future actions to be taken by OPEC members or other oil exporting countries could lead to increased volatility in the price of oil, which could adversely affect the financial condition and economic performance of the operators of the underlying properties and may reduce the net proceeds to which the Trust is entitled, which could materially reduce or completely eliminate the amount of cash available for distribution to Trust unitholders.

Production of oil and natural gas on the underlying properties could be materially and adversely affected by severe or unseasonable weather.

Production of oil and natural gas on the underlying properties could be materially and adversely affected by severe weather.

Repercussions of severe weather conditions may include:

evacuation of personnel and curtailment of operations;

weather-related damage to drilling rigs or other facilities, resulting in suspension of operations;

inability to deliver materials to worksites;

weather-related damage to pipelines and other transportation facilities.

Interruptions in production could have a material adverse effect on the trust’s financial condition, results of operations and cash flows, and could reduce the amount of cash distributions to trust unitholders.

VOC Brazos does not have any long-term contracts related to the sale of production of oil and natural gas from the underlying properties and may be unable to find purchasers.

VOC Brazos does not have any firm commitment contracts for the sale of any production nor has it received security or other guaranty of payment for the production it sells.

Therefore, there can be no assurance that VOC Brazos will be able to find buyers for its production, that buyers will pay the purchase price therefor or that the price at which the production is sold will be the current market price for such hydrocarbons at the time of delivery.

During the year ended December 31, 2022, VOC Brazos sold approximately 35% of the oil produced from the underlying properties to MV Purchasing, an affiliate of VOC Brazos.

Any nonpayment by a purchaser of production, including MV Purchasing, or inability by VOC Brazos to sell any production, could reduce cash available for distribution to trust unitholders.

Shortages or increases in costs of equipment, services and qualified personnel could result in a reduction in the amount of cash available for distribution to the trust unitholders.

The demand for qualified and experienced personnel to conduct field operations, geologists, geophysicists, engineers and other professionals in the oil and natural gas industry can fluctuate significantly, often in correlation with oil and natural gas prices, causing periodic shortages.

Historically, there have been shortages of drilling rigs and other equipment as demand for rigs and equipment has increased along with the number of wells being drilled.

These factors also cause significant increases in costs for equipment, services and personnel.

Higher oil and natural gas prices generally stimulate demand and result in increased prices for drilling rigs, crews and associated supplies, equipment and services.

Shortages of field personnel and equipment or price increases could significantly decrease the amount of cash received by the trust and available for distribution to the trust unitholders or restrict the ability of VOC Brazos to drill the development wells and conduct the operations which it currently has planned for the underlying properties.

Due to lack of geographic diversification of the underlying properties, adverse developments in Kansas or Texas could adversely impact the results of operations and cash flows of the underlying properties and reduce the amount of cash available for distributions to trust unitholders.

The operations of the underlying properties are focused on the production and development of oil and natural gas within the states of Kansas and Texas.

As a result, the results of operations and cash flows of the underlying properties depend upon continuing operations in these areas.

Due to the lack of diversification

in geographic location, adverse developments in exploration and production of oil and natural gas in either of these areas of operation could have a significantly greater impact on the results of operations and cash flows of the underlying properties than if the operations were more diversified.

Financial Risks

The reserves attributable to the underlying properties are depleting assets and production from those properties will diminish over time.

Furthermore, the trust is precluded from acquiring other oil and natural gas properties or net profits interests to replace the depleting assets and production.

The net proceeds payable to the trust attributable to the net profits interest are derived from the sale of production of oil and natural gas from the underlying properties.

The reserves attributable to the underlying properties are depleting assets, which means that the reserves and the quantity of oil and natural gas produced from the underlying properties will decline over time.

Furthermore, over approximately 89% of the estimated oil recovery attributable to the underlying properties has already been extracted from the producing wells located on the underlying properties.

Based on the estimated production volumes in the reserve report as of December 31, 2022, the oil and natural gas production from proved reserves attributable to the underlying properties is projected to decline at an average rate of approximately 6.1% per year over the next 20 years, assuming the level of development drilling and development expenditures on the underlying properties disclosed elsewhere in this Form 10-K through 2027 and none thereafter.

Actual decline rates may vary from this projected decline rate.

In the event expected future development is delayed, reduced or cancelled, the average rate of decline will likely exceed 6.1% per year.

The trust agreement provides that the trust’s activities are limited to owning the net profits interest and any activity reasonably related to such ownership, including activities required or permitted by the terms of the conveyance.

As a result, the trust is not permitted to acquire other oil and natural gas properties or net profits interests to replace the depleting assets and production attributable to the net profits interest.

Because the net proceeds payable to the trust are derived from the sale of depleting assets, the portion of the distributions to trust unitholders attributable to depletion may be considered to have the effect of a return of capital as opposed to a return on investment.

Eventually, the underlying properties burdened by the net profits interest may cease to produce in commercially paying quantities and the trust may, therefore, cease to receive any distributions of net proceeds therefrom.

The trust units may lose value as a result of title deficiencies with respect to the underlying properties.

VOC Brazos acquired the underlying properties over approximately the past 30 years.

The existence of a material title deficiency with respect to the underlying properties could reduce the value of a property or render it worthless, thus adversely affecting the net profits interest and distributions to trust unitholders.

VOC Brazos does not obtain title insurance covering mineral leaseholds, and VOC Brazos’ failure to cure any title defects may cause VOC Brazos to lose its rights to production from the underlying properties.

In the event of any such material title problem, proceeds available for distribution to trust unitholders and the value of the trust units may be reduced.

The amount of cash available for distribution by the trust will be reduced by the amount of any costs and expenses related to the underlying properties and other costs and expenses incurred by the trust.

The net profits interest will bear its share of all costs and expenses related to the underlying properties, such as lease operating expenses, production and property taxes and development expenses, which will reduce the amount of cash received by the trust and thereafter distributable to trust unitholders.

Accordingly, higher costs and expenses related to the underlying properties will directly decrease the amount of cash received by the trust in respect of its net profits interest, including those costs and expenses related to development pursuant to the joint venture arrangements described in “Item 7.

Trustee’s Discussion and Analysis of Financial Condition and Results of Operations — Planned Development and Workover Program.” If the activities pursuant to such arrangements are pursued, other than with respect to certain excepted wells, such activities would result in increased development costs burdening the net profits interest of the trust relative to historical development costs.

As a result of such increased development costs, cash available for distribution by the trust would be temporarily reduced, and in some periods there may be no

distributions to trust unitholders, until anticipated production for the various development efforts in the Kurten Woodbine Unit can be brought on line.

In addition, cash available for distribution by the trust will be further reduced by the trust’s general and administrative expenses.

If production and development costs on the underlying properties together with the other costs exceed gross proceeds of production from the underlying properties, the trust will not receive net proceeds from those properties until future gross proceeds from production exceed the total of the excess costs, plus accrued interest.

If the trust does not receive net proceeds pursuant to the net profits interest, or if such net proceeds are reduced, the trust will not be able to distribute cash to the trust unitholders, or such cash distributions will be reduced, respectively.

Development activities may not generate sufficient additional revenue to repay the costs.

If annual cash proceeds attributable to the net profits interest are less than $1 million for each of two consecutive years, then under the terms of the trust agreement, the trust would be required to dissolve.

The trust has established a cash reserve for contingent liabilities and to pay expenses in accordance with the trust agreement, which would reduce net profits payable to the trust and distributions to trust unitholders.

The trust’s source of capital is the cash flows from the net profits interest.

Pursuant to the trust agreement, the trust may establish a cash reserve through the withholding of cash for contingent liabilities and to pay expenses, which will reduce the amount of cash otherwise available for distribution to trust unitholders.

In November 2021 the trustee notified VOC Brazos of the trustee’s intent to build a reserve for the payment of future known, anticipated or contingent expenses or liabilities of the trust, commencing with the distribution paid to trust unitholders in February 2022, by withholding a portion of the proceeds otherwise available for distribution each quarter to gradually build a cash reserve of approximately $1.175 million.

Although the targeted cash reserve was fully funded as of January 30, 2023, the trustee may increase or decrease the targeted amount at any time, and may increase or decrease the rate at which it is withholding funds to build the cash reserve at any time, without advance notice to the trust unitholders.

A purchaser’s failure to pay VOC Brazos for purchased production could have a significant adverse impact on VOC Brazos, which in turn could result in VOC Brazos not having sufficient net proceeds attributable to the net profits interest for VOC Brazos to distribute cash to the trust.

A purchaser’s failure to pay for purchased production could have a significant adverse impact on VOC Brazos’ business, which in turn could adversely affect the trust.

The recent tightening of credit in the financial markets may make it more difficult for purchasers to obtain financing and depending on the degree to which this occurs, there may be a material increase in the nonpayment and nonperformance by such purchasers.

The bankruptcy of VOC Brazos or any operator of the underlying properties could impede the operation of the wells and the development of the proved undeveloped reserves.

VOC Brazos is a privately-held limited partnership engaged in the production and development of oil and natural gas from properties located in Kansas and Texas.

VOC Brazos intends to implement a development and workover program, including the expenditure through 2027 of approximately $41.7 million to drill additional wells and recomplete and workover other wells.

Without this development and workover program, the average decline rate over the life of the trust of the oil and natural gas production from the proved reserves attributable to the underlying properties will likely exceed the 6.1% per year projected in the reserve report.

The operator of substantially all of the underlying properties is a privately-held corporation engaged in the operation of oil and natural gas wells in Kansas and Texas.

Therefore, the value of the net profits interest and the trust’s ultimate cash available for distribution will be highly dependent on the financial condition of VOC Brazos and the operator.

Neither VOC Brazos nor the operator is a reporting company or files periodic reports with the SEC.

Therefore, trust unitholders do not have access to financial information about VOC Brazos or the operator.

Furthermore, neither VOC Brazos nor the operator has agreed with the trust to maintain a certain net worth or to be restricted by other similar covenants.

The ability of VOC Brazos to develop the underlying properties and the ability of the operator to operate the wells on the underlying properties depends on the future financial condition and economic

performance and access to capital of VOC Brazos and the operator, which in turn will depend upon the supply and demand for oil and natural gas, prevailing economic conditions and financial, business and other factors, many of which are beyond the control of VOC Brazos and the operator.

In the event of the bankruptcy of VOC Brazos or the operator, the trust would have to seek a new party to perform the development and workover program or the operations of the wells operated by such operator.

The trust may not be able to find a replacement driller or operator, and it may not be able to enter into a new agreement with such replacement party on favorable terms within a reasonable period of time.

As a result, such a bankruptcy may result in reduced production from the reserves and decreased distributions to trust unitholders.

Risks Related to the Structure of the Trust

Neither the trust nor the trust’s unitholders have the ability to influence VOC Brazos or control the operations or development of the underlying properties.

The trust and the trust’s unitholders have no voting rights with respect to VOC Brazos and therefore have no managerial, contractual or other ability to influence VOC Brazos’ activities or the operations of the underlying properties.

Oil and natural gas properties are typically managed pursuant to an operating agreement among the working interest owners of oil and natural gas properties.

Vess Oil Corporation operates, or operates on a contract basis, substantially all of the underlying properties.

The typical operating agreement contains procedures whereby the owners of the working interests in the property designate one of the interest owners to be the operator of the property.

Under these arrangements, the operator is typically responsible for making all decisions relating to drilling activities, sale of production, compliance with regulatory requirements and other matters that affect the property.

VOC Brazos may transfer all or a portion of the underlying properties at any time without trust unitholder consent, subject to specified limitations.

VOC Brazos may at any time transfer all or part of the underlying properties, subject to and burdened by the net profits interest, and may abandon individual wells or properties that it reasonably believes would no longer produce oil or natural gas in commercially paying quantities.

For the years ended December 31, 2020, 2021 and 2022, VOC Brazos plugged and abandoned 11, 26 and 16 wells, respectively, located on leases on the underlying properties.

Trust unitholders will not be entitled to vote on any transfer of the underlying properties, and the trust will not receive any proceeds from any such transfer, except in certain limited circumstances when the net profits interest is released in connection with such transfer, in which case the trust will receive an amount equal to the fair market value (net of sales costs) of the net profits interest released.

Following any sale or transfer of any of the underlying properties, if the net profits interest is not released in connection with such sale or transfer, the net profits interest will continue to burden the transferred property and net proceeds attributable to such property will be calculated as part of the computation of net proceeds described in this Form 10-K.

VOC Brazos may delegate to the transferee responsibility for all of VOC Brazos’ obligations relating to the net profits interest on the portion of the underlying properties transferred.

These releases will be made only in connection with a sale by VOC Brazos of the relevant underlying properties and are conditioned upon the trust’s receiving an amount equal to the fair market value to the trust of such net profits interest.

Any net sales proceeds paid to the trust will be distributable to trust unitholders for the quarter in which they are received.

No underlying properties were sold, and therefore no net sales proceeds were paid to the trust for its share of interest in any such underlying properties, during 2021 or 2022.

VOC Brazos has not identified any of the underlying properties for sale as of December 31, 2022.

The trustee may, under certain circumstances, sell the net profits interest and dissolve the trust prior to the expected termination of the trust.

As a result, trust unitholders may not recover their investment.

The trustee must sell the net profits interest if the holders of a majority of the trust units approve the sale or vote to dissolve the trust.

The trustee must also sell the net profits interest if the annual cash proceeds from the underlying properties attributable to the net profits interest are less than $1.0 million for each of any two consecutive years.

The sale of the net profits interest will result in the dissolution of the trust.

The net proceeds of any such sale will be distributed to the trust unitholders.

Conflicts of interest could arise between VOC Brazos and its affiliates, on the one hand, and the trust and the trust unitholders, on the other hand.

As working interest owners in, and operators of substantially all the wells on, the underlying properties, VOC Brazos and its affiliates could have interests that conflict with the interests of the trust and the trust unitholders.

VOC Brazos’ interests may conflict with those of the trust and the trust unitholders in situations involving the development, maintenance, operation or abandonment of the underlying properties.

VOC Brazos may also make decisions with respect to development expenditures that adversely affect the underlying properties.

These decisions include reducing development expenditures on these properties, which could cause oil and natural gas production to decline at a faster rate and thereby result in lower cash distributions by the trust in the future.

VOC Brazos may sell some or all of the underlying properties without taking into consideration the interests of the trust unitholders.

Such sales may not be in the best interests of the trust unitholders.

These purchasers may lack VOC Brazos’ experience or its creditworthiness.

VOC Brazos also has the right, under certain limited circumstances, to cause the trust to release all or a portion of the net profits interest in connection with a sale of a portion of the underlying properties to which such net profits interest relates.

MV Purchasing, an affiliate of VOC Brazos, is expected to market and/or purchase a substantial portion of the oil produced from the underlying properties, and it is expected to profit from this arrangement.

Provisions in the net profits interest conveyance, however, require that charges and other terms under contracts with affiliates of VOC Brazos be comparable to prices and other terms prevailing in the area for similar services or sales.

During the year ended December 31, 2022, VOC Brazos sold approximately 35% of the oil produced from the underlying properties to MV Purchasing.

VOC Partners, LLC has registration rights and can sell its trust units without considering the effects such sale may have on trust unit prices or on the trust itself.

In addition, VOC Partners, LLC can vote its trust units in its sole discretion without considering the interests of the other trust unitholders.

The trust is managed by a trustee who cannot be replaced except by a majority vote of the trust unitholders at a special meeting, which may make it difficult for trust unitholders to remove or replace the trustee.

The business and affairs of the trust are managed by the trustee.

The voting rights of a trust unitholder are more limited than those of stockholders of most public corporations.

For example, there is no requirement for annual meetings of trust unitholders or for an annual or other periodic re-election of the trustee.

The trust agreement provides that the trustee may only be removed and replaced by the holders of a majority of the outstanding trust units, including trust units held by VOC Partners, LLC, at a special meeting of trust unitholders called by either the trustee or the holders of not less than 10% of the outstanding trust units.

As a result, it will be difficult for public unitholders to remove or replace the trustee without the cooperation of VOC Partners, LLC as long as it holds a significant percentage of total trust units.

Risks Related to Ownership of the Trust Units

The disposal by an affiliate of VOC Brazos of its remaining trust units may reduce the market price of the trust units.

As of the date of this Form 10-K, an affiliate of VOC Brazos, VOC Partners, LLC, owned 25% of the outstanding trust units.

VOC Partners, LLC may use some or all of the remaining trust units it owns for a number of business purposes, including:

selling them for cash;

exchanging them for interests in oil and natural gas properties or securities of oil and natural gas companies.

If it sells additional trust units or exchanges trust units in connection with acquisitions, then additional trust units will be available for sale in the market.

The sale of additional trust units may reduce the market price of the trust units.

The trust has entered into a registration rights agreement with VOC Partners, LLC pursuant to which the trust has agreed to file a registration statement or a shelf registration statement to register the resale of the remaining trust units held by VOC Partners, LLC and any transferee of the trust units upon request by such holders.

See “Item 13.

Certain Relationships and Related Transactions, and Director Independence — Registration Rights.”

The market price for the trust units may not reflect the value of the net profits interest held by the trust.

The trading price for publicly traded securities similar to the trust units tends to be tied to recent and expected levels of cash distributions.

The amounts available for distribution by the trust will vary in response to numerous factors outside the control of the trust, including prevailing prices for sales of oil and natural gas production from the underlying properties and the timing and amount of production and development costs.

Consequently, the trading price for the trust units may not necessarily be indicative of the value that the trust would realize if it sold the net profits interest to a third-party buyer.

In addition, such market price may not necessarily reflect the fact that since the assets of the trust are depleting assets, a portion of each cash distribution paid on the trust units should be considered by investors as a return of capital, with the remainder being considered as a return on investment.

As a result, distributions made to a trust unitholder over the life of these depleting assets may not equal or exceed the purchase price paid by the trust unitholder.

Trust unitholders have limited ability to enforce provisions of the net profits interest, and VOC Brazos’ liability to the trust is limited.

The trust agreement permits the trustee to sue VOC Brazos or any other future owner of the underlying properties to enforce the terms of the conveyance creating the net profits interest.

If the trustee does not take appropriate action to enforce provisions of the conveyance, trust unitholders’ recourse would be limited to bringing a lawsuit against the trustee to compel the trustee to take specified actions.

The trust agreement expressly limits a trust unitholder’s ability to directly sue VOC Brazos or any other third party other than the trustee.

As a result, trust unitholders will not be able to sue VOC Brazos or any future owner of the underlying properties to enforce these rights.

Furthermore, the net profits interest conveyance provides that, except as set forth in the conveyance, VOC Brazos will not be liable to the trust for the manner in which it performs its duties in operating the underlying properties as long as it acts without gross negligence or willful misconduct.

Courts outside of Delaware may not recognize the limited liability of the trust unitholders provided under Delaware law.

Under the Delaware Statutory Trust Act, trust unitholders are entitled to the same limitation of personal liability extended to stockholders of corporations under the General Corporation Law of the State of Delaware.

Courts in jurisdictions outside of Delaware, however, may not give effect to such limitation.

Legal, Environmental and Regulatory Risks

The trust may be treated as an unsecured creditor with respect to the net profits interest attributable to properties in Kansas in the event of the bankruptcy of VOC Brazos if a court were to hold that the conveyance and recording of the net profits interest was not a conveyance of a fully vested real property interest or an interest in hydrocarbons in place or to be produced.

VOC Brazos and the trust believe that the recording in the appropriate real property records in Kansas of the net profits interest should constitute the conveyance of a fully vested real property interest, interests in hydrocarbons in place or to be produced or a production payment as such is defined under the United States Bankruptcy Code.

In a bankruptcy of VOC Brazos, creditors of VOC Brazos would be able to

claim the net profits interest as an asset of the bankruptcy estate to satisfy obligations to them if the conveyance of the net profits interest did not constitute the conveyance of a real property interest or interests in hydrocarbons in place or to be produced under applicable state law or a production payment, in which case the trust would be an unsecured creditor of VOC Brazos at risk of losing the entire value of the net profits interest to senior creditors.

The operations of the underlying properties are subject to environmental laws and regulations that may result in significant costs and liabilities, which could reduce the amount of cash available for distribution to trust unitholders.

The oil and natural gas exploration and production operations of VOC Brazos are subject to stringent and comprehensive federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection.

These laws and regulations may impose numerous obligations that apply to VOC Brazos’ operations, including the requirement to obtain a permit before conducting drilling, waste disposal or other regulated activities;

the restriction of types, quantities and concentrations of materials that can be released into the environment;

the incurrence of significant development expenditures to install pollution or safety-related controls at the operated facilities;

the limitation or prohibition of drilling activities on certain lands lying within wilderness, wetlands and other protected areas;

and the imposition of substantial liabilities for pollution resulting from operations.

Numerous governmental authorities, such as the EPA and analogous state environmental and oil and gas agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly actions.

Failure to comply with these laws 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 VOC Brazos’ operations.

Furthermore, the inability to comply with environmental laws and regulations in a cost effective manner, such as removal and disposal of produced water and other generated oil and gas wastes, could impair VOC Brazos’ ability to produce oil and natural gas commercially from the underlying properties, which would reduce proceeds attributable to the net profits interest.

There is inherent risk of incurring significant environmental costs and liabilities in the performance of VOC Brazos’ operations as a result of its handling of petroleum hydrocarbons and wastes, air emissions and wastewater discharges related to its operations, and historical industry operations and waste disposal practices.

Under certain environmental laws and regulations, VOC Brazos could be subject to joint and several strict liability for the removal or remediation of previously released materials or property contamination regardless of whether VOC Brazos was responsible for the release or contamination or whether the operations were in compliance with all applicable laws at the time those actions were taken.

Private parties, including the owners of properties upon which VOC Brazos’ wells are drilled and facilities where VOC Brazos’ petroleum hydrocarbons or wastes are taken for reclamation or disposal, may also have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damage.

In addition, the risk of accidental spills or releases could expose VOC Brazos to significant liabilities that could have a material adverse effect on its financial condition or results of operations.

Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly operational control requirements or waste handling, storage, transport, disposal or cleanup requirements could require VOC Brazos to make significant expenditures to attain and maintain compliance and may otherwise have a material adverse effect on its results of operations, competitive position or financial condition.

VOC Brazos may be unable to recover some or any of these costs from insurance, in which case the amount of cash received by the trust may be decreased.

The net profits interest held by the trust will bear 80% of all costs and expenses incurred by VOC Brazos in regard to environmental costs and liabilities associated with the underlying properties, including costs and liabilities resulting from conditions that existed prior to VOC Brazos’ acquisition of the underlying properties unless such costs and expenses result from VOC Brazos’ gross negligence or willful misconduct.

In addition, as a result of the increased cost of compliance, VOC Brazos may decide to discontinue drilling.

The operations of the underlying properties are subject to complex federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of conducting its operations or expose VOC Brazos to significant liabilities, which could reduce the amount of cash available for distribution to trust unitholders.

The production and development operations on the underlying properties are subject to complex and stringent laws and regulations.

In order to conduct its operations in compliance with these laws and

regulations, VOC Brazos must obtain and maintain numerous permits, drilling bonds, approvals and certificates from various federal, state and local governmental authorities and engage in extensive reporting.

VOC Brazos may incur substantial costs in order to maintain compliance with these existing laws and regulations, and the net profits interest will bear its share of these costs.

In addition, VOC Brazos’ costs of compliance may increase if existing laws and regulations are revised or reinterpreted, or if new laws and regulations become applicable to VOC Brazos’ operations.

Such costs could have a material adverse effect on VOC Brazos’ business, financial condition and results of operations and reduce the amount of cash received by the trust in respect of the net profits interest, VOC Brazos must also comply with laws and regulations prohibiting fraud and market manipulations in energy markets.

To the extent VOC Brazos is a shipper on interstate pipelines, it must comply with the tariffs of such pipelines and with federal policies related to the use of interstate capacity, and such compliance costs will be borne indirectly in part by the trust.

Laws and regulations governing exploration and production may also affect production levels.

VOC Brazos is required to comply with federal and state laws and regulations governing conservation matters, including:

provisions related to the unitization or pooling of oil and natural gas properties;

the establishment of maximum rates of production from wells;

the spacing of wells;

the plugging and abandonment of wells;

and the removal of related production equipment.

These and other laws and regulations can limit the amount of oil and natural gas VOC Brazos can produce from its wells, limit the number of wells it can drill, or limit the locations at which it can conduct drilling operations, which in turn could negatively impact trust distributions, estimated and actual future net revenues to the trust and estimates of reserves attributable to the trust’s interests.

New laws or regulations, or changes to existing laws or regulations, may unfavorably impact VOC Brazos, could result in increased operating costs or have a material adverse effect on VOC Brazos’ financial condition and results of operations and reduce the amount of cash received by the trust.

These and other potential regulations could increase the operating costs of the underlying properties, reduce VOC Brazos’ liquidity, delay VOC Brazos’ operations or otherwise alter the way VOC Brazos conducts its business, any of which could have a material adverse effect on the net profits interest and the trust’s cash flows.

Climate change laws and regulations restricting emissions of “greenhouse gases” could result in increased operating costs and reduced demand for the oil and natural gas that VOC Brazos produces while the physical effects of climate change could disrupt VOC Brazos’ production and cause VOC Brazos to incur significant costs in preparing for or responding to those effects.

The oil and gas industry is a direct source of certain greenhouse gases, or “GHG,” emissions, namely carbon dioxide and methane, and future restrictions on such emissions could impact VOC Brazos’ future operations.

In 2009, the EPA published its findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth’s atmosphere and other climate changes.

The EPA has taken a number of steps aimed at gathering information about, and reducing the emissions of, GHGs from industrial sources, including oil and natural gas sources.

The EPA has adopted rules requiring the reporting of GHG emissions from oil, natural gas and NGL production and processing facilities on an annual basis, as well as reporting GHG emissions from gathering and boosting systems, oil well completions and workovers using hydraulic fracturing.

The EPA has also adopted and implemented regulations under existing provisions of the CAA that, among other things, establish Prevention of Significant Deterioration, or “PSD,” construction and Title V operating permit reviews for GHG emissions from certain large stationary sources that already are potential major sources of certain principal, or criteria, pollutant emissions.

Facilities required to obtain PSD permits for their GHG emissions also will be required to meet “best available control technology” standards that typically are established by the states.

This rule could adversely affect VOC Brazos’ operations upon the Underlying Properties and restrict or delay its ability to obtain air permits for new or modified facilities that exceed GHG emission thresholds.

Regulations promulgated under the Clean Air Act may require VOC Brazos to incur development expenses to install and utilize specific equipment, technologies, or work practices to control methane emissions from its operations.

Although the future implementation of the EPA and the U.S.

Department of the Interior Bureau of Land Management rules aimed at controlling GHG emissions from oil and natural gas sources remains

uncertain, future federal GHG regulations for the oil and gas industry remain a possibility given the long-term trend towards increasing regulation.

Moreover, several states have already adopted rules requiring operators of both new and existing sources to develop and implement a LDAR program and to install devices on certain equipment to capture 95 percent of methane emissions.

Compliance with these rules could require VOC Brazos to purchase pollution control equipment and optical gas imaging equipment for LDAR inspections, and to hire additional personnel to assist with inspection and reporting requirements.

In addition, almost half of the states have already taken legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs.

These reductions would be expected to cause the cost of allowances to escalate significantly over time.

The adoption of any legislation or regulations that requires reporting of GHGs or otherwise limits emissions of GHGs from VOC Brazos’ equipment and operations could require VOC Brazos to incur costs to monitor and report on GHG emissions or reduce emissions of GHGs associated with its operations, and such requirements also could adversely affect demand for the oil and natural gas produced, all of which could reduce proceeds attributable to the net profits interest and, as a result, the trust’s cash available for distribution.

At the international level, the U.S.

While the Agreement did not impose direct requirements on emitters, national plans to meet its pledge could have resulted in new regulatory requirements.

withdrew from the Paris Agreement effective on November 4, 2020, but formally rejoined the Paris Agreement in February 2021.

In a separate executive order issued on January 20, 2021, President Biden asked the heads of all executive departments and agencies to review and take action to address any Federal regulations, orders, guidance documents, policies and any similar agency actions promulgated during the prior administration that may be inconsistent with or present obstacles to the administration’s stated goals of protecting public health and the environment, and conserving national monuments and refuges.

The executive order also established an Interagency Working Group on the Social Cost of Greenhouse Gases, which is called on to, among other things, capture the full costs of greenhouse gas emissions, including the “social cost of carbon,” “social cost of nitrous oxide” and “social cost of methane,” which are “the monetized damages associated with incremental increases in greenhouse gas emissions,” including “changes in net agricultural productivity, human health, property damage from increased flood risk, and the value of ecosystem services.” In late 2022, the Working Group proposed to significantly increase the social cost of carbon used in assessing the costs and benefits of government actions.

Finally, some scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events.

If any such effects were to occur, they could have an adverse effect on VOC Brazos’ assets and operations and, consequently, may reduce the proceeds attributable to the net profits interest and, as a result, the trust’s cash available for distribution.

Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays as well as adversely affect VOC Brazos’ services.

Hydraulic fracturing is an important and common practice that is used to stimulate production of hydrocarbons, particularly natural gas, from tight formations.

The process involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production.

The process is typically regulated by state oil and gas commissions.

The EPA finalized a study of the potential environmental impacts of hydraulic fracturing activities in December 2016, finding that under certain circumstances the “water cycle” activities associated with hydraulic fracturing could impact drinking water resources.

Some states have adopted, and other states are considering adopting, regulations that

could restrict or impose additional requirements relating to hydraulic fracturing in certain circumstances.

If hydraulic fracturing is regulated at the federal level, VOC Brazos’ fracturing activities could become subject to additional permit requirements or operational restrictions and also to associated permitting delays and potential increases in costs.

If new laws or regulations that significantly restrict or otherwise impact hydraulic fracturing are passed by Congress or adopted in Texas or Kansas such legal requirements could make it more difficult or costly for VOC Brazos to perform hydraulic fracturing activities and thereby affect the determination of whether a well is commercially viable.

More recently, the injection of water produced as a result of hydraulic fracturing has been associated with seismic activity leading to restrictions on injection in some areas.

Restrictions on hydraulic fracturing and disposal of water from such production could reduce the amount of oil and natural gas that VOC Brazos is ultimately able to produce in commercially paying quantities from the underlying properties.

Tax Risks Related to the Trust Units

The trust has not requested a ruling from the IRS regarding the tax treatment of ownership of the trust units.

If the IRS were to determine (and be sustained in that determination) that the trust is not a “grantor trust” for federal income tax purposes, or that the net profits interest is not properly treated as a production payment (and thus would fail to qualify as a debt instrument) for federal income tax purposes, the trust unitholders may receive different and potentially less advantageous tax treatment than expected.

If the trust were not treated as a grantor trust for federal income tax purposes, the trust should be treated as a partnership for such purposes.

Although the trust would not become subject to federal income taxation at the entity level as a result of treatment as a partnership, and items of income, gain, loss and deduction would flow through to the trust unitholders, the trust’s tax reporting requirements would be more complex and costly to implement and maintain, and its distributions to trust unitholders could be reduced as a result.

If the net profits interest were not treated as a production payment (and thus would fail to qualify as a debt instrument for federal income tax purposes) the amount, timing and character of income, gain, or loss in respect of an investment in the trust could be affected.

Neither VOC Brazos nor the trustee has requested a ruling from the IRS regarding these tax questions, and neither VOC Brazos nor the trust can provide assurance that such a ruling would be granted if requested or that the IRS will not challenge these positions on audit.

Cybersecurity Risks

Cyber-attacks or other failures in telecommunications or information technology systems could result in information theft, data corruption and significant disruption of the business operations of VOC Brazos and its VOC Operators.

VOC Brazos and its VOC Operators rely on information technology (“IT”) systems and networks in connection with various business activities, including exploration, development and production activities.

VOC Brazos and its VOC Operators rely on digital technology, including information systems and related infrastructure, as well as cloud applications and services, to, among other things, estimate quantities of oil and natural gas reserves, analyze seismic and drilling information, process and record financial and operating data and communicate with employees and third parties.

As dependence on digital technologies has increased, cyber incidents, including deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication.

These threats pose a risk to the security of the systems and networks of VOC Brazos and its VOC Operators, the confidentiality, availability and integrity of their data and the physical security of employees and assets.

VOC Brazos and its VOC Operators have experienced, and expect to continue to experience, attempts from hackers and other third parties to gain unauthorized access to IT systems and networks.

Although prior cyber-attacks have not had a material adverse effect on the operations or financial performance of VOC Brazos or of its VOC Operators, VOC Brazos and its VOC Operators may not be successful in preventing cyber-attacks or mitigating their effect.

Any cyber-attack could have a material adverse effect on the reputation, competitive position, business, financial condition and results of operations of VOC Brazos and its VOC Operators, and

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could have a material adverse effect on the trust.

Cyber-attacks or security breaches also could result in litigation or regulatory action, as well as significant additional expense to VOC Brazos and its VOC Operators to implement further data protection measures.

In addition to the risks presented to the systems and networks of VOC Brazos and its VOC Operators, cyber-attacks affecting oil and natural gas distribution systems maintained by third parties, or the networks and infrastructure on which they rely, could delay or prevent delivery to markets.

A cyber-attack of this nature would be outside the ability of VOC Brazos and its VOC Operators to control, but could have a material adverse effect on the business, financial condition and results of operations of VOC Brazos and its VOC Operators, and could have a material adverse effect on the trust.

Cyber-attacks or other failures in telecommunications or IT systems could result in information theft, data corruption and significant disruption of the Trustee’s operations.

The trustee depends heavily upon IT systems and networks in connection with its business activities.

Despite a variety of security measures implemented by the trustee, events such as the loss or theft of back-up tapes or other data storage media could occur, and the trustee’s computer systems could be subject to physical and electronic break-ins, cyber-attacks and similar disruptions from unauthorized tampering, including threats that may come from external factors, such as governments, organized crime, hackers and third parties to whom certain functions are outsourced, or may originate internally from within the respective companies.

If a cyber-attack were to occur, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, the trustee’s computer systems and networks, or otherwise cause interruptions or malfunctions in the operations of the trust, which could result in litigation, increased costs and regulatory penalties.

Although steps are taken to prevent and detect such attacks, it is possible that a cyber incident will not be discovered for some time after it occurs, which could increase exposure to these consequences.

Unresolved Staff Comments.

Reference is made to “Item 1 — Business” and “Item 7 — Trustee’s Discussion and Analysis of Financial Condition and Results of Operations — Planned Development and Workover Program,” which are incorporated herein by reference.

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 1. Business