What changed in this filing

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Item 3. Legal Proceedings

2024-03-20 compared with 2023-03-16 · 35 added, 29 removed, 144 unchanged (31% of the section changed)

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Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities.

The trust units commenced trading on the New York Stock Exchange on May 10, 2011 under the symbol “VOC.” As of March 16, 2023, the 17,000,000 units outstanding were held by 6 unitholders of record.

The Trust Units commenced trading on the New York Stock Exchange on May 10, 2011 under the symbol “VOC.” As of March 20, 2024, the 17,000,000 units outstanding were held by six unitholders of record.

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

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Recent Sales of Unregistered Securities

There were no equity securities sold by the trust during the year ended December 31, 2022 that were not registered under the Securities Act of 1933, as amended, which we refer to herein as the “Securities Act.”

There were no equity securities sold by the Trust during the year ended December 31, 2023 that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).

Purchases of Equity Securities

There were no purchases of Trust Units by the Trust or any affiliated purchaser during the fourth quarter of the year ended December 31, 2023.

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

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GAAP”)) of the Underlying Properties, times 80%.

Cash distributions of the trust will be made based on the amount of cash received by the trust pursuant to terms of the conveyance creating the net profits interest.

Cash distributions of the Trust will be made based on the amount of cash received by the Trust pursuant to terms of the Conveyance.

The financial statements of the Trust, as prepared on a modified cash basis, reflect the Trust’s assets, Trust corpus, earnings and distributions as follows:

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2,146,497 (2)

1,394,915 (3)

Total gross proceeds

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VOC Brazos receives payment for its crude oil sales generally within 30 days following the month in which it is produced.

Income from net profits interest is generally a function of oil and gas gross proceeds, lease operating expenses, production and property taxes and development expenses as follows:

Income from net

profits interest is generally a function of oil and gas gross proceeds, lease operating expenses, production and property taxes and development expenses as follows:

Total oil and natural gas sales.

Oil and natural gas sales were $48,911,641 for the year ended December 31, 2022, an increase of $19,823,030 or 68.1% from $29,088,611 for the year ended December 31, 2021.

Oil and natural gas sales were $38,733,390 for the year ended December 31, 2023, a decrease of $10,178,251 or 20.8% from $48,911,641 for the year ended December 31, 2022.

Revenues are a function of oil and natural gas sales prices and volumes sold.

The increase in gross proceeds was due to an increase in market prices for oil and natural gas sales during 2022 compared to 2021 offset by a decrease in oil and gas sales volumes compared to 2021.

The decrease in gross proceeds was due to a decrease in market prices for oil and natural gas sales during 2023 compared to 2022 and a decrease in oil and gas sales volumes compared to 2022.

Oil sales volumes were 495,672 Bbls for the year ended December 31, 2023, a decrease of 27,707 Bbls or 5.3% from 523,379 Bbls for the year ended December 31, 2022, while natural gas sales volumes were 297,928 Mcf, a decrease of 17,798 Mcf from 315,726 Mcf for the year ended December 31, 2022.

During the year ended December 31, 2022, the average price for oil increased 68.3% to $89.35 per Bbl and the average price for natural gas increased 128.2% to $6.80 per Mcf.

During the year ended December 31, 2023, the average price for oil decreased 15.7% to $75.33 per Bbl and the average price for natural gas decreased 31.2% to $4.68 per Mcf.

Lease operating expenses were $14,268,658 for the year ended December 31, 2023, an increase of $20,785 or 0.1% from $14,247,873 for the year ended December 31, 2022.

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Production and property taxes were $2,037,664 for the year ended December 31, 2023, an increase of $41,182 or 2.1% from $1,996,482 for the year ended December 31, 2022.

The increase is primarily due to an increase in production taxes of $632,212 or 86.8% as a result of higher prices for oil and natural gas sales prices coupled with the fact that in 2021, a severance tax refund of approximately $119,000 was received from the low-producing oil well exemption that was triggered by the low oil prices in mid-2020.

This increase is partially offset by a decrease in property taxes of $389,659 or 38.0%.

The increase is primarily due to an increase in property taxes of $357,641 or 56.3% offset by a decrease in production taxes of $316,459 or 23.3% as a result of lower prices for oil and natural gas sales.

Development expenses were $1,852,171 for the year ended December 31, 2023, a decrease of $1,322,554 or 41.7% from $3,174,725 for 2022.

Of this decrease, $254,211 is attributable to the difference between $1,441,382 in expenses associated with the drilling and completion of two horizontal wells in 2022 as compared to $1,695,593 in expenses from completing one drilled but uncompleted horizontal well, the former MD Earning Well, in 2021.

VOC Brazos has a much smaller working interest in the two wells drilled and completed in 2022 as compared to its working interest in the one well completed in 2021.

The remaining decrease was due to decreases in other drilling activity and development expenses during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Of this decrease, $1,226,807 is attributable to the difference between $214,576 in expenses associated with the completion of two horizontal wells in 2023 as compared to the associated $1,441,382 in expenses from the drilling and partial completion of these same wells in 2022.

The remaining portion of the decrease was due to decreases in other drilling activity and development expenses during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

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

The excess of revenues over direct operating expenses and lease equipment and development costs from the underlying properties was $29,492,561 for the year ended December 31, 2022, an increase of $17,864,692 or 153.6% from $11,627,869 for the year ended December 31, 2021.

The excess of revenues over direct operating expenses and lease equipment and development costs from the Underlying Properties was $20,574,897 for the year ended December 31, 2023, a decrease of $8,917,664 or 30.2% from $29,492,561 for the year ended December 31, 2022.

The Trust’s 80% net profits interest of these totals was $16,459,918 and $23,594,050, respectively.

During the years ended December 31, 2023 and 2022, VOC Brazos did not withhold or release any dollar amounts due to the Trust from previously established cash reserves for future development, maintenance or operating expenditures, which resulted in income from the net profits interest of $16,459,918 and $23,594,050, respectively, for such years.

These amounts were further reduced by a trust holdback for current estimated expenses of $975,080 and $632,296 for the years ended December 31, 2022 and 2021, respectively, and a trust holdback for future estimated expenses of $943,970 for the year ended December 31, 2022.

These amounts were further reduced by a Trustee holdback for current estimated expenses of $1,013,888 and $975,080 for the years ended December 31, 2023 and 2022, respectively, and a Trustee holdback for future estimated expenses of $231,030 and $943,970 for the years ended December 31, 2023 and 2022, respectively.

The Trustee paid general and administrative expenses of $1,064,494 for the year ended December 31, 2023, an increase of $107,117 from $957,377 for the year ended December 31, 2022.

These factors resulted in distributable income for the year ended December 31, 2022 of $21,675,000, an increase of $13,005,000 from $8,670,000 for the year ended December 31, 2021.

These factors resulted in distributable income for the year ended December 31, 2023 of $15,215,000, a decrease of $6,460,000 from $21,675,000 for the year ended December 31, 2022.

Liquidity and Capital Resources

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Available funds are reduced by any cash the Trustee decides to hold as a reserve against future expenses.

As of December 31, 2022, the trustee held $1,248,877, which includes $943,970 of the $1.175 million cash reserve described below, as such a reserve.

As of December 31, 2023, the Trustee held $1,429,301, which includes the $1.175 million cash reserve described below, as such a reserve.

The Trust paid, out of the first cash payment received by the Trust, the Trustee’s and Delaware Trustee’s legal expenses incurred in forming the Trust, in connection with the initial public offering (that were not otherwise paid by VOC Brazos) and related matters, as well as the Delaware Trustee’s acceptance fee in the amount of $5,000.

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This amount is in addition to the letter of credit in the amount of $1.7 million provided to the Trustee by VOC Brazos to protect the Trust against the risk that it does not have sufficient cash to pay future expenses.

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.

The Trustee may increase or decrease the targeted amount at any time and may increase or decrease the rate at which it withholds funds to build the cash reserve at any time, without advance notice to the Trust unitholders.

Cash held in reserve will be invested as required by the Trust Agreement.

Any cash reserved in excess of the amount necessary to pay or provide for the payment of future known, anticipated or contingent expenses or liabilities eventually will be distributed to Trust unitholders, together with interest earned on the funds.

The targeted $1.175 million cash reserve was fully funded as of January 30, 2023.

The targeted $1.175 million cash reserve was fully funded by February 2023.

The Trustee can authorize the Trust to borrow money to pay Trust administrative or incidental expenses that exceed cash held by the Trust.

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VOC Brazos’ historical development and workover program for the Kansas Underlying Properties has included recompleting certain existing wells, drilling infill development wells, conducting 3-D seismic surveys, completing workovers and applying new production technologies.

VOC Brazos expects to incur future development expenditures for these properties through December 31, 2025 of approximately $1.0 million, of which VOC Brazos contemplates spending approximately $0.9 million to drill and complete four vertical wells.

The remaining approximately $0.1 million is expected to be used for recompletions and workovers of four wells.

VOC Brazos expects to incur future development expenditures for these properties through December 31, 2027 of

approximately $1.1 million, of which VOC Brazos contemplates spending approximately $0.9 million to drill and complete three vertical wells.

The remaining approximately $0.2 million is expected to be used for recompletions and workovers of two wells.

VOC Brazos’ historical development and workover program for the Texas Underlying Properties has included recompleting certain existing wells, drilling infill development wells, completing workovers and applying new production technologies.

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In exchange, Hawkwood earned a working interest representing 50% of VOC Brazos’ interest in each Hawkwood Earning Well and up to a 50% interest in VOC Brazos’ acreage in the south half of the Kurten Woodbine Unit.

After the Hawkwood Earning Wells were completed, Hawkwood had the right to propose and drill up to eight wells in the LWOS in 2019 and twelve LWOS wells in 2020, with no contractual limitation of the number of wells per year to propose and drill after 2020 (collectively, the “Hawkwood Development Wells”).

In 2019, Hawkwood drilled and completed four Hawkwood Development Wells.

VOC Brazos was paying Vess Oil, as the operator, for its share of costs and related interest in the Hawkwood Development Wells, as net revenue from each of the wells is received, thereby having no current effect on Trust distributions.

March 27, 2020, in addition to paying its costs from revenues received on these wells, VOC Brazos paid an additional $2.5 million of its share of costs to Vess Oil.

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

After the Hawkwood Earning Wells were completed, Hawkwood has no contractual limitation of the number of wells per year to propose and drill after 2020 (collectively, the “Hawkwood Development Wells”).

No new Hawkwood Development Wells were drilled in 2021, 2022 or 2023.

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To address these emerging opportunities, VOC Brazos will continue to evaluate the appropriate strategy and capital plan to fund development for the Trust.

VOC Brazos expects to incur future development expenditures for the Texas underlying properties through December 31, 2027 of approximately $39.8 million to drill and complete four Hawkwood Development Wells and four non-joint venture agreement wells, all within the Woodbine Interval of the Kurten Woodbine Unit.

VOC Brazos expects to incur future development expenditures for the Texas Underlying Properties through December 31, 2029 of approximately $34.9 million to drill and complete four Hawkwood Development Wells and four non-joint venture agreement wells, all within the

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Woodbine Interval of the Kurten Woodbine Unit.

Additionally, VOC Brazos expects to incur approximately $0.8 million to convert 13 horizontal wells from gas lift to rod pump.

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However, 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.

VOC Brazos, as the designated operator of the underlying properties, is entitled to make all determinations related to capital expenditures with respect to the underlying properties, and there are no

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limitations on the amount of capital expenditures that VOC Brazos may incur with respect to the underlying properties.

VOC Brazos, as the designated operator of the Underlying Properties, is entitled to make all determinations related to capital expenditures with respect to the Underlying Properties, and there are no limitations on the amount of capital expenditures that VOC Brazos may incur with respect to the Underlying Properties.

VOC Brazos is required under the Conveyance 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).

As the Trust unitholders would not be expected to fully realize the benefits of capital expenditures made with respect to the Underlying Properties towards the end of the term of the Trust, during each twelve-month period beginning on the later to occur of (1) December 31, 2027 and (2) the time when 9.8 MMBoe have been produced from the Underlying Properties and sold (which is the equivalent of 7.8 MMBoe in respect of the net profits interest), capital expenditures that may be taken into account in calculating net proceeds attributable to the net profits interest will be limited to the average annual capital expenditures during the preceding three years, as increased by 2.5% to account for expected increased costs due to inflation.

Winter Weather Update

As previously disclosed, in January 2024 VOC Brazos advised the Trust that it expects the distribution of net profits for the quarterly payment period ending March 31, 2024 will be adversely impacted by the severe winter storms that affected Kansas and Texas in early 2024 and resulted in the curtailment of production on certain of the Underlying Properties.

The snow and ice associated with these storms disabled electrical power to the affected Underlying Properties for an extended period, rendering some properties inaccessible, and generally created difficult working conditions.

VOC Brazos estimated that production from the Underlying Properties of approximately 12,500 to 15,000 net barrels of oil during the payment period ending March 31, 2024 has been deferred as the result of this curtailment.

VOC Brazos informed the Trustee that most of the curtailed production was restored by the end of January 2024 and that VOC Brazos expects the storm effects on production from the Underlying Properties should be greatly reduced during the quarterly payment period ending June 30, 2024.

Quantitative and Qualitative Disclosures About Market Risk.

The Trust is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

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

What changed 10-K

Item 3. Legal Proceedings