What changed in this filing

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Item 3. Legal Proceedings

2025-03-20 compared with 2024-03-20 · 26 added, 41 removed, 138 unchanged (33% of the section changed)

15 unchanged sentences

There were no purchases of Trust Units by the Trust or any affiliated purchaser during the fourth quarter of the year ended December 31, 2024.

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

33 unchanged sentences

1,394,915 (2)

1,394,915 (3)

Total gross proceeds

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Development expenses

Year Ended December 31,

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

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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.

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

The decrease in gross proceeds was due to a decrease in 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.

The decrease in gross proceeds was due to a decrease in oil and gas sales volumes compared to 2023 and a decrease in the market price for natural gas sales offset slightly by an increase in the market price for oil sales during 2024 compared to 2023.

Oil sales volumes were 456,682 Bbls for the year ended December 31, 2024, a decrease of 38,990 Bbls or 7.9% from 495,672 Bbls for the year ended December 31, 2023, while natural gas sales volumes were 263,696 Mcf, a decrease of 34,232 Mcf from 297,928 Mcf for the year ended December 31, 2023.

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.

These oil and natural gas sales volume decreases are partially the result of severe winter storms in January 2024 that affected Kansas and Texas and resulted in curtailment of production on certain of the Underlying Properties, as discussed in the Trust’s Current Report on Form 8-K filed on January 19, 2024.

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

During the year ended December 31, 2024, the average price for oil increased 1.8% to $76.66 per Bbl and the average price for natural gas decreased 37.0% to $2.95 per Mcf.

Lease operating expenses were $14,552,598 for the year ended December 31, 2024, an increase of $283,940 or 2.0% from $14,268,658 for the year ended December 31, 2023.

The increase was primarily due to increases in the costs of oilfield goods and services.

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 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, $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.

Production and property taxes were $1,755,415 for

the year ended December 31, 2024, a decrease of $282,249 or 13.9% from $2,037,664 for the year ended December 31, 2023.

The decrease is primarily due to a decrease in production taxes of $224,273 or 21.5% as a result of lower sales volumes for oil and natural gas sales along with a decrease in property taxes of $57,976 or 5.8%.

Development expenses were $2,452,213 for the year ended December 31, 2024, an increase of $600,042 or 32.4% from $1,852,171 for the year ended December 31, 2023.

Such increase was primarily due to increased development activity during the year ended December 31, 2024 as compared to the year ended December 31, 2023.

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

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During the years ended December 31, 2024 and 2023, 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 $13,622,718 and $16,459,918, respectively, for such years.

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 amounts were reduced by a Trustee holdback for current estimated expenses of $1,212,718 and $1,013,888 for the years ended December 31, 2024 and 2023, respectively, and a Trustee holdback for future estimated expenses of $231,030 for the year ended December 31, 2023.

The Trustee paid general and administrative expenses of $897,342 for the year ended December 31, 2024, a decrease of $167,152 from $1,064,494 for the year ended December 31, 2023.

These factors resulted in distributable income for the year ended December 31, 2024 of $12,410,000, a decrease of $2,805,000 from $15,215,000 for the year ended December 31, 2023.

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

As of December 31, 2024, the Trustee held $1,744,677 as cash and cash equivalents on the accompanying Statements of Assets and Trust Corpus, 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.

Beginning in the first quarter of 2022, the Trustee withheld a portion of the proceeds otherwise available for distribution each quarter to gradually build an approximately $1.175 million cash reserve for the payment of future known, anticipated or contingent expenses or liabilities of the Trust.

From the first quarter of 2022 to the second quarter of 2023, the Trustee withheld a portion of the proceeds otherwise available for distribution each quarter to build an approximately $1.175 million cash reserve for the payment of future known, anticipated or contingent expenses or liabilities of the Trust.

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.

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

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

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, The interest earned on this cash reserve is used to reduce the reported general and administrative expense each quarter on the statements of distributable income.

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

The Trustee may authorize the Trust to borrow from the Trustee as lender provided the terms of the loan are fair to the Trust unitholders.

The Trustee may also deposit funds awaiting distribution in an account with itself, if the interest paid to the Trust at least equals amounts paid by the Trustee on similar deposits, and make no other short-term investments with the funds distributed to the Trust.

distributed to the Trust.

The Trustee has no current plans to authorize the Trust to borrow money.

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The Trust pays the Trustee an administrative fee of $150,000 per year.

The Trust paid an annual fee to the Delaware Trustee of $2,500, $2,510 and $2,510 in 2021, 2022 and 2023, respectively.

The Trust paid an annual fee to the Delaware Trustee of $2,510 per year.

The Trust also incurs, either directly or as a reimbursement to the Trustee, legal, accounting, tax and engineering fees, printing costs and other expenses that are deducted by the Trust before distributions are made to Trust unitholders, including the $18,750 administrative services fee payable quarterly to VOC Brazos pursuant to an administrative services agreement.

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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, 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 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 $1.0 million to drill and complete three vertical wells.

The remaining approximately $0.1 million is expected to be used for recompletions and workovers of three 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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As a result, Wildfire retained the rights of Hawkwood under the joint venture agreement.

In 2018, VOC Brazos also entered into a joint venture agreement with MD America Energy, LLC (“MD America”) to develop the LWOS, within the north half of the Kurten Woodbine Unit (the “North Contract Area”).

Under the terms of the joint venture agreement, MD America was to carry VOC Brazos for its share of drilling and completion costs for up to four LWOS wells (the “MD Earning Wells”), with the first MD Earning Well to be spud by December 31, 2018 and the fourth MD Earning Well to be spud by November 20, 2020.

In exchange, MD America had the opportunity to earn a working interest representing 50% of VOC Brazos’ interest in each MD Earning Well and up to a 50% interest in VOC Brazos’ acreage in the North Contract Area.

After the MD Earning Wells were to be completed, MD America had the right to propose and drill up to three LWOS wells per year.

MD America spudded the first MD Earning Well on November 20, 2018 and drilled and set production casing for the well;

however, the well was not completed by MD America.

No additional MD Earning Wells were drilled and the joint venture agreement expired.

As a result, MD America did not earn any interest in the MD Earning Well or an interest in VOC Brazos’ acreage in the North Contract Area.

VOC Brazos completed this well in 2021.

VOC Brazos is evaluating the potential economic benefits associated with development of the LWOS.

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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, 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.

VOC Brazos expects to incur future development expenditures for the Texas Underlying Properties through December 31, 2032 of approximately $34.5 million to drill and complete eight non-joint venture agreement wells, all within the Woodbine Interval of the Kurten Woodbine Unit.

Additionally, VOC Brazos expects to incur approximately $0.8 million to convert 15 horizontal wells from gas lift to rod pump and workover 2 wells.

The Trust will indirectly bear an 80% share of these development expenditures as described below.

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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.

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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.

Quantitative and Qualitative Disclosures About Market Risk.

2 unchanged sentences

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