Item 3. Legal Proceedings
Item 3. Legal Proceedings.
Currently, there are no legal proceedings pending to which the Trust is a party or of which any of its property is the subject.
Item 4. Mine Safety Disclosures.
None.
46
TABLE OF CONTENTS
PART II
Item 5.
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 20, 2026, the 17,000,000 units outstanding were held by seven unitholders of record.
Distributions
Each quarter, the Trustee determines the amount of funds available for distribution to the Trust unitholders. Available funds are the excess cash, if any, received by the Trust from the net profits interest and other sources (such as interest earned on any amounts reserved by the Trustee) that quarter, over the Trust’s expenses for that quarter. Available funds are reduced by any cash that the Trustee decides to hold as a reserve against future expenses. 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).
Recent Sales of Unregistered Securities
There were no equity securities sold by the Trust during the year ended December 31, 2025 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, 2025.
Item 6. [Reserved]
47
TABLE OF CONTENTS
Item 7. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.
The following review of the Trust’s financial condition and results of operations should be read in conjunction with the financial statements and notes thereto. The Trust’s purpose is, in general, to hold the net profits interest, to distribute to the Trust unitholders cash that the Trust receives in respect of the net profits interest, and to perform certain administrative functions in respect of the net profits interest and the Trust Units. The Trust derives substantially all of its income and cash flows from the net profits interest.
Critical Accounting Policies and Estimates
The Trust uses the modified cash basis of accounting to report receipts by the Trust of the net profits interest and payments of expenses incurred. The net profits interest represents the right to receive revenues (oil and natural gas sales), less direct operating expenses (lease operating expenses and production and property taxes) and development expenses (which are capitalized in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)) of the Underlying Properties, times 80%. 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:
(a)
Income from the net profits interest is recorded when distributions are received by the Trust;
(b)
Distributions to Trust unitholders are recorded when paid by the Trust;
(c)
Trust general and administrative expenses (which include the Trustee’s fees as well as accounting, engineering, legal and other professional fees) are recorded when paid;
(d)
Cash reserves for Trust expenses may be established by the Trustee for certain expenditures that would not be recorded as contingent liabilities under U.S. GAAP;
(e)
Amortization of the investment in net profits interest, calculated using the units-of-production method based upon total estimated proved reserves, is charged directly to Trust corpus and does not affect distributable income; and
(f)
The Trust evaluates its investment in the net profits interest periodically to determine whether its aggregate value has been impaired below its total capitalized cost based on the Underlying Properties. The Trust will provide a write-down to its investment in the net profits interest if and when total capitalized costs, less accumulated amortization, exceed undiscounted future net cash flows attributable to the Trust’s interests in the proved oil and gas reserves of the Underlying Properties.
While these statements differ from financial statements prepared in accordance with U.S. GAAP, the modified cash basis of reporting revenues and distributions is considered most meaningful because quarterly distributions to the Trust unitholders are based on net cash receipts received from VOC Brazos.
This comprehensive basis of accounting other than U.S. GAAP corresponds to the accounting permitted for royalty trusts by the SEC as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.
The following is a summary of income from net profits interest received by the Trust for the years ended December 31, 2023, 2024 and 2025, consisting of the February, May, August and November distributions for each respective year.
Year Ended December 31,
2023
2024
2025
Sales volumes:
Oil (Bbl)
495,672 (1)
456,682 (2)
440,022 (3)
Natural gas (Mcf)
297,928 (1)
263,696 (2)
237,471 (3)
48
TABLE OF CONTENTS
Year Ended December 31,
2023
2024
2025
Total (BOE)
545,327
500,631
479,601
Average sales prices:
Oil (per Bbl)
$
75.33
$
76.66
$
65.44
Natural gas (per Mcf)
$
4.68
$
2.95
$
3.22
Gross proceeds:
Oil sales
$
37,338,475 (1)
$
35,010,647 (2)
$
28,794,695 (3)
Natural gas sales
1,394,915 (1)
777,977 (2)
763,800 (3)
Total gross proceeds
38,733,390
35,788,624
29,558,495
Costs:
Production and development costs:
Lease operating expenses
14,268,658
14,552,598
14,109,579
Production and property taxes
2,037,664
1,755,415
1,781,339
Development expenses
1,852,171
2,452,213
2,892,647
Total costs
18,158,493
18,760,226
18,783,565
Excess of revenues over direct operating expenses and lease equipment and development costs
20,574,897
17,028,398
10,774,930
Times net profits interest over the term of the Trust
80 %
80 %
80 %
Income from net profits interest before reserve adjustments
16,459,918
13,622,718
8,619,944
Cash reserve
—
—
—
Income from net profits interest
$
16,459,918
$
13,622,718
$
8,619,944
(1)
Oil and gas sales volumes and related revenues for the year ended December 31, 2023 (consisting of VOC Brazos’ February, May, August and November 2023 net profits interest distributions to the Trust) generally represent the production by VOC Brazos from September 2022 through August 2023.
(2)
Oil and gas sales volumes and related revenues for the year ended December 31, 2024 (consisting of VOC Brazos’ February, May, August and November 2024 net profits interest distributions to the Trust) generally represent the production by VOC Brazos from September 2023 through August 2024.
(3)
Oil and gas sales volumes and related revenues for the year ended December 31, 2025 (consisting of VOC Brazos’ February, May, August and November 2025 net profits interest distributions to the Trust) generally represent the production by VOC Brazos from September 2024 through August 2025.
Comparison of Results of the Trust for the Years Ended December 31, 2025 and 2024
The following represents a discussion of the Comparison of Results of the Trust for the Years Ended December 31, 2025 and 2024. Refer to “Item 7. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations” in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 20, 2025, for a discussion of the Comparison of Results of the Trust for the Years Ended December 31, 2024 and 2023.
Income from net profits interest. Income from net profits interest is recorded on a modified cash basis when the Trust receives net profits interest proceeds from VOC Brazos. Net profits interest proceeds that VOC Brazos remits to the Trust are based on the oil and gas production VOC Brazos has received payment for within one month following the end of the most recent fiscal quarter. 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:
Total oil and natural gas sales. Oil and natural gas sales were $29,558,495 for the year ended December 31, 2025, a decrease of $6,230,129 or 17.4% from $35,788,624 for the year ended December 31,
49
TABLE OF CONTENTS
2024. Revenues are a function of oil and natural gas sales prices and volumes sold. The decrease in gross proceeds was due to a decrease in oil and gas sales volumes compared to 2024 and a decrease in the market price for oil sales during 2025 compared to 2024. Oil sales volumes were 440,042 Bbls for the year ended December 31, 2025, a decrease of 16,660 Bbls or 3.6% from 456,682 Bbls for the year ended December 31, 2024, while natural gas sales volumes were 237,471 Mcf, a decrease of 26,225 Mcf or 9.9% from 263,696 Mcf for the year ended December 31, 2024. During the year ended December 31, 2025, the average price for oil decreased 14.6% to $65.44 per Bbl and the average price for natural gas increased 9.0% to $3.22 per Mcf.
Costs. Lease operating expenses were $14,109,579 for the year ended December 31, 2025, a decrease of $443,019 or 3.0% from $14,552,598 for the year ended December 31, 2024. The decrease was primarily due to shutting in certain wells with higher service costs. Production and property taxes were $1,781,339 for the year ended December 31, 2025, an increase of $25,924 or 1.5% from $1,755,415 for the year ended December 31, 2024. The increase is primarily due to a decrease in production taxes of $49,836 or 6.1% as a result of lower sales volumes for oil and natural gas sales offset by an increase in property taxes of $75,760 or 8.1%.
Development expenses were $2,892,647 for the year ended December 31, 2025, an increase of $440,434 or 18.0% from $2,452,213 for the year ended December 31, 2024. Such increase was primarily due to increased development activity during the year ended December 31, 2025 as compared to the year ended December 31, 2024.
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 $10,774,930 for the year ended December 31, 2025, a decrease of $6,253,468 or 36.7% from $17,028,398 for the year ended December 31, 2024. The Trust’s 80% net profits interest of these totals was $8,619,944 and $13,622,718, respectively. During the years ended December 31, 2025 and 2024, 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 $8,619,944 and $13,622,718, respectively, for such years. These amounts were reduced by a Trustee holdback for current estimated expenses of $1,224,944 and $1,212,718 for the years ended December 31, 2025 and 2024, respectively. The Trustee paid general and administrative expenses of $942,982 for the year ended December 31, 2025, an increase of $45,640 from $897,342 for the year ended December 31, 2024. These factors resulted in distributable income for the year ended December 31, 2025 of $7,395,000, a decrease of $5,015,000 from $12,410,000 for the year ended December 31, 2024.
Liquidity and Capital Resources
Other than Trust administrative expenses, including any reserves established by the Trustee for future liabilities, the Trust’s only use of cash is for distributions to Trust unitholders. Available funds are the excess cash, if any, received by the Trust from the net profits interest and payments from other sources (such as interest earned on any amounts reserved by the Trustee) in that quarter, over the Trust’s expenses paid for that quarter. Available funds are reduced by any cash the Trustee decides to hold as a reserve against future expenses. As of December 31, 2025, the Trustee held $2,026,639 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.
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 and built a $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. The Trustee may increase or decrease this reserve 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
50
TABLE OF CONTENTS
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. The Trustee has no current plans to authorize the Trust to borrow money. If the Trust borrows funds, the Trust unitholders will not receive distributions until the borrowed funds are repaid. During the year ended December 31, 2025, the Trust made no borrowings.
As substantially all of the Underlying Properties are located in mature fields, VOC Brazos does not expect future costs for the Underlying Properties to change significantly as compared to recent historical costs other than changes due to fluctuations in the cost of oilfield services generally. However, see “Item 7. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations — Planned Development and Workover Program” below. VOC Brazos has agreed to post a letter of credit in the amount of $1.7 million in favor of the Trustee to protect the Trustee against the risk that the Trust does not have sufficient cash to pay its expenses.
The Trust pays the Trustee an administrative fee of $150,000 per year. The Trust paid an annual fee to the Delaware Trustee of $2,510 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 administrative services fee payable quarterly to VOC Brazos pursuant to an administrative services agreement. The Trust is also responsible for paying other expenses incurred as a result of being a publicly traded entity, including costs associated with annual and quarterly reports to Trust unitholders, tax return and Form 1099 preparation and distribution, NYSE listing fees, independent auditor fees and registrar and transfer agent fees.
The Trust does not have any transactions, arrangements or other relationships with unconsolidated entities or persons that could materially affect the Trust’s liquidity or the availability of capital resources.
Planned Development and Workover Program
The primary goals of VOC Brazos’ development and workover program have been to develop proved undeveloped reserves, manage workovers and minimize the natural decline in production in areas in which it operates. However, VOC Brazos is not obligated to undertake any development activities, so any drilling and completing activities will be subject to the reasonable discretion of VOC Brazos. No assurance can be given, however, that any development well will produce in commercially paying quantities or that the characteristics of any development well will match the characteristics of VOC Brazos’ existing wells or VOC Brazos’ historical drilling success rate. With respect to the Underlying Properties, VOC Brazos expects, but is not obligated, to implement the following development strategies specific to each of its primary operating areas:
•
Kansas. 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, 2026 of approximately $1.6 million, of which VOC Brazos contemplates spending approximately $1.4 million to drill and complete four vertical wells. The remaining approximately $0.2 million is expected to be used for recompletions and workovers of three wells.
•
Texas. 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. In particular, since 2003, through its ownership in the Kurten Woodbine Unit, VOC Brazos has pursued operational, strategic and technological initiatives to economically produce and sell hydrocarbons from the Woodbine Interval, also commonly referred to as the Eaglebine formation, which is the correlative interval defined as
51
TABLE OF CONTENTS
encompassing all depths from the base of the Austin Chalk to the top of the Buda formation. VOC Brazos has: (a) operated approximately 100 primary and secondary recovery vertical wells in various Woodbine sands, (b) drilled, completed and operated 13 horizontal wells primarily from, but not limited to, the Woodbine C sand, (c) conducted geologic evaluations, including 3-D seismic data acquisition and analysis, of the source shale present throughout the Woodbine Interval, and (d) most recently, pursued development of the lower depths of the source shale present throughout the Woodbine Interval, defined as the Lower Woodbine Organic Shale (“LWOS”).
•
In 2018, VOC Brazos entered into a new joint venture agreement with Hawkwood Energy East Texas, LLC (“Hawkwood”). Under the terms of the new joint venture agreement, Hawkwood carried VOC Brazos for its share of drilling and completion costs for four LWOS wells (the “Hawkwood Earning Wells”). In exchange, Hawkwood earned a working interest representing 50% of VOC Brazos’ interest in each Hawkwood Earning Well and up to a 50% interest in VOC Brazos’ acreage in the south half of the Kurten Woodbine Unit. After the Hawkwood Earning Wells were completed, Hawkwood 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 2023, 2024 or 2025.
•
In 2022, Wildfire Energy Operating, LLC (“Wildfire”) acquired Hawkwood. As a result, Wildfire retained the rights of Hawkwood under the joint venture agreement.
•
VOC Brazos is evaluating the potential economic benefits associated with development of the LWOS. If these activities are pursued, 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 certain periods there may be no distributions to Trust unitholders, until anticipated production from the various development efforts in the Kurten Woodbine Unit can be brought on-line. 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, 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 $0.6 million to convert 12 horizontal wells from gas lift to rod pump. The Trust will indirectly bear an 80% share of these development expenditures as described below.
The Trust is not directly obligated to pay any portion of the capital expenditures made with respect to the Underlying Properties; however, capital expenditures made by VOC Brazos with respect to the Underlying Properties will be deducted from the gross proceeds in calculating the net proceeds from which cash will be paid to the Trust. As a result, the Trust will indirectly bear an 80% (subject to certain limitations during the final three years of the Trust, as described above under “Item 1. Business — Computation of Net Proceeds — Net Profits Interest”) share of any capital expenditures made with respect to the Underlying Properties. Accordingly, higher or lower capital expenditures will, in general, directly decrease or increase, respectively, the cash received by the Trust in respect of its net profits interest, which will have a corresponding effect on cash available for distribution to Trust unitholders. As the cash received by the Trust in respect of the net profits interest will be reduced by the Trust’s pro rata share of these capital expenditures, VOC Brazos expects that it will incur capital expenditures with respect to the Underlying Properties throughout the term of the Trust on a basis that balances the impact of the capital expenditures on current cash distributions to the Trust unitholders with the longer term benefits of increased oil and natural gas production expected to result from the capital expenditures. In addition, VOC Brazos may establish a capital reserve of up to $1.0 million in the aggregate at any given time to reduce the impact on distributions of uneven capital expenditure timing. 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 limitations on the amount of capital expenditures that VOC Brazos may incur with respect to the Underlying
52
TABLE OF CONTENTS
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.
Item 7A. 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.
53
TABLE OF CONTENTS
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.