San Juan Basin Royalty Trust Announces No Cash Distribution
San Juan Basin Royalty Trust Announces No Cash Distribution
Argent Trust Company, acting as the Trustee of the San Juan Basin Royalty Trust (NYSE: SJT), has made a significant announcement regarding the distribution of cash to its Unit Holders. For the current month, the Trust will not declare any cash distribution due to critical financial adjustments. The decision stems from the application of net proceeds, which total $4,153,693, intended for the Royalty income, to offset accumulated excess production costs. These costs arise from the ongoing drilling operations by Hilcorp San Juan L.P. during the previous year.
Understanding Excess Production Costs
Excess production costs occur when the incurred production and capital expenses surpass the revenue generated from the oil and gas produced. As of now, the cumulative amount of these excess costs is approximately $21,739,947 gross, or $16,304,960 net to the Trust. This reflects a significant decrease in the funding deficit by $5,538,257 gross from last month, highlighting the Trust’s ongoing effort to address these financial challenges.
Monthly Financial Overview
In January, Hilcorp recorded total revenue from the Subject Interests amounting to $10,152,016. This revenue derives predominantly from gas and oil sales, showcasing a breakdown of $10,063,934 in gas revenues and $88,082 from oil. During the same month, the production costs, not including the excess, reached $4,613,759, with contributions from lease operating expenses, severance taxes, and capital costs.
Administrative Expenses and Cash Reserves
The Trust's administrative expenses this month totaled $255,657, attributed to the timing of received payments and various fees. Interest income of $2,038 will partially cover these administrative costs, while cash reserves will fulfill the remaining obligations. To manage financial stability effectively, the Trustee authorized a cash reserve that peaked at $1.8 million in April 2024, to address liabilities that may arise due to unpredictable revenue streams.
Future Projections and Management Plans
The Trustee acknowledges that until the accrued excess production costs are thoroughly addressed, cash distributions to Unit Holders remain non-existent. The focus now transitions to replenishing the cash reserves, aiming to elevate them to $2.0 million. Various credit options are being explored to support administrative needs until future distributions can resume.
Production and Market Dynamics
As operations continue, Hilcorp plans to embark on several capital projects for the year 2025. The estimated budget for these projects stands at around $9.0 million, with $4.0 million allocated towards seven new vertical drilling projects, focusing on enhancing the productivity of existing resources. Moreover, a portion of the budget will also promote workovers and facilities upgrades to maintain efficiency and operational effectiveness.
Trustee Engagement with Hilcorp
The Trustee maintains continuous communication with Hilcorp to ensure transparency in accounting and thorough compliance in reporting. This encompasses a comprehensive auditing process to ascertain the accuracy of revenues, production costs, and capital expenditures. The determination of effective pricing strategies and reported rates is under constant scrutiny to safeguard the interests of the Trust.
Capital Plans and Future Outlook
With the 2025 Plan in action, Hilcorp's outlined projects may continue to evolve based on external factors and internal assessments. The potential for variances in estimated capital costs underscores the importance of adaptability within the operational framework of the Trust.
Frequently Asked Questions
What caused the San Juan Basin Royalty Trust to withhold cash distributions?
The Trust withheld distributions to address excess production costs that exceed generated revenue from operations.
What are excess production costs?
Excess production costs occur when production expenses surpass the income from sale, impacting overall profitability.
How much revenue was generated by Hilcorp in January 2025?
Hilcorp reported a total revenue of $10,152,016 for January 2025 from its operations in the Subject Interests.
What is the strategy for cash reserves?
The Trustee aims to raise cash reserves to $2.0 million, ensuring sufficient funds to cover future liabilities and support operations.
How does the Trustee engage with Hilcorp?
The Trustee continuously collaborates with Hilcorp to oversee accounting practices, revenue reporting, and compliance audits, ensuring transparency in operations.
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