San Juan Basin Royalty Trust Declares No Cash Distribution for April 2025

Rhea-AI Summary

San Juan Basin Royalty Trust (NYSE: SJT) announced no cash distribution to Unit Holders for April 2025 due to excess production costs from Hilcorp's two horizontal wells drilled in 2024. The Trust must apply $3,435,269 in net proceeds to the remaining excess production costs balance of $12,869,691.

For February 2025, Hilcorp reported total revenue of $7,869,451 from the Subject Interests, with gas revenues of $7,685,519 and oil revenues of $183,932. Production costs were $3,289,092. Gas production volumes decreased to 2,287,310 Mcf from January's 2,689,216 Mcf, with average gas prices falling to $3.36 per Mcf from $3.74.

The Trust's cash reserves have declined to $117,797, with $140,724 being used for administrative expenses. The Trustee plans to replenish and increase reserves to $2.0 million before future distributions and is exploring credit options to cover administrative expenses until royalty income resumes.

Positive

• Excess production costs deficit decreased by $4.58 million gross from previous month
• Total revenue of $7.87 million generated from Subject Interests in February 2025

Negative

• No cash distribution to unit holders for April 2025
• Remaining excess production costs of $12.87 million net to Trust must be paid before distributions resume
• Gas production decreased by 15% month-over-month
• Average gas price declined by $0.38 per Mcf from January
• Cash reserves critically low at $117,797, requiring exploration of credit options

Insights

Financial Analyst

SJT continues to suspend distributions due to $12.9M excess production costs deficit; cash reserves critically low at $118K with credit options being explored.

San Juan Basin Royalty Trust's announcement of continued distribution suspension represents a significant negative development for unitholders. The Trust faces a substantial deficit of $17.16 million gross ($12.87 million net) in excess production costs from Hilcorp's 2024 drilling activities. While this deficit decreased by $3.44 million from the previous month, the remaining balance suggests several more months before distributions can resume.

The Trust's financial position is deteriorating rapidly. Cash reserves have plummeted from $1.8 million in April 2024 to just $117,797 currently. At the current administrative expense rate of approximately $140,000 monthly, these reserves will be exhausted imminently, forcing the Trust to seek credit options—an unusual and concerning step for a royalty trust structure that typically operates with minimal overhead.

Operational metrics reveal additional challenges. February gas production fell 15% month-over-month to 2.29 million Mcf, while average realized gas prices dropped 10.2% to $3.36 per Mcf. These declining production volumes and weakening commodity prices will extend the timeline for clearing the excess production costs deficit.

The ongoing comprehensive audit of Hilcorp's accounting and reporting introduces another layer of uncertainty. While standard due diligence, the explicit mention of "evaluating potential remedies" suggests possible discrepancies in how Hilcorp is managing the Subject Interests.

For income-focused investors in royalty trusts, this continued distribution suspension eliminates the primary investment rationale. With no clear timeline for resumption of payments and dwindling cash reserves, unitholders face an extended period without income from their investment, significantly undermining SJT's value proposition.

Energy Sector Analyst

Hilcorp's drilling investments causing short-term pain; gas volume drop of 15% and price decline of 10% worsen SJT's path to distribution resumption.

The horizontal drilling program undertaken by Hilcorp in 2024 represents a double-edged sword for SJT unitholders. While new wells typically boost long-term production profiles, they've created a significant short-term cash flow problem through excess production costs. The $12.87 million net deficit represents approximately 5.1% of SJT's market capitalization—a substantial financial burden.

More concerning are the operational metrics. Gas volumes dropped significantly from 2.69 million Mcf in January to 2.29 million Mcf in February—a 15% month-over-month decline. This production decrease, combined with a 10.2% drop in realized gas prices (from $3.74 to $3.36 per Mcf), creates a concerning trend that could extend the recovery timeline.

The monthly deficit reduction of $3.44 million provides some optimism. At this paydown rate, the excess production costs could be cleared in about 3-4 months. However, this assumes stable or improving production and pricing—neither of which is currently occurring.

The production decline merits particular attention. Traditional vertical wells decline at 5-7% annually, while horizontal wells typically show steeper initial declines but higher overall recovery. The 15% month-over-month drop exceeds normal decline rates and may indicate operational issues or natural production variability. Without specific explanation from the Trust, this represents a significant uncertainty factor.

The capital project plan mentioned for 2024 suggests additional investment is underway. While potentially beneficial long-term, these investments are likely exacerbating the short-term cash flow challenges. Unitholders must weigh the immediate distribution suspension against potential future production improvements—a calculation made more difficult by the Trust's rapidly depleting cash position and need for credit.

DALLAS , April 17, 2025 /PRNewswire/ -- Argent Trust Company, as the trustee (the "Trustee") of the San Juan Basin Royalty Trust (the "Trust") (NYSE: SJT), today reported that it will not declare a monthly cash distribution to the holders of its Units of beneficial interest (the "Unit Holders") due to the application of net proceeds of $3,435,269, which amount would otherwise be payable to the Trust as royalty income, to the balance of excess production costs accrued as a result of Hilcorp San Juan L.P.'s ("Hilcorp") drilling of two new horizonal wells in 2024.  Excess production costs occur when production costs and capital expenditures exceed the gross proceeds for a certain period. The balance of cumulative excess production costs is currently approximately $17,159,588 gross ($12,869,691 net to the Trust), a decrease in the deficit of $4,580,359 gross ($3,435,269 net to the trust) from last month's reporting period.  Hilcorp will continue to charge the balance of excess production costs to the Trust's net proceeds each month. Until the balance is paid in full, the Trust will not receive royalty income as all net proceeds will be applied to the balance of excess production costs.  No cash distributions will be made by the Trust until future net proceeds are sufficient to pay Trust liabilities and replenish cash reserves. 

Hilcorp reported $7,869,451 of total revenue from the Subject Interests for the production month of February 2025, consisting of $7,685,519 of gas revenues and $183,932 of oil revenues.  For the Subject Interests, Hilcorp reported $3,289,092 of production costs (excluding the balance of excess production costs) for the production month of February 2025, consisting of $2,628,926 of lease operating expenses, $278,026 of severance taxes, and $382,140 of capital costs.

This month's Trust administrative expenses totaled $142,466.  The decrease in administrative expenses was attributable to differences in timing of the receipt and payment of certain expenses by the Trust.  Interest income received by the Trust in the amount of $1,742 will be applied to cover a portion of this month's Trust administrative expenses, with cash reserves utilized to pay the remaining administrative expenses.

Based upon information provided to the Trust by Hilcorp, gas volumes for the Subject Interests for February 2025 totaled 2,287,310 Mcf (2,541,456 MMBtu), as compared to 2,689,216 Mcf (2,988,018 MMBtu) for January 2025. Dividing gas revenues by production volume yielded an average gas price for February 2025 of $3.36 per Mcf ($3.02 per MMBtu), a decrease of $0.38 per Mcf ($0.35 per MMBtu) as compared to the average gas price for January 2025 of $3.74 per Mcf ($3.37) per MMBtu.

Pursuant to the Amended and Restated Royalty Trust Indenture, dated December 12, 2007 (as amended on February 15, 2024, by the First Amendment to the Amended and Restated Royalty Trust Indenture), the Trustee is authorized to retain, in its sole discretion, a cash reserve for payment of Trust liabilities that are contingent or uncertain or otherwise not currently due and payable.  To cover Trust expenses during any period of revenue shortfall, which has resulted and may continue to result from lower commodity prices and increased capital expenditures and lease operating expenses under Hilcorp's 2024 capital project plan for the Subject Interests, the Trustee increased the cash reserves in March and April of 2024, such that total cash reserves were $1.8 million as of April 30, 2024.  Interest income and cash reserves were utilized to pay Trust administrative expenses each month from May 2024 through March of 2025.  This month, cash reserves in the amount of $140,724 will be utilized to cover the balance of Trust administrative expenses which will bring the balance of cash reserves maintained by the Trustee to $117,797.  Prior to any future distributions to Unit Holders, the Trustee plans to replenish the cash reserves and continue to increase the cash reserves to $2.0 million. The Trustee is currently evaluating credit options on behalf of the Trust, the funds from which would be utilized to pay the Trust's administrative expenses until such time as the excess production costs are repaid and the Trust begins receiving royalty income again.

Production from the Subject Interests continues to be gathered, processed, and sold under market sensitive and customary agreements, as recommended for approval by the Trust's Consultant.  The Trustee continues to engage with Hilcorp regarding its ongoing accounting and reporting to the Trust, and the Trust's third-party compliance auditors continue to audit payments made by Hilcorp to the Trust, inclusive of sales revenues, production costs, capital expenditures, adjustments, actualizations, and recoupments.  The Trust's auditing process has also included detailed analysis of Hilcorp's pricing and rates charged.  As previously disclosed in the Trust's filings, these revenues and costs (along with all costs) are the subject of the Trust's ongoing comprehensive audit process by the Trust's professional consultants and outside counsel to analyze compliance with all the underlying operative Trust agreements and evaluate potential remedies in the event there is suspected non-compliance.

Forward Looking Statements. Except for historical information contained in this news release, the statements in this news release are forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements generally are accompanied by words such as "estimates," "anticipates," "could," "plan," or other words that convey the uncertainty of future events or outcomes.  Forward-looking statements and the business prospects of San Juan Basin Royalty Trust are subject to a number of risks and uncertainties that may cause actual results in future periods to differ materially from the forward-looking statements. These risks and uncertainties include, among other things, certain information provided to the Trust by Hilcorp, volatility of oil and gas prices, governmental regulation or action, litigation, and uncertainties about estimates of reserves. These and other risks are described in the Trust's reports and other filings with the Securities and Exchange Commission.

Contact:	San Juan Basin Royalty Trust
	Argent Trust Company, Trustee
	Nancy Willis, Director of Royalty Trust Services
	Toll-free: (855) 588-7839
	Fax: (214) 559-7010
	Website: www.sjbrt.com
	Email: trustee@sjbrt.com

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SOURCE San Juan Basin Royalty Trust

FAQ

Why did SJT suspend distributions for April 2025?

SJT suspended distributions due to excess production costs of $12.87 million from Hilcorp's two horizontal wells drilled in 2024, requiring all net proceeds to pay down this balance before resuming distributions.

What was SJT's gas production and revenue for February 2025?

Gas production was 2,287,310 Mcf with revenues of $7,685,519, while total revenue including oil was $7,869,451.

How much are SJT's current cash reserves and target level?

Current cash reserves are $117,797, down from $1.8 million, with plans to increase reserves to $2.0 million before future distributions.

What was the average gas price for SJT's production in February 2025?

The average gas price was $3.36 per Mcf, down $0.38 from January 2025's price of $3.74 per Mcf.