10-Q: Cross Timbers Royalty Trust Reports 12% Increase in Net Profits Income for Q1 2025

Cross Timbers Royalty Trust saw a 12% increase in net profits income for the first quarter of 2025, driven by decreased development costs and increased oil and gas production.

Summary

• Cross Timbers Royalty Trust reported net profits income of $2,053,394 for the quarter ended March 31, 2025, compared to $1,837,741 for the same period in 2024.
• This represents a 12% increase, primarily due to decreased development costs ($0.7 million), increased oil and gas production ($0.3 million), and decreased taxes, transportation, and other costs ($0.1 million).
• These gains were partially offset by net excess costs activity ($0.6 million) and lower oil and gas prices ($0.3 million).
• Distributable income for the quarter was $1,783,938, or $0.297323 per unit, compared to $1,493,214, or $0.248869 per unit, in the first quarter of 2024.
• Administrative expenses decreased by $80,038 compared to the prior year, mainly due to the timing of expense payments and professional service terms.
• The Trust's expense reserve is currently funded at $1,000,000.
• The Trustee intends to withhold $50,000 per month from distributable funds until the expense reserve reaches $1,500,000.
• Oil sales volumes increased 4% and gas sales volumes increased 19% compared to the first quarter of 2024.
• The average oil price decreased 6% to $70.48 per Bbl, and the average gas price decreased 10% to $4.11 per Mcf.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to the increase in net profits income and distributable income, offset by lower commodity prices and the need to increase the expense reserve.

Positives

• The 12% increase in net profits income indicates improved performance compared to the previous year.
• The decrease in administrative expenses contributes to higher distributable income.
• Increased oil and gas sales volumes suggest higher production levels.
• Significant reduction in development costs positively impacts net profits income.
• The Trust is exempt from Texas franchise tax as a passive entity.

Negatives

• Lower average oil and gas prices negatively impacted revenues.
• Cumulative excess costs for the Texas working interest conveyance remain at $4.4 million ($3.3 million net to the Trust), including accrued interest.
• The Trustee is withholding $50,000 per month to increase the expense reserve to $1,500,000, which will reduce distributions to unitholders in the short term.

Risks

• The estimated rate of natural production decline on the underlying oil and gas properties is approximately 6 to 8 percent a year.
• Excess costs must be recovered from future net proceeds of the conveyance, potentially impacting future distributions.
• Fluctuations in oil and gas prices can significantly affect net profits income.
• Changes in state income tax withholding regulations could reduce distributions to unitholders.
• Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations.

Future Outlook

The report contains forward-looking statements regarding development activities, future production, net cash flows, oil and gas prices, and other factors that could affect the Trust's performance; these statements are subject to risks and uncertainties.

Management Comments

• The Trustee believes that the disclosures are adequate to make the information presented not misleading.
• The Trustee concluded that the Trusts disclosure controls and procedures are effective.

Industry Context

The report provides insight into the performance of a royalty trust in the oil and gas sector, reflecting the impact of commodity prices, production volumes, and operating costs on distributable income.

Comparison to Industry Standards

• It is difficult to compare the results of Cross Timbers Royalty Trust directly to industry standards without knowing the specific properties and production mix of other royalty trusts.
• However, the report provides detailed information on sales volumes, prices, and costs, allowing for comparison to broader industry trends.
• For example, the decrease in average oil and gas prices reflects the overall market conditions during the first quarter of 2025.
• Companies like Viper Energy Partners LP and Black Stone Minerals LP are other examples of entities in the mineral and royalty space, but their specific asset portfolios and operational strategies would need to be considered for a meaningful comparison.

Related Party Transactions

• XTO Energy deducts an overhead charge as reimbursement for costs associated with monitoring the 75% net profits interests.
• XTO Energy deducts a monthly overhead charge for reimbursement of administrative expenses as operator of the Hewitt Unit.

Stakeholder Impact

• Unitholders will receive higher distributions due to increased net profits income, although distributions will be temporarily reduced by the withholding for the expense reserve.
• The Trust's performance is dependent on the operations of XTO Energy and the underlying properties.

Next Steps

• The Trustee will continue to withhold $50,000 per month from distributable funds until the expense reserve reaches $1,500,000.
• Unitholders should consult their own tax advisor regarding income tax requirements.

Key Dates

Keywords

net profits income, royalty trust, oil and gas, distributions, XTO Energy, production, financial results, Cross Timbers Royalty Trust