Hugoton Royalty Trust Reports Significant Financial Decline for Fiscal Year 2024

Hugoton Royalty Trust reported a significant decline in financial performance for the fiscal year ending December 31, 2024, with net profits income dropping to $0, compared to $11.5 million in 2023. This downturn was attributed to lower oil and gas prices, decreased production volumes, and increased production expenses. Specifically, the average price for natural gas fell by 43% to $2.94 per Mcf, while oil prices decreased by 3% to $73.89 per Bbl. The Trust's total revenues for 2024 were approximately $38.6 million, down from $65.2 million in the previous year, reflecting a decrease in both gas and oil sales volumes.

The Trust has faced ongoing challenges, including excess costs across all three conveyances in Kansas, Oklahoma, and Wyoming, which have resulted in no distributions to unitholders since July 2023. As of December 31, 2024, cumulative excess costs totaled approximately $10.7 million, raising substantial doubt about the Trust's ability to continue as a going concern. The Trustee has indicated that cash reserves are expected to be depleted by the second quarter of 2025, which could hinder the Trust's ability to meet its obligations and continue operations.

In terms of operational developments, XTO Energy, the Trust's operator, has not drilled any new wells or performed workovers in 2024 and does not plan to do so in 2025. The Trust's underlying properties primarily consist of gas-producing assets in the Hugoton area, the Anadarko Basin, and the Green River Basin. The average reserve-to-production index for these properties is approximately nine years, indicating a limited timeframe for production without new development.

Strategically, the Trust is undergoing a transition, as XTO Energy has entered into an agreement to divest its interest in the assets underlying the Trust to Mach Natural Resources LP, with the transaction expected to close on April 30, 2025. This change may impact the Trust's operations and financial outlook, as Mach will assume XTO Energy's obligations under the Trust indenture. The Trustee is also exploring options for the Trust's future, including potential termination or marketing of its interests, but no viable options have emerged thus far.

Looking ahead, the Trust's financial outlook remains uncertain, heavily influenced by fluctuating oil and gas prices, production costs, and the ongoing recovery of excess costs. The Trustee has indicated that financing options to address liquidity needs are unlikely to be viable, and the Trust's ability to continue as a going concern is in question. Unitholders may face significant risks, including the potential loss of their investment, as the Trust navigates these challenges.