San Juan Basin Royalty Trust Reports Zero Royalty Income and Significant Financial Decline

The San Juan Basin Royalty Trust reported significant financial challenges in its latest 10-Q filing for the quarter ending March 31, 2025. The Trust recorded no royalty income during this period, a stark contrast to the $5.1 million generated in the same quarter of 2024. Total income for the quarter was $8,238, primarily from interest income, which also saw a decline from $17,655 in the previous year. Consequently, the Trust's distributable income fell to zero, down from $4.1 million, reflecting a substantial decrease in financial performance.

The Trust's financial position has deteriorated compared to the previous fiscal period, with total assets decreasing from $3.4 million at the end of 2024 to $2.9 million by March 31, 2025. This decline is attributed to the absence of royalty income and increased capital expenditures by Hilcorp, the operator of the Trust's underlying oil and gas properties. Hilcorp's capital expenditures surged to $14 million for the quarter, up from approximately $990,000 in the same period last year, primarily due to the drilling of two new horizontal wells. The Trust's cash reserves also dropped significantly, from $760,920 at the end of 2024 to $258,521.

Operationally, the Trust reported an increase in natural gas production volumes, which rose by 36% to 7.6 million Mcf, attributed to the new wells drilled by Hilcorp. However, the average price of natural gas decreased from $3.19 per Mcf to $2.99 per Mcf, contributing to the lack of royalty income. The Trust's cumulative excess production costs also increased, reaching $21.7 million gross ($16.3 million net to the Trust) as of March 31, 2025, which must be recovered before any royalty income can be distributed.

Looking ahead, the Trust faces significant liquidity challenges, as it has not received any royalty income since May 2024. The Trustee is currently exploring commercial lending options to cover liabilities, raising concerns about the Trust's ability to continue as a going concern. The financial statements indicate that the Trust may need to draw further on cash reserves until it can resume receiving royalty income. The Trustee has emphasized the importance of monitoring market conditions and Hilcorp's operational decisions, which will heavily influence future income and distributions to unit holders.