-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RXWlrwuPAee8NECXC4vQsN4znFytsRNjt1jN88+cUpovdmZmTvZBXge7TVV0dqgr CLEhOM91xGvQ5RD/nT2mZQ== 0000919297-96-000060.txt : 19960928 0000919297-96-000060.hdr.sgml : 19960928 ACCESSION NUMBER: 0000919297-96-000060 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 DATE AS OF CHANGE: 19960821 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAN JUAN BASIN ROYALTY TRUST CENTRAL INDEX KEY: 0000319655 STANDARD INDUSTRIAL CLASSIFICATION: 6792 IRS NUMBER: 756279898 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08032 FILM NUMBER: 96615650 BUSINESS ADDRESS: STREET 1: BANK ONE TEXAS N A TRUST CITY: FT WORTH STATE: TX ZIP: 76113 BUSINESS PHONE: 8178844630 MAIL ADDRESS: STREET 1: 1600 BANK ONE TOWER STREET 2: 500 THROCKMORTON CITY: FORT WORTH STATE: TX ZIP: 76102-3899 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 1996 Commission File No. 1-8032 SAN JUAN BASIN ROYALTY TRUST Texas I.R.S. No. 75-6279898 Bank One, Texas, NA, Trust Department P. O. Box 2604 Fort Worth, Texas 76113 Telephone Number 817/884-4630 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of units of beneficial interest outstanding at August 14, 1996: 46,608,796 -1- SAN JUAN BASIN ROYALTY TRUST PART I - FINANCIAL INFORMATION Item 1. Financial Statements. The condensed financial statements included herein have been prepared by Bank One, Texas, NA as Trustee for the San Juan Basin Royalty Trust, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations, although the Trustee believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Trust's latest annual report on Form 10-K. In the opinion of the Trustee, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the assets, liabilities and trust corpus of the San Juan Basin Royalty Trust at June 30, 1996, and the distributable income and changes in trust corpus for the three-month and six-month periods ended June 30, 1996 and 1995 have been included. The distributable income for such interim periods is not necessarily indicative of the distributable income for the full year. Deloitte & Touche LLP, independent certified public accountants, has made a limited review of the condensed financial statements as of June 30, 1996 and for the three-month and six-month periods ended June 30, 1996 and 1995 included herein. -2- INDEPENDENT ACCOUNTANTS' REPORT Bank One, Texas, NA as Trustee for the San Juan Basin Royalty Trust: We have reviewed the accompanying condensed statement of assets, liabilities and trust corpus of the San Juan Basin Royalty Trust as of June 30, 1996 and the related condensed statements of distributable income and changes in trust corpus for the three-month and six-month periods ended June 30, 1996 and 1995. These financial statements are the responsibility of the Trustee. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. The accompanying condensed financial statements are prepared on a modified cash basis as described in Note 1, which is a comprehensive basis of accounting other than generally accepted accounting principles. Based on our reviews, we are not aware of any material modifications that should be made to such condensed financial statements for them to be in conformity with the basis of accounting described in Note 1. We have previously audited, in accordance with generally accepted auditing standards, the statement of assets, liabilities and trust corpus of the San Juan Basin Royalty Trust as of December 31, 1995, and the related statements of distributable income and changes in trust corpus for the year then ended (not presented herein); and in our report dated April 11, 1996, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed statement of assets, liabilities and trust corpus as of December 31, 1995 is fairly stated, in all material respects, in relation to the statement of assets, liabilities and trust corpus from which it has been derived. DELOITTE & TOUCHE LLP August 1, 1996 -3- SAN JUAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS - - - ------------------------------------------------------------
June 30, December 31, ASSETS 1996 1995 (Unaudited) Cash and short-term investments $ 311,128 $ 421,446 Net overriding royalty interest in producing oil and gas properties (net of accumulated amortization of $66,496,694 and $63,141,992 at June 30, 1996 and December 31, 1995) 66,778,834 70,133,536 ----------- ----------- $67,089,962 $70,554,982 =========== =========== LIABILITIES AND TRUST CORPUS Distribution payable to Unit holders (Note 3) $ 311,128 $ 421,446 Commitments and contingencies (Note 3) Trust corpus - 46,608,796 Units of beneficial interest authorized and outstanding 66,778,834 70,133,536 ----------- ----------- $67,089,962 $70,554,982 =========== =========== CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, ------------------------------------ ------------------------------------- 1996 1995 1996 1995 Royalty income (Note 3) $4,047,512 $5,457,704 $8,755,129 $9,934,182 Interest income 7,325 11,247 13,832 19,032 ---------- ---------- ---------- ----------- 4,054,83 5,468,951 8,768,961 9,953,214 General and administrative expenditures 1,111,813 415,185 1,899,587 676,941 ---------- ---------- ---------- ----------- Distributable income $2,943,024 $5,053,766 $6,869,374 $9,276,274 ========== ========== ========== =========== Distributable income per Unit (46,608,796 Units) $ .063143 $ .108430 $ .147382 $ .199025 ========== ========== ========== ========== The accompanying notes to condensed financial statements are an integral part of this statement. -4- SAN JUAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED) - - - ----------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 --------------------------------- -------------------------------- Trust corpus, beginning of period $68,491,379 $73,878,671 $70,133,536 $74,942,040 Amortization of net overriding royalty interest (1,712,545) (1,709,590) (3,354,702) (2,772,959) Distributable income 2,943,024 5,503,766 6,869,374 9,276,274 Distributions declared (2,943,024) (5,503,766) (6,869,374) (9,276,274) ----------- ----------- ---------- ----------- Trust corpus, end of period $66,778,834 $72,169,081 $66,778,834 $72,169,081 =========== =========== =========== =========== The accompanying notes to condensed financial statements are an integral part of this statement.
-5- SAN JUAN BASIN ROYALTY TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF ACCOUNTING The San Juan Basin Royalty Trust ("Trust") was established as of November 1, 1980. The financial statements of the Trust are prepared on the following basis: - Royalty income recorded for a month is the amount computed and paid by the interest owner, Burlington Resources Oil & Gas Company ("Burlington"), to the Trustee for the Trust. Royalty income consists of the amounts received by the owner of the interest burdened by the net overriding royalty interest ("Royalty") from the sale of production less accrued production costs, development and drilling costs, applicable taxes, operating charges, and other costs and deductions, multiplied by 75%. - Trust expenses recorded are based on liabilities paid and cash reserves established from royalty income for liabilities and contingencies. - Distributions to Unit holders are recorded when declared by the Trustee. - The conveyance which transferred the overriding royalty interest to the Trust provides that any excess of production costs over gross proceeds must be recovered from future net profits. The financial statements of the Trust differ from financial statements prepared in accordance with generally accepted accounting principles ("GAAP") because revenues are not accrued in the month of production and certain cash reserves may be established for contingencies which would not be accrued in financial statements prepared in accordance with GAAP. Amortization of the Royalty calculated on a unit-of- production basis is charged directly to trust corpus. 2. FEDERAL INCOME TAXES For Federal income tax purposes, the Trust constitutes a fixed investment trust which is taxed as a grantor trust. A grantor trust is not subject to tax at the trust level. The Unit holders are considered to own the Trust's income and principal as though no trust were in existence. The income of the Trust is deemed to have been received or accrued by each Unit holder at the time such income is received or accrued by the Trust rather than when distributed by the Trust. The Royalty constitutes an "economic interest" in oil and gas properties for Federal income tax purposes. Unit holders must report their share of the revenues of the Trust as ordinary income from oil and gas royalties and are entitled to claim depletion with respect to such income. The Royalty is treated as a single property for depletion purposes. The Trust has on file technical advice memoranda confirming the tax treatment described above. The Trust began receiving royalty income from coal seam wells beginning in 1989. Under Section 29 of the Internal Revenue Code, production from coal seam gas wells drilled prior to January 1, 1993, qualifies for the federal income tax credit for producing non-conventional fuels. This tax credit was approximately $1.01 per MMBtu for the year 1995 and is adjusted for inflation annually. The credit currently applies to production through the year 2002. Each Unit holder must determine his pro rata share of such production based upon the number of Units owned during each month of the year and apply the tax credit against his own income tax liability, but such credit may not reduce his regular tax -6- liability (after the foreign tax credit and certain other nonrefundable credits) below his tentative minimum tax. Section 29 also provides that any amount of Section 29 credit disallowed for the tax year solely because of this limitation will increase his credit for prior year minimum tax liability, which may be carried forward indefinitely as a credit against the taxpayer's regular tax liability, subject, however, to the limitations described in the preceding sentence. There is no provision for the carryback or carryforward of the Section 29 credit in any other circumstances. The classification of the Trust's income for purposes of the passive loss rules may be important to a Unit holder. As a result of the Tax Reform Act of 1986, royalty income will generally be treated as portfolio income and will not reduce passive losses. 3. COMMITMENTS AND CONTINGENCIES On June 4, 1992, the Trustee filed suit against Meridian Oil Inc. ("MOI") and Southland Royalty Company ("Southland")in state district court in Rio Arriba County, New Mexico. In a decision filed August 8, 1994, the Supreme Court of New Mexico ruled that venue was not proper in Rio Arriba County and remanded the case for dismissal without prejudice to its refiling. In its ruling, the Supreme Court of New Mexico also ruled that venue was proper in Santa Fe County, New Mexico. Such decision did not relate to merits of the Trust's claims. The Trustee refiled the lawsuit in Santa Fe County, New Mexico on August 31, 1994. Effective January 1, 1996, Southland, a wholly-owned subsidiary of MOI, was merged with and into MOI, by which action the separate corporate existence of Southland ceased and MOI survived and succeeded to the ownership of all the assets, has the rights, powers and privileges and assumed all of the liabilities and obligations of Southland. Subsequent to the merger, MOI changed its name to Burlington Resources Oil & Gas Company ("Burlington"). The principal asset of the Trust consists of a 75% net overriding royalty carved out of certain of Burlington's oil and gas leasehold and royalty interests in the San Juan Basin located in San Juan, Rio Arriba and Sandoval counties of northwestern New Mexico (the "Trust Properties"). Burlington is the operator of the Trust Properties. The claims asserted on behalf of the Trust in the Santa Fe County, New Mexico, lawsuit now include breach of contract, breach of the covenant of good faith and fair dealing, breach of express good faith duty, constructive fraud, unjust enrichment, prima facie tort, intentional interference with contract and conspiracy. The relief sought includes compensatory and punitive damages, an accounting and a permanent injunction relating to marketing and production from the Trust Properties. In response to the Trustee's lawsuit, Southland, now Burlington, filed suit on August 7, 1992, against the Trustee in probate court in Tarrant County, Texas. The lawsuit seeks declaratory relief that: (I) the rights and duties of the Trustee be governed in accordance with and by the terms and provisions of the trust instruments which establish the Trust as well as the Texas Trust Code, (II) the Trustee cannot object to Burlington's reports or audits after 180 days, (III) the interests held by the Trust are not subject to partition, and (IV) the Trust is without standing to remove Burlington as operator of the Trust Properties. The lawsuit also seeks to remove Bank One, Texas, N.A. as Trustee. Burlington has filed a counterclaim in the Santa Fe County lawsuit, seeking declaratory relief that (I) Burlington's remitting payment to the Trustee constitutes good faith compliance with its obligation and duties to the Trust; (II) the profits realized by the subsidiaries of Burlington on the resale or treatment of gas is immaterial; (III) Burlington, or its subsidiaries, are not required to -7- grant the Trust a discounted fee or rate for gathering and processing services; (IV) the Trustee does not have the power or authority to take exception to the quarterly or annual reports and audits by Burlington, and such reports and audits are correct as rendered; and (V) Burlington is entitled to its costs, attorneys' fees and such other relief as the Court deems just and proper. On June 5, 1995, the Trustee announced that non-binding mediation, which had been ongoing with regard to the lawsuit filed in Santa Fe County, New Mexico, was not successful in resolving the claims asserted by the Trust. The matter was set for trial commencing July 15, 1996. On July 19, 1996, the Trustee announced that by agreement of the parties the trial of the lawsuit had been continued to an unspecified future date. Settlement negotiations are continuing in that litigation, and a tentative agreement has been reached on underpayment of royalty claims and the resolution of certain issues relative to lease operating expense, gas gathering and processing and reporting and auditing. The focus of negotiations at this time is the mechanism for the marketing of Trust gas going forward. None of the preliminary agreements will become final unless and until the marketing issues are resolved. However, taking into account the potential that the settlement negotiations may ultimately fail, at the request of the Trustee, the lawsuit has been rescheduled for trial. The Trustee has been advised by its legal counsel that the matter may be reached as early as September 9, 1996. (See Note 5 to Financial Statements in the Trust's 1995 Annual Report for further information regarding such litigation.) A resolution of the Santa Fe County, New Mexico, lawsuit favorable to the Trust could possibly have a material effect on distributable income depending upon the nature and terms of the resolution. * * * * * * -8- Item 2. Trustee's Discussion and Analysis THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995: The San Juan Basin Royalty Trust received royalty income of $4,047,512 and interest income of $7,325 during the second quarter of 1996. After deducting administrative expenses of $1,111,813, distributable income for the quarter was $2,943,024 ($.063143 Unit). In the second quarter of 1995, royalty income was $5,457,704, interest income was $11,247, administrative expenses were $415,185 and distributable income was $5,053,766 ($.108430 per Unit). The tax credit relating to production from coal seam wells totaled approximately $.04 per Unit for the second quarter of 1996 and $.03 per Unit for the second quarter of 1995. Based on 46,608,796 Units outstanding during the second quarter of 1996, the per Unit distributions were as follows: April $ .032135 May .024333 June .006675 ---------- Quarter Total $ .063143 ========== The royalty income distributed in the second quarter of 1996 was lower than that distributed in the second quarter of 1995 primarily due to increased administration expenses and a decrease in the average gas price. Interest earnings for the quarter ended June 30, 1996, compared to the quarter ended June 30, 1995, were lower primarily due to decreased funds available for investment. Administrative expenses increased primarily due to increases for legal, consulting, accounting and financial services relating to litigation filed by Bank One, Texas, N.A., as Trustee, against Meridian Oil Inc. (now known as Burlington Resources Oil & Gas Company ("Burlington")) and Southland Royalty Company in the state district court of Santa Fe County, New Mexico, in Cause No. SF94-1982(c). Settlement negotiations are continuing in that litigation, and tentative agreement has been reached on underpayment of royalty claims and the resolution of certain issues relative to lease operating expense, gas gathering and processing and reporting and auditing. The focus of negotiations at this time is the mechanism for the marketing of Trust gas going forward. None of the preliminary agreements will become final unless and until the marketing issues are resolved. (See Note 5 to Financial Statements in the Trust's 1995 Annual Report for further information regarding such litigation.) The capital costs attributable to the properties from which the Trust's 75% net overriding royalty ("Royalty") was carved for the second quarter of 1996 were reported by Burlington as $1,288,864 versus $735,105 for the second quarter of 1995. Lease operating expenses and property taxes were $3,108,603 for the second quarter of 1996 as compared to $2,404,568 for the second quarter of 1995. Burlington has informed the Trustee that during the second quarter of 1996, 1 gross (.004 net) conventional well was completed on the properties from which the Royalty was carved. There were 2 gross (.25 net) coal seam and 8 gross (1.32 net) conventional wells in progress at June 30, 1996. Four gross (3.08 net) coal seam wells were recavitated in the second quarter of 1996. Two gross (.66 net) conventional well recompletions and 6 gross (.16 net) coal seam well recavitations were in progress at June 30, 1996. One gross (.50 net) coal seam well and 7 gross (3.23 net) conventional gas wells were completed on the properties from which the Royalty was carved during the second quarter of 1995. On June 30, 1995, 4 gross (2.39 net) coal seam wells and 7 gross (2.77 net) conventional wells were in progress. Two gross (2.00 net) coal seam wells and 6 gross (2.79 net) conventional wells were recompleted during the second quarter of 1995. -9- Unit holders are referred to "Description of the Properties" in the Trust's 1995 Annual Report for further information concerning Burlington's coal seam gas well drilling program in the San Juan Basin. This program includes properties in which the Trust owns an interest. Gas and oil sales from the properties from which the Royalty was carved for the quarters ended June 30, 1996 and 1995 were as follows:
1996 1995 PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED: Gas: Total sales (Mcf) 9,885,383 8,752,030 Mcf per day 109,838 98,337 Average price (per Mcf) $1.09 $1.31 Oil: Total sales (Bbls) 19,475 18,965 Bbls per day 216 213 Average price (per Bbl) $20.13 $15.36 ROYALTIES: Gas sales (Mcf) 4,064,427 4,594,490 Oil sales (Bbls) 8,128 9,925
Royalty income for the Trust for the second quarter ended June 30, 1996 is associated with actual oil and gas production during February through April from the properties from which the Royalty was carved. Since the oil and gas production attributable to the Royalty is based on an allocation formula that is dependent on such factors as price and cost (including capital expenditures), the production amounts do not provide a meaningful comparison. During the second quarter of 1996, gas prices were lower than during the second quarter of 1995, primarily due to decreased spot market prices. Gas production increased in 1996 as compared to 1995 primarily due to the recompletion or recavitation of existing wells and the successful institution of a compression program involving the Trust Properties located within Federal Unit 30-6. The average oil price for the second quarter of 1996 was higher than that in the second quarter of 1995 primarily due to increases in the posted prices. SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995: For the six months ended June 30, 1996 distributable income was $6,869,374 ($.147382 per Unit) which was less than the $9,276,274 ($.199025 Unit) of income distributed during the same period in 1995. The decrease resulted primarily from an increase in administrative expenses and a decrease in gas prices. Interest income for the six months ended June 30, 1996 was $13,832 compared to $19,032 during the first six months of 1995. This decrease is due to a decrease in funds available for investment. General and administrative expenses during the 1996 period were $1,899,587 compared to $676,941 during the 1995 period primarily due to the payment of certain expenses and increases for legal, consulting, accounting and financial services relating to litigation filed by Bank One, Texas, N.A., as Trustee, against Burlington and Southland Royalty Company. -10- Capital expenditures incurred by Burlington, attributable to the properties from which the Royalty was carved, for the first six months of 1996 amounted to $2,662,955. Capital expenditures were $3,029,743 for the first six months of 1995. Lease operating expenses and property taxes totaled approximately $5,768,151 for the first six months of 1996 compared to $4,744,446 for the first six months of 1995. Burlington advised the Trustee that during the six months ended June 30, 1996, 8 gross (1.144 net) conventional gas wells and 1 gross (.5 net) coal seam gas wells were completed on the properties from which the Royalty was carved. Six gross (4.67 net) coal seam and 8 gross (4.54 net) conventional wells were recompleted during the first six months of 1996. During the six months ended June 30, 1995, 21 gross (5.69 net) conventional gas well and 4 gross (1.54 net) coal seam gas wells were completed on the properties from which the Royalty was carved. Five gross (5.00 net) coal seam wells and 22 gross (7.53 net) conventional wells were recompleted during the first six months of 1995. For the six months ended June 30, 1996 and 1995 comparative gas and oil production is as follows:
1996 1995 PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED: Gas: Total sales (Mcf) 19,546,632 16,551,795 Mcf per day 107,399 91,446 Average price (per Mcf) $1.13 $1.40 Oil: Total sales (Bbls) 39,554 35,019 Bbls per day 217 193 Average price (per Bbl) $18.94 $14.72 ROYALTIES: Gas sales (Mcf) 8,504,049 7,861,273 Oil sales (Bbls) 17,244 16,942
The first six months production figures are associated with actual oil and gas production during November 1995 through April 1996 from the properties from which the Royalties were carved. During the first six months of 1996, gas prices were lower than during the first six months of 1995, primarily due to decreased spot market prices. Gas production increased primarily due to the recompletion or recavitation of existing wells and the successful institution of a compression program involving the Trust Properties located within Federal Unit 30-6. The average oil price for the first six months of 1996 was higher than that for the first six months of 1995 primarily due to higher posted prices. Since the oil and gas production attributable to the Royalties is based on an allocation formula that is dependent on such factors as price and cost (including capital expenditures), the production amounts do not provide a meaningful comparison. -11- ROYALTY CALCULATION: Royalty income received by the Trust for the three months and six months ended June 30, 1966 and 1995, respectively, was computed as shown in the following table:
Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------------------------------- 1996 1995 1996 1995 Gross proceeds of sales from the properties from which the net overriding royalty was carved: Gas proceeds $10,781,798 $11,432,999 $22,046,595 $23,104,157 Oil proceeds 395,525 291,317 759,040 515,494 ----------- ----------- ----------- ----------- Total 11,177,323 11,724,316 22,805,635 23,619,651 ----------- ----------- ----------- ----------- Less production costs: Severance tax - Gas 1,342,394 1,278,604 2,617,209 2,549,670 Severance tax - Oil 40,779 29,101 83,814 50,216 Lease operating expenses and property tax 3,108,603 2,404,568 5,768,151 4,744,446 Capital expenditures 1,288,864 735,105 2,662,955 3,029,743 ------------ ----------- ----------- ----------- Total 5,780,640 4,447,378 11,132,129 10,374,075 ------------ ----------- ----------- ----------- Net profits 5,396,683 7,276,938 11,673,506 13,245,576 ------------ ----------- ----------- ----------- Net overriding royalty interest 75% 75% 75% 75% ------------ ----------- ----------- ----------- Royalty income $ 4,047,512 $ 5,457,704 $ 8,755,129 $ 9,934,182 ============ =========== =========== ===========
-12- PART II - OTHER INFORMATION Item 1. Legal Proceedings On June 4, 1992, the Trustee of the San Juan Basin Royalty Trust (the "Trust"), filed suit against Meridian Oil Inc. ("MOI") and Southland Royalty Company ("Southland") in state district court in Rio Arriba County, New Mexico, Cause No. RA 92-1211(C). In a decision filed August 8, 1994, the Supreme Court of New Mexico ruled that venue was not proper in Rio Arriba County and remanded the case for dismissal without prejudice to its refiling. In its ruling, the Supreme Court of New Mexico also ruled that venue was proper in Santa Fe County, New Mexico. Such decision did not relate to merits of the Trust's claims. The Trustee refiled the lawsuit in Santa Fe County, New Mexico on August 31, 1994, in Cause No. SF 94-1982(C). Effective January 1, 1996, Southland, a wholly-owned subsidiary of MOI, was merged with and into MOI, by which action the separate corporate existence of Southland ceased and MOI survived and succeeded to the ownership of all the assets, has the rights, powers and privileges and assumed all of the liabilities and obligations of Southland. Subsequent to the merger, MOI changed its name to Burlington Resources Oil & Gas Company ("Burlington"). The principal asset of the Trust consists of a seventy-five percent (75%) net overriding royalty interest carved out of certain of Burlington's oil and gas leasehold and royalty interests in the San Juan Basin located in San Juan, Rio Arriba and Sandoval counties of northwestern New Mexico (the "Trust Properties"). Burlington is the operator of the Trust Properties. The claims asserted on behalf of the Trust in the Santa Fe County, New Mexico, lawsuit now include breach of contract, breach of the covenant of good faith and fair dealing, breach of express good faith duty, constructive fraud, unjust enrichment, prima facie tort, intentional interference with contract and conspiracy. The relief sought includes compensatory and punitive damages, an accounting and a permanent injunction relating to marketing the production from the Trust Properties. In response to the Trustee's lawsuit, Southland, now Burlington, filed suit on August 7, 1992 against the Trustee in probate court in Tarrant County, Texas, Cause No. 92-1927-2. The lawsuit seeks declaratory relief that: (i) the rights and duties of the Trustee be governed in accordance with and by the terms and provisions of the trust instruments which established the Trust as well as the Texas Trust Code, (ii) the Trustee cannot object to Burlington's reports or audits after 180 days, (iii) the interests held by the Trust are not subject to partition, and (iv) the Trust is without standing to remove Burlington as operator of the Trust Properties. The lawsuit also seeks to remove Bank One, Texas, N.A. as Trustee. Burlington has filed a counterclaim in the Santa Fe County lawsuit, seeking declaratory relief that (I) Burlington's remitting payment to the Trustee constitutes good faith compliance with its obligation and duties to the Trust; (ii) the profits realized by the subsidiaries of Burlington on the resale or treatment of gas is immaterial; (iii) Burlington, or its subsidiaries, are not required to grant the Trust a discounted fee or rate for gathering and processing services; (iv) the Trustee does not have the power or authority to take exception to the quarterly or annual reports and audits by Burlington, and such reports and audits are correct as rendered; and (v) Burlington is entitled to its costs, attorneys' fees and such other relief as the Court deems just and proper. On June 5, 1995, the Trustee announced that non-binding mediation, which had been ongoing with regard to the lawsuit filed in Santa Fe County, New Mexico, was not successful in resolving the claims asserted by the Trust. The matter was set for trial commencing July 15, 1996. -13- On July 19, 1996, the Trustee announced that by agreement of the parties the trial of the lawsuit had been continued to an unspecified future date. Settlement negotiations are continuing in that litigation, and a tentative agreement has been reached on underpayment of royalty claims and the resolution of certain issues relative to lease operating expense, gas gathering and processing and reporting and auditing. The focus of negotiations at this time is the mechanism for the marketing of Trust gas going forward. None of the preliminary agreements will become final unless and until the marketing issues are resolved. However, taking into account the potential that the settlement negotiations may ultimately fail, at the request of the Trustee, the lawsuit has been rescheduled for trial. The Trustee has been advised by its legal counsel that the matter may be reached as early as September 9, 1996. (See Note 5 to Financial Statements in the Trust's 1995 Annual Report for further information regarding such litigation.) A resolution of this matter favorable to the Trust could possibly have a material effect on distributable income depending upon the nature and terms of the resolution. Items 2-5 Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (4)(a) San Juan Basin Royalty Trust Indenture dated November 3, 1980, between Southland Royalty Company (now Burlington Resources Oil & Gas Company) and The Fort Worth National Bank (now Bank One, Texas, NA), as Trustee, heretofore filed as Exhibit (4)(a) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980 is incorporated herein by reference. (4)(b) Net Overriding Royalty Conveyance from Southland Royalty Company (now Burlington Resources Oil & Gas Company) to The Fort Worth National Bank (now Bank One, Texas, NA), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(b) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980 is incorporated herein by reference. (27) Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1996. -14- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. BANK ONE, TEXAS, NA, AS TRUSTEE FOR THE SAN JUAN BASIN ROYALTY TRUST By /s/ LEE ANN ANDERSON --------------------------------- Lee Ann Anderson Vice President Date: August 14, 1996 (The Trust has no directors or executive officers.) -15- INDEX TO EXHIBITS Sequentially Exhibit Numbered Number Exhibit Page (4)(a) San Juan Basin Royalty Trust Indenture dated November 3, 1980, between Southland Royalty Company (now Burlington Resources Oil & Gas Company) and The Fort Worth National Bank (now Bank One, Texas, N.A.), as Trustee, heretofore filed as Exhibit (4)(a) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980 is incorporated herein by reference.* (4)(b) Net Overriding Royalty Conveyance from Southland Royalty Company (now Burlington Resources Oil & Gas Company) to The Fort Worth National Bank (now Bank One, Texas, N.A.), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(b) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980 is incorporated herein by reference.* (27) Financial Data Schedule ** * A copy of this Exhibit is available to any Unit holder, at the actual cost of reproduction, upon written request to the Trustee, Bank One, Texas, N.A., P.O. Box 2604, Fort Worth, Texas 76113. ** Filed herewith. EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS OF SAN JUAN BASIN ROYALTY TRUST AS OF JUNE 30, 1996, AND THE RELATED CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME AND CHANGES IN TRUST CORPUS FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 1996. 1 6-MOS DEC-31-1996 JUN-30-1996 $311,128 0 0 0 0 $311,128 $133,275,528 $66,496,694 $73,648,848 $311,128 0 0 0 0 $66,778,834 $67,089,962 0 $4,054,837 0 0 $1,111,813 0 0 $2,943,024 0 $2,943,024 0 0 0 $2,943,024 0 0
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