-----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, O9U9KGEv4JH6RCjKO5NjdenxikhQyVK4SD68mtRP9fxm+j1MtMuL40QKN5a920yE /Vbmpxqvq1boRVObvh9T4A== 0000950134-00-004664.txt : 20000516 0000950134-00-004664.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950134-00-004664 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAN JUAN BASIN ROYALTY TRUST CENTRAL INDEX KEY: 0000319655 STANDARD INDUSTRIAL CLASSIFICATION: OIL ROYALTY TRADERS [6792] IRS NUMBER: 756279898 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08032 FILM NUMBER: 634687 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 FORM 10-Q FOR QUARTER ENDED MARCH 31, 2000 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 March 31, 2000 Commission File No. 1-8032 SAN JUAN BASIN ROYALTY TRUST Texas I.R.S. No. 75-6279898 Bank One, Texas, N.A., 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 (or for such shorter period that the registrant was required to file such reports) 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 May 8, 2000: 46,608,796 Page 1 of 15 2 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, N.A. as Trustee for the San Juan Basin Royalty Trust (the "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 Rule 10-01 of Regulation S-X promulgated under the Securities and Exchange Act of 1934, although the Trustee believes that the disclosures are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Trust's annual report on Form 10-K for the year ended December 31, 1999. 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 March 31, 2000, and the distributable income and changes in trust corpus for the three-month periods ended March 31, 2000 and 1999 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 conducted a limited review of the condensed financial statements as of March 31, 2000 and for the three-month periods ended March 31, 2000 and 1999 included herein. - 2 - 3 INDEPENDENT ACCOUNTANTS' REPORT Bank One, Texas, N.A. 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 March 31, 2000 and the related condensed statements of distributable income and changes in trust corpus for the three-month periods ended March 31, 2000 and 1999. 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, 1999, 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 March 22, 1999, 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, 1999 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 May 10, 2000 - 3 - 4 SAN JUAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS - --------------------------------------------------------------------------------
March 31, December 31, ASSETS 2000 1999 (Unaudited) Cash and short-term investments $ 2,794,650 $ 3,862,453 Net overriding royalty interest in producing oil and gas properties (net of accumulated amortization of $89,303,422 and $88,089,329 at March 31, 2000 and December 31, 1999, respectively) 43,972,106 45,186,199 ----------- ----------- $46,766,756 $49,048,652 =========== =========== LIABILITIES AND TRUST CORPUS Distribution payable to Unit holders $ 2,794,650 $ 3,862,453 Commitments and contingencies Trust corpus - 46,608,796 Units of beneficial interest authorized and outstanding 43,972,106 45,186,199 ----------- ----------- $46,766,756 $49,048,652 =========== ===========
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended March 31, ------------------------- 2000 1999 Royalty income $10,076,594 $ 7,045,206 Interest income 24,495 13,626 ----------- ----------- 10,101,089 7,058,832 General and administrative expenditures 212,586 266,949 ----------- ----------- Distributable income $ 9,888,503 $ 6,791,883 =========== =========== Distributable income per Unit (46,608,796 Units) $ .212160 $ .145721 =========== ===========
The accompanying notes to condensed financial statements are an integral part of these statements. - 4 - 5 SAN JUAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended March 31, ---------------------------- 2000 1999 Trust corpus, beginning of period $ 45,186,199 $ 51,088,020 Amortization of net overriding royalty interest (1,214,093) (1,373,933) Distributable income 9,888,503 6,791,883 Distributions declared (9,888,503) (6,791,883) ------------ ------------ Trust corpus, end of period $ 43,972,106 $ 49,714,087 ============ ============
The accompanying notes to condensed financial statements are an integral part of this statement. - 5 - 6 SAN JUAN BASIN ROYALTY TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 1. BASIS OF ACCOUNTING The San Juan Basin Royalty Trust was established as of November 1, 1980. The financial statements of the Trust are prepared on the following basis: o Royalty income recorded for a month is the amount computed and paid by the working interest owner, Burlington Resources Oil & Gas Company ("BROG"), 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%. o Trust expenses recorded are based on liabilities paid and cash reserves established from Royalty income for liabilities and contingencies. o Distributions to Unit holders are recorded when declared by the Trustee. o 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; certain cash reserves may be established for contingencies which would not be accrued in financial statements prepared in accordance with GAAP; and 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 gas wells beginning in 1989. Under Section 29 of the Internal Revenue Code, coal seam gas production from wells drilled prior to January 1, 1993 (including certain wells recompleted in coal seams formations thereafter), generally qualifies for the federal income tax credit for producing non-conventional fuels if such production and the sale thereof occurs before January 1, 2003. For 1999, this tax credit was approximately $1.04 per MMBtu. To benefit from the credit, each Unit holder must determine from the tax information he receives from the Trust his pro rata share of qualifying production of the Trust, based upon the number of Units owned during each month of the year, and the amount of available credit per MMbtu for the year, and then apply the tax credit against his own income tax liability, but such credit may not reduce his regular tax liability (after the foreign tax credit and certain other nonrefundable credits) below his tentative minimum tax. Section 29 - 6 - 7 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 Trustee is provided summary Section 29 tax credit information related to Trust properties by BROG, which information is then passed along to the Unit holders. In Nielson-True Partnership, et al, v. Commissioner, a 1997 Tax Court decision, the court ruled that nonconventional fuel (such as coal seam gas) produced from a well drilled and completed in an otherwise qualifying formation prior to December 31, 1992, is not eligible for the Section 29 credit unless the producer has received an appropriate well category determination from the Federal Energy Regulatory Commission ("FERC"). On March 23, 1999, the U. S. Court of Appeals for the 10th Circuit affirmed that decision. Dictum (i.e., language in the appeals court's decision which is not binding as precedent) even suggests that, contrary to the clear implications of a 1993 Internal Revenue Service ruling, lack of such a well category determination may render the Section 29 credit unavailable in respect of production from wells recompleted in a qualified formation after January 1, 1993, the date that FERC's authority to render well category determinations ended (so that obtaining the requisite determination for any such well was impossible). Many producers assert that wells meeting the definitional requirements applied by FERC in rendering well category determinations are eligible for the Section 29 credit regardless of whether a well category determination is actually applied for or received, particularly for wells recompleted in qualifying formations after January 1, 1993, and additional litigation (and perhaps a legislative initiative) on this issue is to be expected. In fact, on December 23, 1999, a petition was filed with the FERC by a coalition of energy producers seeking reinstatement of the certification process. By letter dated January 14, 2000, the U. S. Department of Energy expressed its support of that petition and on January 27, 2000, the FERC issued notice of proposed rulemaking by which its regulations would be amended to reinstate certain regulations involving well category determinations for Section 29 tax credits for certain well recompletions commenced after January 1, 1993. In some cases the extent to which production from the various coal seam gas wells in which the Trust holds an interest would qualify for the Section 29 credit under the standards applied in the Nielson-True case is unclear, and the Trustee has requested that BROG provide clarification and an assessment of the effects of the foregoing, if any, on the Trust and its Unit holders. Pending such clarification and assessment, or further developments, or both, however, the availability of Section 29 credits to Unit holders in respect of some portion of the Trust's coal seam gas production could be subject to debate and challenge. 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. CONTINGENCIES See Part II - Item 1 Legal Proceedings concerning the status of litigation matters. 4. UNDERCHARGE OF CAPITAL EXPENDITURES AND LEASE OPERATING EXPENSES Based on its year-end review, BROG has determined that since January of 1999, BROG has undercharged the Trust for both capital expenditures and lease operating charges related to properties burdened by the Trust but not operated by BROG. BROG reports that for the 1999 reporting period, these charges were approximately $1,200,000 for lease operating charges and $500,000 for capital expenditures. For the 2000 reporting period, the undercharges are reported to be $500,000 for lease operating charges and $140,000 for capital expenditures. BROG multiplies these aggregate expenses by the Trust's 75% interest in the Underlying Properties and indicates it will pass through additional charges of approximately $1,800,000 in the distributions to the Trust for April and May of 2000. The - 7 - 8 Trust's consultants will review cost reporting data and advise the Trust as to the proposed pass through of additional charges. ****** ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS FORWARD-LOOKING INFORMATION Certain information included in this report contains, and other materials filed or to be filed by the Trust with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Trust) may contain or include, forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and Section 27A of the Securities Act of 1933. Such forward looking statements may be or may concern, among other things, capital expenditures, drilling activity, development activities, production efforts and volumes, hydrocarbon prices and the results thereof, and regulatory matters. Such forward looking statements generally are accompanied by words such as "may," "will," "estimate," "expect," "predict," "anticipate," "goal," "should," "assume," "believe," "plan," "intend," or other words that convey the uncertainty of future events or outcomes. Such statements reflect our current view with respect to future events; are based on our assessment of, and are subject to, a variety of factors deemed relevant by the Trustee and involve risks and uncertainties. Should one or more of these risks or uncertainties occur, actual results may vary materially and adversely from those anticipated. - 8 - 9 THREE MONTHS ENDED MARCH 31, 2000 AND 1999: The Trust received royalty income of $10,076,594 and interest income of $24,495 during the first quarter of 2000. After deducting administrative expenses of $212,586 distributable income for the quarter was $9,888,503 ($.212160 per Unit). In the first quarter of 1999, royalty income was $7,045,206, interest income was $13,626, administrative expenses were $266,949 and distributable income was $6,791,883 ($.145721 per Unit). The tax credit relating to production from coal seam wells totaled approximately $.04 per Unit for the first quarter of 2000 and $.04 per Unit for the first quarter of 1999. For further information concerning this tax credit, Unit holders should refer to the Trust's Annual Report for 1999. Based on 46,608,796 Units outstanding, the per Unit distributions during the first quarter of 2000 were as follows: January $ .089499 February .062701 March .059960 ------------ Quarter Total $ .212160 ============
The royalty income distributed in the first quarter of 2000 was higher than that distributed in the first quarter of 1999, primarily due to an increase in the average gas price from $1.54 per Mcf for the first quarter of 1999 to $2.24 per Mcf for the first quarter of 2000. Interest earnings for the quarter ended March 31, 2000, as compared to the quarter ended March 31, 1999, were higher, primarily due to an increase in funds available for investment. Administrative expenses were less, primarily as a result of differences in timing of the receipt and payment of these expenses. The capital costs attributable to the properties from which the Trust's 75% net overriding royalty ("Royalty") was carved (the "Underlying Properties") for the first quarter of 2000 were reported by BROG as $4,583,126. BROG advised the Trust that capital expenditures for 2000 are estimated to be $20,500,000. Capital expenditures were $2,273,201 for the first quarter of 1999. Based on its year-end review, BROG has determined that since January of 1999, BROG has undercharged the Trust for both capital expenditures and lease operating charges related to properties burdened by the Trust's Royalty but not operated by BROG. BROG reports that for the 1999 reporting period, these charges were approximately $1,200,000 for lease operating charges and $500,000 for capital expenditures. For the 2000 reporting period, the undercharges are reported to be $500,000 for lease operating charges and $140,000 for capital expenditures. BROG multiplies these aggregate expenses by the Trust's 75% Royalty interest in the Underlying Properties and indicates it will include additional charges of approximately $1,800,000 in calculating the distributions to the Trust for April and May of 2000. The Trust's consultants will review cost reporting data and advise the Trust as to the proposed pass through of additional charges. BROG has informed the Trustee that 7 gross (3.41 net) conventional wells, 3 gross (1.14 net) conventional recompletions and 13 gross (.07 net) coal seam well recavitations were completed as of March 31, 2000. Sixty-six gross (23.17) net conventional wells, and 26 gross (8.07 net) conventional recompletions were in progress during the first quarter of 2000. Ten gross (4.10 net) coal seam wells, 17 gross (0.11 net) coal seam recavitations and 7 gross (.90 net) coal seam recompletions were in progress as of March 31, 2000. "Gross" acres or wells, for purposes of this discussion, means the entire ownership interest of all parties in such properties, and BROG's interest therein is referred to as the "net" acres or wells. - 9 - 10 Royalty income for the quarter ended March 31, 2000 is associated with actual gas and oil production during November 1999 through January 2000 from the Underlying Properties. Gas and oil sales from the Underlying Properties for the quarters ended March 31, 2000 and 1999 were as follows:
2000 1999 Gas: Total sales (Mcf) 10,080,596 10,337,439 Mcf per day 109,572 112,363 Average price (per Mcf) $ 2.24 $ 1.54 Oil: Total sales (Bbls) 23,290 18,446 Bbls per day 253 201 Average price (per Bbl) $ 22.48 $ 9.63 Gas and oil sales attributable to the Royalty for the quarters ended March 31, 2000 and 1999 were as follows: Gas sales (Mcf) 4,743,297 5,043,882 Oil sales (Bbls) 11,104 9,018
Gas sales attributable to the Royalty decreased in the first quarter of 2000, as compared to the same period in 1999. BROG has indicated that, commencing in January of 1999, deficiencies in its new internal accounting system precluded it from generating actual production reports and it instead relied upon estimates based on historical production, which estimates proved high. Prior period adjustments were employed by BROG to reconcile the difference between its estimates and the actual production for the subject months. The Trust's consultants are reviewing data supplied by BROG in support of the prior period adjustments and have preliminarily approved them, subject to final audit. Since the oil and gas sales attributable to the Royalty are based on an allocation formula that is dependent on such factors as price and cost, including capital expenditures, the aggregate production volumes from the Underlying Properties may not provide a meaningful comparison to volumes attributable to the Royalty. During the first quarter of 2000, gas prices were higher than during the first quarter of 1999. Gas sales attributable to the Royalty decreased in 2000 as compared to 1999. The price per barrel of oil during the first quarter of 2000 was $12.85 per bbl higher than that received for the first quarter of 1999 due to increases in oil prices in world markets generally including the posted prices applicable to oil sales attributable to the Royalty. BROG has entered into a contract dated November 10, 1999, for the sale of all volumes of gas which are subject to the Royalty (the "Trust gas") to Duke Energy and Marketing L.L.C. That contract provides for the delivery of Trust gas at various delivery points over a period commencing January 1, 2000, and ending October 31, 2001, and provides for the sale of Trust gas at prices which fluctuate in accordance with published indices for gas sold in the San Juan Basin of New Mexico. Unit holders are referred to Note 6 of the Notes to Financial Statements in the Trust's 1999 Annual Report for further information concerning the marketing of gas produced from the Underlying Properties. In February 1999, the Trust's consultants notified the Trust of an apparent gas imbalance. A gas imbalance occurs where more than one party is entitled to the economic benefit of the production of natural gas, but the gas is sold for the account of less than all of the parties. The resulting imbalance may be corrected by various means including a cash settlement and/or a volume adjustment whereby an increased percentage of future production is sold for the account of the underproduced party or parties. The Trust's - 10 - 11 consultants suggested that the subject imbalance might relate to the acquisition by BROG's predecessor, Southland Royalty Company ("Southland Royalty"), of mineral properties which had been operated under a Joint Operating Agreement between Southland Royalty and Unicon, the seller of the properties. The Trust made inquiry of BROG concerning the imbalance and BROG agreed to investigate the records. The Trustee met with BROG representatives in June 1999 to discuss the investigation and by correspondence of September 24, 1999, BROG reported that the imbalance probably related to problems experienced in the 1980's and early 1990's by Southland Royalty and Unicon in their dealings with Public Service Company of New Mexico. BROG reported that Unicon was flowing gas to its account while Southland Royalty was not producing and that this created a gas imbalance. The imbalance was addressed, as between Southland Royalty and Unicon, by a reduction in the total purchase price for Unicon assets acquired by Southland Royalty in June 1990. However, there was no payment made to the Trust at the time of that acquisition. BROG proposes to address the imbalance with the Trust based upon the terms of a Gas Balancing Agreement it indicates was in place between Southland Royalty and Unicon, in connection with the Joint Operating Agreement applicable to the subject properties. BROG has offered $3,490,000 as a cash settlement. The Trust is considering the appropriateness of this proposed resolution and this offer and is consulting with its advisors. No assurance can be given as to when and how this issue will be resolved or that the gas imbalance issue will be resolved in favor of the Trust. CALCULATION OF ROYALTY INCOME: Royalty income received by the Trust for the three months ended March 31, 2000 and 1999, respectively, was computed as shown in the following table:
2000 1999 Gross proceeds of sales from the Underlying Properties: Gas proceeds $22,513,961 $15,951,226 Oil proceeds 525,410 177,560 ----------- ----------- Total 23,039,371 16,128,786 ----------- ----------- Less production costs: Severance tax - Gas 2,194,519 1,648,328 Severance tax - Oil 52,040 17,848 Lease operating expense and property tax 3,107,561 2,795,802 Capital expenditures 4,583,126 2,273,201 ----------- ----------- Total 9,937,246 6,735,179 ----------- ----------- Net profits 13,102,125 9,393,607 Net overriding royalty interest 75% 75% ----------- ----------- Subtotal 9,826,594 7,045,206 Other (a) 250,000 ----------- ----------- Royalty income $10,076,594 $ 7,045,206 =========== ===========
(a) Represents an offset to lease operating expense in connection with the settlement of litigation. - 11 - 12 ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Trust has not entered into derivative financial instruments, derivative commodity instruments or other similar instruments during the quarter ended March 31, 2000. The Trust does not market the Trust gas, oil and/or natural gas liquids. BROG is responsible for such marketing. - 12 - 13 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Trust is not a party to any litigation. However, the Trust is aware that BROG is involved in litigation from time to time that could affect the royalty income received by the Trust. A lawsuit was commenced on September 1, 1995 against BROG by certain royalty and overriding royalty owners on behalf of those persons similarly situated. The suit involves properties that are burdened by the Trust. This case is one of six virtually identical class actions filed against New Mexico gas producers. All such cases have been consolidated in the First Judicial District of Santa Fe County, New Mexico where the case is styled San Juan 1990-A, L.P., et al. v. El Paso Production Company and Meridian Oil Inc. The plaintiffs allege that they and members of the proposed class have been underpaid for royalties and overriding royalties. The plaintiffs have sought to certify the actions as class actions and seek monetary damages. The court has denied class certification, but the plaintiffs have renewed their request for class certification. Discovery in this matter is closed. BROG anticipates summary judgment proceedings to occur in the summer of 2000. Because of the pending nature of the litigation, exposure to the Trust from this suit cannot be quantified. However, if the plaintiffs who have interests in properties that are burdened by the Trust are successful, royalty income received by the Trust could decrease. In addition, an administrative claim was initiated on March 17, 1997 by the Mineral Management Service of the United States Department of the Interior (the "MMS") against BROG regarding a gas contract settlement dated March 1, 1990, between BROG and certain other parties thereto. The claim alleges that additional royalties are due on production from federal and Indian leases in the State of New Mexico on properties that are burdened by the Royalty. In June 1997 BROG filed its statement of reasons thereby contesting whether the royalties are payable as claimed. BROG has informed the Trust that the administrative claim is in the appeal process. If the MMS claim is successful, royalty income received by the Trust could decrease. BROG reports that the MMS and BROG have entered into settlement discussions in an attempt to settle this issue together with other take-or-pay claims made by the MMS, but there has been no indication of the likelihood of success in resolving the claim or when the negotiations are to be completed. BROG has negotiated with the State of New Mexico for a tax refund based upon a claim for reimbursement of compression costs used in calculating wellhead values. BROG has obtained the approval of the Attorney General of New Mexico of a settlement in the amount of $4,200,000. BROG has informed the Trust that its preliminary calculations indicate that the proportion of the settlement proceeds which will be attributable to the Trust is approximately $250,000. ITEM 5. OTHER In February 1999, the Trust's internal auditors notified the Trust of an apparent gas imbalance. A gas imbalance occurs where more than one party is entitled to the economic benefit of the production of natural gas, but the gas is sold for the account of less than all of the parties. The resulting imbalance may be corrected by various means including a cash settlement and/or a volume adjustment whereby an increased percentage of future production is sold for the account of the underproduced party or parties. The Trust's internal auditors suggested that the subject imbalance might relate to the acquisition by BROG's predecessor, Southland Royalty Company ("Southland Royalty"), of mineral properties which had been operated under a Joint Operating Agreement between Southland Royalty and Unicon, the seller of the properties. The Trust made inquiry of BROG concerning the imbalance and BROG agreed to investigate the records. The Trustee met with BROG representatives in June 1999 to discuss the investigation, and by correspondence of September 24, 1999, BROG reported that the imbalance probably related to problems experienced in the 1980's and early 1990's by Southland Royalty and Unicon in - 13 - 14 their dealings with Public Service Company of New Mexico. BROG reported that Unicon was flowing gas to its account while Southland Royalty was not producing and that this created a gas imbalance. The imbalance was addressed, as between Southland Royalty and Unicon, by a reduction in the total purchase price for Unicon assets acquired by Southland Royalty in June 1990. However, there was no payment made to the Trust at the time of that acquisition. BROG proposes to address the imbalance with the Trust based upon the terms of a Gas Balancing Agreement it indicates was in place between Southland Royalty and Unicon, in connection with the Joint Operating Agreement applicable to the subject properties and has offered $3,490,000 as a cash settlement. The Trust is considering the appropriateness of this proposed means of resolution and this offer and is consulting with its advisors. No assurance can be given as to when and how this issue will be resolved. 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, 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 (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 2000. - 14 - 15 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, N.A., AS TRUSTEE FOR THE SAN JUAN BASIN ROYALTY TRUST By /s/ LEE ANN ANDERSON ---------------------------- Lee Ann Anderson Vice President Date: May 15, 2000 (The Trust has no directors or executive officers.) - 15 - 16 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 FINANCIAL DATA SCHEDULE
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 MARCH 31, 2000, AND THE RELATED CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME AND CHANGES IN TRUST CORPUS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2000. 3-MOS DEC-31-2000 MAR-31-2000 2,794,650 0 0 0 0 2,794,650 133,275,528 86,409,491 46,766,756 2,794,650 0 0 0 0 43,972,106 46,766,756 0 10,101,089 0 0 212,586 0 0 9,888,503 0 9,888,503 0 0 0 9,888,503 0 0
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