-----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, GONNrmrCX4hkZ4R2HRkxSEw5vLvWLT8dL04YeyXZoeZ91npnQaQdp76NACbv9dCi otEizl6wueOxTgBBqZjg6Q== /in/edgar/work/0000950134-00-009720/0000950134-00-009720.txt : 20001115 0000950134-00-009720.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950134-00-009720 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 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: SEC FILE NUMBER: 001-08032 FILM NUMBER: 765104 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 d81954e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 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 September 30, 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 October 31, 2000: 46,608,796 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 September 30, 2000, and the distributable income and changes in trust corpus for the three-month and nine-month periods ended September 30, 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 September 30, 2000 and for the three-month and nine-month periods ended September 30, 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 September 30, 2000 and the related condensed statements of distributable income and changes in trust corpus for the three-month and nine-month periods ended September 30, 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 auditing standards generally accepted in the United States of America, 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 24, 2000, 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 October 27, 2000 -3- 4 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SAN JUAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS - --------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, ASSETS 2000 1999 (UNAUDITED) Cash and short-term investments $ 7,391,680 $ 3,862,453 Net overriding royalty interest in producing oil and gas properties (net of accumulated amortization of $91,616,394 and $88,089,329 at September 30, 2000 and December 31, 1999, respectively) 41,659,134 45,186,199 -------------- -------------- $ 49,050,814 $ 49,048,652 ============== ============== LIABILITIES AND TRUST CORPUS Distribution payable to Unit holders $ 7,391,680 $ 3,862,453 Commitments and contingencies Trust corpus - 46,608,796 Units of beneficial interest authorized and outstanding 41,659,134 45,186,199 -------------- -------------- $ 49,050,814 $ 49,048,652 ============== ==============
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) - --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- --------------------------- 2000 1999 2000 1999 Royalty income $ 19,747,200 $ 7,908,631 $ 43,432,740 $ 20,313,662 Interest income 60,985 13,147 102,587 42,876 Other 892,496 ------------ ------------ ------------ ------------ 19,808,185 7,921,778 43,535,327 21,249,034 General and administrative expenditures 156,718 156,248 802,537 747,712 ------------ ------------ ------------ ------------ Distributable income $ 19,651,467 $ 7,765,530 $ 42,732,790 $ 20,501,322 ============ ============ ============ ============ Distributable income per Unit (46,608,796 Units) $ .421626 $ .166611 $ .916840 $ .439860 ============ ============ ============ ============
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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Trust corpus, beginning of period $ 43,008,647 $ 48,340,628 $ 45,186,199 $ 51,088,020 Amortization of net overriding royalty interest (1,349,513) (1,474,591) (3,527,065) (4,221,983) Distributable income 19,651,467 7,765,530 42,732,790 20,501,322 Distributions declared (19,651,467) (7,765,530) (42,732,790) (20,501,322) ------------ ------------ ------------ ------------ Trust corpus, end of period $ 41,659,134 $ 46,866,037 $ 41,659,134 $ 46,866,037 ============ ============ ============ ============
The accompanying notes to condensed financial statements are an integral part of these statements. -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%. The Royalty income amount of $20,313,662 for the nine months ended September 30, 1999, does not include the $892,496 paid to the Trust for a one-time business interruption insurance claim. 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 $1.04 per MMBtu. To benefit from the credit, each Unit holder must determine from the tax information they receive from the Trust, their pro rata share of qualifying production of the Trust, based upon the number of Units owned during each -6- 7 month of the year, and the amount of available credit per MMbtu for the year, and then apply the tax credit against their own income tax liability, but such credit may not reduce their regular tax liability (after the foreign tax credit and certain other nonrefundable credits) below their 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 their 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). However, on July 14, 2000, the FERC issued a final ruling amending its regulations to reinstate certain regulations involving well category determinations for all wells and tight formation areas that could qualify for the Section 29 tax credit. BROG has informed the Trustee that it will seek certification of all qualified wells. Pending such certification and further developments, the availability of Section 29 tax credits to Unit holders with respect to a minor portion of the Trust's coal seam gas production could remain 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. In April and May of 2000, BROG passed through to the Trust additional charges of $652,303 in capital expenditures and $1,689,509 in lease operating charges related to the undercharged non-operated properties. The Trust's consultants have reviewed BROG's cost reporting data and confirmed that the pass through of these additional charges is appropriate. 5. SETTLEMENT OF CLAIMS RELATING TO GAS IMBALANCE In June 2000, the Trust and BROG entered into a partial settlement of claims relating to a gas imbalance with respect to production from mineral properties currently operated by BROG. Under the terms of the partial settlement BROG paid the Trust $3,490,000 to settle the imbalance insofar as it relates to some of the wells located on the subject properties. The remainder of the imbalance is to be addressed through volume adjustments whereby the Trust's net overriding royalty interest will be applied to 50% of the overproduced parties' interest, on a monthly basis, until the imbalance is -7- 8 corrected. The Trust is in communication with BROG in order to determine the estimated value of the volume adjustments and the time during which the remainder of the imbalance will be corrected. The volume adjustment commenced in August 2000 and will be monitored by the Trust's consultants. ****** -8- 9 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. -9- 10 THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999: The Trust received royalty income of $19,747,200 and interest income of $60,985 during the third quarter of 2000. After deducting administrative expenses of $156,718, distributable income for the quarter was $19,651,467 ($.421626 per Unit). In the third quarter of 1999, royalty income was $7,908,631, interest income was $13,147, administrative expenses were $156,248 and distributable income was $7,765,530 ($.166611 per Unit). The tax credit relating to production from coal seam wells totaled approximately $.05 per Unit for the third quarter of 2000 and $.04 per Unit for the third 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 third quarter of 2000 were as follows: July $.122778 August .140258 September .158590 -------- Quarter Total $.421626 ========
The royalty income distributed in the third quarter of 2000 was higher than that distributed in the third quarter of 1999, due to an increase in the average gas price from $1.84 per Mcf for the third quarter of 1999 to $3.39 per Mcf for the third quarter of 2000 as well as increased production levels of both gas and oil, and an increase in the average oil price from $15.69 per barrel for the third quarter of 1999 to $25.58 for the third quarter of 2000. Interest earnings for the quarter ended September 30, 2000, as compared to the quarter ended September 30, 1999, were higher, primarily due to an increase in funds available for investment. Administrative expenses were approximately the same in the third quarter of 2000 as compared to the same period in 1999. The capital costs attributable to the properties from which the Trust's 75% net overriding royalty ("Royalty") was carved (the "Underlying Properties") for the third quarter of 2000 were reported by BROG as $4,994,236 versus $2,720,024 for the third quarter of 1999. BROG has recently informed the Trustee that its estimated capital budget for the Underlying Properties for 2000 has been increased from $18,500,000 to $24,500,000. Approximately $14,400,000 of capital expenses have been incurred through September 30, 2000, but BROG indicates that approximately $5,000,000 of that amount related to BROG's 1999 capital budget for the Underlying Properties such that approximately $15,100,000 of the 2000 capital budget remains to be spent either this calendar year or thereafter. The projected increase is to cover the costs of (a) the drilling of six new wells on portions of the Underlying Properties not operated by Burlington; (b) multiple completions to the Dakota and Pictured Cliffs formations in wells heretofore budgeted for completion only to the Mesaverde formation; and (c) additional tubing and other facilities at existing wells, as required to maintain production in the face of an increase in pressure on the gathering system operated by Williams Field Services on which gas produced from those wells is transported. Lease operating expenses and property taxes increased to $3,153,169 for the third quarter of 2000 as compared to $2,243,776 for the third quarter of 1999. In 1999, BROG accrued $493,473 for January 1999 lease operating expenses mistakenly thought not to have been processed. This accrual was reversed in August 1999 when it was determined that the majority of such charges had in fact been processed. This reversal of charges has caused lease operating expenses for the third quarter of 1999 to appear more dramatically lower than for the same period of 2000. BROG has informed the Trustee that during the third quarter of 2000, twelve gross (8.36 net) conventional wells and one gross (0.003 net) conventional recompletion were completed on the Underlying Properties. There were 103 gross (26.24 net) conventional wells and 32 gross (5.43 net) conventional recompletions in -10- 11 progress at September 30, 2000. Four gross (2.84 net) coal seam wells and six gross (0.04 net) coal seam recavitations were completed in the third quarter of 2000. Fourteen gross (4.70 net) coal seam wells, eight gross (0.04 net) coal seam recavitations and ten gross (1.57 net) coal seam recompletions were in progress at September 30, 2000. By comparison, there were 49 gross (11.81 net) conventional wells in progress as of September 30, 1999, and there was one gross (0.05 net) coal seam well completed on the Underlying Properties during the third quarter of 1999. One gross (0.88 net) coal seam well, 19 gross (0.28 net) coal seam recavitations and five gross (1.22 net) coal seam recompletions were in progress as of September 30, 1999. "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. Royalty income for the quarter ended September 30, 2000 is associated with actual gas and oil production during May 2000 through July 2000 from the Underlying Properties. Gas and oil sales from the Underlying Properties for the quarters ended September 30, 2000 and 1999 were as follows:
2000 1999 Gas: Total sales (Mcf) 11,190,629 9,253,207 Mcf per day 121,637 100,578 Average price (per Mcf) $ 3.39 $ 1.84 Oil: Total sales (Bbls) 27,858 18,837 Bbls per day 303 205 Average price (per Bbl) $ 25.58 $ 15.69
Gas and oil sales attributable to the Royalty for the quarters ended September 30, 2000 and 1999 were as follows:
2000 1999 Gas sales (Mcf) 6,397,659 4,717,239 Oil sales (Bbls) 15,909 9,480
During the third quarter of 2000, gas prices were significantly higher than during the third quarter of 1999. Gas production also increased in 2000 as compared to 1999. The price per barrel of oil during the third quarter of 2000 was $9.89 per barrel higher than that received for the third 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. Gas sales attributable to the Royalty increased in the third quarter of 2000, as compared to the same period in 1999. All volumes of gas which are subject to the Royalty (the "Trust gas") are currently sold under a contract dated November 10, 1999 between BROG and 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. -11- 12 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. 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 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. In June 2000, the Trust and BROG entered into a partial settlement of the claims relating to the gas imbalance, under the terms of which BROG paid the Trust $3,490,000 to settle the imbalance insofar as it relates to some of the wells located on the subject properties. The remainder of the imbalance is to be addressed through volume adjustments whereby the Trust's net overriding royalty interest will be applied to 50% of the overproduced parties' interest, on a monthly basis, until the imbalance is corrected. The volume adjustment commenced in August 2000 and will be monitored by the Trust's consultants. NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999: For the nine months ended September 30, 2000 distributable income was $42,732,790 ($.916840 per Unit) which was greater than the $20,501,322 ($.439860 per Unit) of income distributed during the same period in 1999. The increase in distributable income resulted primarily from increases in gas and oil prices. The royalty income amount of $43,432,740 for the nine months ended September 30, 2000, includes $3,490,000 paid to the Trust as partial settlement of its claims relating to a gas imbalance with respect to production from mineral properties currently operated by BROG. The royalty income amount of $20,313,662 for the nine months ended September 30, 1999, does not include the $892,496 paid to the Trust for a one-time business interruption insurance claim. Interest income for the nine months ended September 30, 2000 was $102,587 compared to $42,876 during the first nine months of 1999. This increase is due to an increase in funds available for investment. General and administrative expenses increased to $802,537 from $747,712 during the 1999 period primarily due to differences in timing of the receipt and payment of these expenses. Reports received from BROG in 1999 indicated lower production for the months of June and July 1999, as compared to the prior year. Upon inquiry from the Trust, BROG responded that the apparent declines in gas production for those months did not reflect actual declines in gas productivity, but rather, were the result of prior period adjustments. BROG indicated that deficiencies in its new internal accounting system precluded it from generating actual production reports for the months of January through August, and it instead relied upon estimates based on historical production, which estimates proved high. The prior period adjustments were employed by BROG to reconcile the difference between its estimates and the actual production for the -12- 13 subject months. The Trust's consultants have reviewed data supplied by BROG in support of the prior period adjustments and have preliminarily approved them, subject to final audit. Capital expenditures incurred by BROG, attributable to the Underlying Properties, for the first nine months of 2000 amounted to $14,356,455. Capital expenditures were $7,991,065 for the first nine months of 1999. Lease operating expenses and property taxes totaled $11,289,538 for the first nine months of 2000 compared to $7,888,702 for the first nine months of 1999. In April 2000, BROG informed the Trustee that it had determined that since January of 1999, BROG had 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. In April and May of 2000, BROG passed through to the Trust additional charges of $652,303 in capital expenditures and $1,689,509 in lease operating charges related to the undercharged non-operated properties. BROG advised the Trustee that during the nine months ended September 30, 2000, 26 gross (14.34 net) conventional wells were completed on the Underlying Properties, and nine gross (3.693 net) conventional wells were recompleted. Four gross (2.84 net) coal seam wells were completed. Twenty-five gross (0.15 net) coal seam wells were recavitated and two gross (0.08 net) coal seam wells were recompleted during the first nine months of 2000. During the nine months ended September 30, 1999, 22 gross (.401 net) conventional gas wells were completed on the Underlying Properties and one gross (.05 net) coal seam well was completed. Twelve gross (.144 net) coal seam wells were recavitated during the first nine months of 1999. Royalty income for the nine months ended September 30, 2000 is associated with actual gas and oil production during November 1999 through July 2000 from the Underlying Properties. Gas and oil sales from the Underlying Properties for the nine months ended September 30, 2000 and 1999 were as follows:
2000 1999 Gas: Total sales (Mcf) 31,933,285 30,124,323 Mcf per day 116,545 110,346 Average price (per Mcf) $ 2.75 $ 1.56 Oil: Total sales (Bbls) 72,925 55,357 Bbls per day 266 203 Average price (per Bbl) $ 23.62 $ 12.69
Gas and oil sales attributable to the Royalty for the nine months ended September 30, 2000 and 1999 were as follows:
2000 1999 Gas sales (Mcf) 15,708,443 14,153,839 Oil sales (Bbls) 36,486 26,096
During the first nine months of 2000, gas and oil prices were higher than during the first nine months of 1999. 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 sales amounts from the Underlying Properties may not provide a meaningful comparison to sales attributable to the Royalty. -13- 14 CALCULATION OF ROYALTY INCOME: Royalty income received by the Trust for the three months and nine months ended September 30, 2000 and 1999, respectively, was computed as shown in the following table:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Gross proceeds of sales from the Underlying Properties : Gas proceeds $ 37,930,505 $ 17,003,534 $ 85,686,811 $ 47,093,562 Oil proceeds 712,463 296,092 1,721,467 702,209 ------------ ------------ ------------ ------------ Total 38,642,968 17,299,626 87,408,278 47,795,771 ------------ ------------ ------------ ------------ Less production costs: Severance tax - Gas 4,080,262 1,756,659 8,540,899 4,853,720 Severance tax - Oil 78,150 34,325 168,572 72,846 Lease operating expenses and property tax(a) 3,153,169 2,243,776 11,289,538 7,888,702 Capital expenditures(a) 4,994,236 2,720,024 14,356,455 7,991,065 Other 7,551 129,161 (95,445) ------------ ------------ ------------ ------------ Total 12,313,368 6,754,784 34,484,625 20,710,888 ------------ ------------ ------------ ------------ Net profits 26,329,600 10,544,842 52,923,653 27,084,883 ------------ ------------ ------------ ------------ Net overriding royalty interest 75% 75% 75% 75% ------------ ------------ ------------ ------------ Subtotal 19,747,200 7,908,631 39,692,740 20,313,662 Other(b) 3,740,000 ------------ ------------ ------------ ------------ Royalty income $ 19,747,200 $ 7,908,631 $ 43,432,740 $ 20,313,662 ============ ============ ============ ============
(a) Includes charges received from BROG during the nine months ended September 30, 2000 for capital expenditures ($652,000) and lease operating costs ($1,690,000) relating to non-operated properties not previously charged to the Trust (see Note 4 to the financial statements). (b) Represents additional revenues of $3,490,000 received in the second quarter of 2000 as settlement of a gas imbalance and a $250,000 offset to lease operating expense in the first quarter of 2000 in connection with the settlement of litigation. 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 September 30, 2000. The Trust does not market the Trust gas, oil and/or natural gas liquids. BROG is responsible for such marketing. -14- 15 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 Royalty. 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 Co., et al. 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 twice denied class certification. Discovery in this matter is closed. The defendants filed multiple motions for summary judgment and partial summary judgment. By Memorandum Opinion dated November 6, 2000, the Court granted the defendants' motions as to Counts II and III and granted partial summary judgment as to Counts I and IV. The case will proceed to trial on the issue of breach of contract as to some but not all of the leases complained of. Because the Memorandum Opinion is subject to appeal, and 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. BROG filed its statement of reasons in June 1997 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. MMS has notified BROG of underpaid royalty related to coal seam gas including inappropriate deductions for costs to separate carbon dioxide from the gas. BROG has continued to calculate and pay royalties using deductions the MMS is attempting to disallow. The Company has appealed the MMS Demand Letter dated October 28, 1996. There is a tolling agreement with the MMS while settlement negotiations are attempted. BROG is in negotiations 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, but no payment has yet been received. BROG has informed the Trust that its preliminary calculations indicate that the proportion of the settlement proceeds with will be attributable to the Trust is $263,606. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits -15- 16 (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 The Trust filed a report on Form 8-K on October 27, 2000. In the report, the Trust reported, under Item 5, that it had announced the upward adjustment of anticipated capital expense of the Trust for fiscal year ending December 31, 2000. -16- 17 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: November 14, 2000 (The Trust has no directors or executive officers.) 18 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT ------ ------- (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 d81954ex27.txt 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 SEPTEMBER 30, 2000, AND THE RELATED CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME AND CHANGES IN TRUST CORPUS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2000. 9-MOS DEC-31-2000 SEP-30-2000 7,391,680 0 0 0 0 7,391,680 133,275,528 91,616,394 49,050,814 7,391,680 0 0 0 0 41,659,134 49,050,814 0 43,535,327 0 0 802,537 0 0 42,732,790 0 42,732,790 0 0 0 42,732,790 0 0
-----END PRIVACY-ENHANCED MESSAGE-----