-----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, TO+NFa7bdYx9oKlhTjw54hLx9IGgBwBpEG4DPLAj9Q4N9fJJNZ2+2qtFY/Jqprna eDq3TPgxdVqmYLutuZWYQg== 0000950134-99-007582.txt : 19990817 0000950134-99-007582.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950134-99-007582 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99693577 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 JUNE 30, 1999 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, 1999 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 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 13, 1999: 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, 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, 1999, and the distributable income and changes in trust corpus for the three-month and six-month periods ended June 30, 1999 and 1998 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, 1999 and for the three-month and six-month periods ended June 30, 1999 and 1998 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 June 30, 1999 and the related condensed statements of distributable income and changes in trust corpus for the three-month and six-month periods ended June 30, 1999 and 1998. 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, 1998, 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, 1998 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 July 15, 1999 -3- 4 SAN JUAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS - --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31, ASSETS 1999 1998 (UNAUDITED) Cash and short-term investments $ 1,443,736 $ 2,665,562 Net overriding royalty interest in producing oil and gas properties (net of accumulated amortization of $84,934,900 and $82,187,508 at June 30, 1999 and December 31, 1998, respectively) 48,340,628 51,088,020 ----------- ----------- $49,784,364 $53,753,582 LIABILITIES AND TRUST CORPUS Distribution payable to Unit holders $ 1,443,736 $ 2,665,562 Commitments and contingencies Trust corpus - 46,608,796 Units of beneficial interest authorized and outstanding 48,340,628 51,088,020 ----------- ----------- $49,784,364 $53,753,582 =========== ===========
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) - --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- --------------------------- 1999 1998 1999 1998 Royalty income $ 5,359,825 $ 6,678,662 $12,405,031 $18,341,793 Interest income 16,103 17,154 29,729 45,202 Other 892,496 892,496 ----------- ----------- ----------- ----------- 6,268,424 6,695,816 13,327,256 18,386,995 General and administrative expenditures 324,515 288,887 591,464 538,094 ----------- ----------- ----------- ----------- Distributable income $ 5,943,909 $ 6,406,929 $12,735,792 $17,848,901 =========== =========== =========== =========== Distributable income per Unit (46,608,796 Units) $ .127528 $ .137462 $ .273249 $ .382951 =========== =========== =========== ===========
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 SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 1999 1998 1999 1998 Trust corpus, beginning of period $ 49,714,087 $ 54,613,230 $ 51,088,020 $ 56,119,448 Amortization of net overriding royalty interest (1,373,459) (1,193,606) (2,747,392) (2,699,824) Distributable income 5,943,909 6,406,929 12,735,792 17,848,901 Distributions declared (5,943,909) (6,406,929) (12,735,792) (17,848,901) ------------ ------------ ------------ ------------ Trust corpus, end of period $ 48,340,628 $ 53,419,624 $ 48,340,628 $ 53,419,624 ============ ============ ============ ============
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 ("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 $5,359,825 for the quarter ended June 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 1998, this tax credit was $1.06 per MMBtu. For qualifying production of the Trust, each Unit holder must determine his pro rata share of such production based -6- 7 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 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 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 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 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 Item 1 Legal Proceedings concerning the status of litigation matters. ****** -7- 8 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, as amended, and Section 27A of the Securities Act of 1933, as amended. 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 "estimate," "expect," "predict," "anticipate," "goal," "should," "assume," "believe," or other words that convey the uncertainty of future events or outcomes. YEAR 2000 ISSUE Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at January 1, 2000. The Year 2000 issue affects virtually all companies and organizations. If a company or organization does not successfully address its Year 2000 issues, it may face material adverse consequences. As the Trust does not directly maintain any systems, the Trust will not incur any direct costs related to the Year 2000 issue. However, the Trust is reliant on the performance of others, including the Trustee, BROG and third-party vendors (collectively, the "suppliers") for such things as the calculation and receipt of Royalty income, payment of expenses and disbursement of distributable income. The Trustee has adopted an extensive and comprehensive testing plan to help ensure that its systems will function properly before, during and after the year 2000. The Trust has made formal inquiries of BROG and significant third party vendors, including Harris Trust and Savings Bank, the transfer agent for the Trust, to determine the extent to which the Trust is vulnerable to failure by BROG or such other third parties to remediate their own Year 2000 issues. The Trust is aware that BROG has assessed its information technology for Year 2000 issues. BROG's Year 2000 readiness plan involves four phases: assessment, remediation, testing and implementation. BROG has completed all four phases for all of its significant information technology. BROG has reported that while its assessment confirmed that information technology exposures were not material, assets used in producing, gathering and transporting hydrocarbons were determined to be at risk of encountering Year 2000 problems. BROG further reports that it has completed the remediation, testing and implementation phases for such operating equipment with the goal of ensuring that all critical operating equipment under its control remains operational. BROG has contacted all of its third-party vendors that it considers material to its operations. All such vendors have responded that they believe that Year 2000 issues will not have a material adverse effect on their operations. BROG has surveyed the operators of its three primary gathering and pipeline systems in the San Juan Basin, including the operators that transport the gas gathered from the Underlying Properties. BROG and other major producers in the San Juan Basin have developed contingency plans to deal with unforeseen failures to information technology with respect to these gathering and pipeline systems. The Trust can provide no assurance as to whether BROG and third party vendors will successfully address the Year 2000 issue. Failing to successfully address the Year 2000 issue by BROG and third party vendors could have a material adverse impact on the Trust and its Unit holders. At this time, the Trust believes the most adverse impact as a result of the suppliers' failure to successfully address the Year 2000 issue is that the Trust would not receive, and in turn would not be able to distribute, royalty income to the Unit holders. -8- 9 THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998: The Trust received royalty income of $5,359,825 and interest income of $16,103 during the second quarter of 1999. The Royalty Income amount of $5,359,825 for the quarter ended June 30, 1999, does not include the $892,496 paid to the Trust for a one-time business interruption insurance claim. After deducting administrative expenses of $324,515 distributable income for the quarter was $5,943,909 ($.127528 per Unit). In the second quarter of 1998, royalty income was $6,678,662, interest income was $17,154, administrative expenses were $288,887 and distributable income was $6,406,929 ($.137462 per Unit). The tax credit relating to production from coal seam wells totaled approximately $.03 per Unit for the second quarter of 1999 and $.04 per Unit for the second quarter of 1998. For further information concerning this tax credit, Unit holders should refer to the Trust's Annual Report for 1998. Based on 46,608,796 Units outstanding, the per Unit distributions during the second quarter of 1999 were as follows:
April $.060846 May .035706 June .030976 -------- Quarter Total $.127528 ========
The royalty income distributed in the second quarter of 1999 was lower than that distributed in the second quarter of 1998, primarily due to a decrease in the average gas price from $1.70 per Mcf for the second quarter of 1998 to $1.34 per Mcf for the second quarter of 1999, partially offset by a decrease in capital costs during the second quarter of 1999. Interest earnings for the quarter ended June 30, 1999, as compared to the quarter ended June 30, 1998, were lower, primarily due to decreased funds available for investment. Administrative expenses were higher 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 second quarter of 1999 were reported by BROG as $2,687,005 versus $4,040,043 for the second quarter of 1998. BROG indicates that the majority of the decrease in capital expenditures is attributable to the timing of payment of invoices related to the 1999 infill program and a greater cost bearing interest associated with 1998 capital workovers compared to 1999. Lease operating expenses and property taxes increased to $3,159,960 for the second quarter of 1999 as compared to $2,857,822 for the second quarter of 1998 due to the first delivery of infill wells from the 1998 capital program. BROG has informed the Trustee that during the second quarter of 1999, 17 gross (.30 net) conventional wells were completed on the Underlying Properties. There were 66 gross (14.28 net) conventional wells and eight gross (1.45 net) recompletions in progress at June 30, 1999. Seven gross (.048 net) coal seam recavitations were completed and 14 gross (.27 net) coal seam recavitations were in progress in the second quarter of 1999. Three gross (1.42 net) coal seam wells and one gross (.108 net) coal seam recompletion were in progress at June 30, 1999. By comparison, five gross (3.36 net) conventional wells were completed on the Underlying Properties during the second quarter of 1998. There was one gross (.04 net) coal seam and 27 gross (5.71 net) conventional wells in progress at June 30, 1998. Six gross (4.30 net) conventional wells were recompleted and nine gross (.36 net) coal seam well recavitations were completed on the Underlying Properties in the second quarter of 1998. Five gross (1.57 net) conventional well recompletions, five gross (.22 net) coal seam recompletions and 12 gross (1.31 net) coal seam recavitations were in progress at June 30, 1998. -9- 10 Royalty income for the quarter ended June 30, 1999 is associated with actual gas and oil production during February 1999 through April 1999 from the Underlying Properties. Gas and oil sales from the Underlying Properties for the quarters ended June 30, 1999 and 1998 were as follows:
1999 1998 Gas: Total sales (Mcf) 10,533,677 10,166,912 Mcf per day 118,356 114,235 Average price (per Mcf) $ 1.34 $ 1.70 Oil: Total sales (Bbls) 18,074 24,744 Bbls per day 203 278 Average price (per Bbl) $ 12.65 $ 13.22
Gas and oil sales attributable to the Royalty for the quarters ended June 30, 1999 and 1998 were as follows:
1999 1998 Gas sales (Mcf) 4,393,718 4,287,827 Oil sales (Bbls) 7,598 10,375
During the second quarter of 1999, gas prices were lower than during the second quarter of 1998. Gas production increased slightly in 1999 as compared to 1998. The price per barrel of oil during the second quarter of 1999 was $.57 per bbl lower than that received for the second quarter of 1998 due to decreases in oil prices in world markets generally including the posted prices applicable to oil sales attributable to the Royalty. 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. Effective January 1, 1998, all volumes of Trust gas became subject to the terms of a Natural Gas Sales and Purchase Contract between BROG and El Paso Energy Marketing Company ("El Paso"). That contract is for a term of two years through and including December 31, 1999, and provides for the sale of Trust gas at prices which will fluctuate in accordance with published indices for gas sold in the San Juan Basin of New Mexico. BROG entered into the contract with El Paso after soliciting and receiving competitive bids in late 1997 from six major gas marketing firms to market and/or purchase the Trust gas. BROG has distributed requests for proposals to 19 gas marketing firms as part of the process of putting a successor contract in place for marketing the Trust gas commencing January 1, 2000. Unit holders are referred to Note 6 of the Notes to Financial Statements in the Trust's 1998 Annual Report for further information concerning the marketing of gas produced from the Underlying Properties. SIX MONTHS ENDED JUNE 30, 1999 AND 1998: For the six months ended June 30, 1999 distributable income was $12,735,792 ($.273249 per Unit) which was less than the $17,848,901 ($.382951 per Unit) of income distributed during the same period in 1998. The decrease resulted primarily from decreases in gas and oil prices, partially offset by the one-time insurance proceeds. Interest income for the six months ended June 30, 1999 was $29,729 compared to $45,202 during the first six months of 1998. This decrease is due to a decrease in funds available for -10- 11 investment. General and administrative expenses increased to $591,464 from $538,094 during the 1998 period primarily due to differences in timing of the receipt and payment of these expenses. Capital expenditures incurred by BROG, attributable to the Underlying Properties, for the first six months of 1999 amounted to $4,960,206. Capital expenditures were $6,303,086 for the first six months of 1998. Lease operating expenses and property taxes totaled $5,955,762 for the first six months of 1999 compared to $5,803,562 for the first six months of 1998. BROG advised the Trustee that during the six months ended June 30, 1999, 22 gross (.401 net) conventional wells were completed on the Underlying Properties. One gross (.65 net) conventional well was completed. Twelve gross (.144 net) coal seam wells were recavitated during the first six months of 1999. During the six months ended June 30, 1998, nine gross (5.09 net) conventional gas wells were completed on the Underlying Properties. Eight gross (6.05 net) conventional wells were recompleted. Eighteen gross (.73 net) coal seam wells were recavitated during the first six months of 1998. Royalty income for the six months ended June 30, 1999 is associated with actual gas and oil production during November 1998 through April 1999 from the Underlying Properties. Gas and oil sales from the Underlying Properties for the six months ended June 30, 1999 and 1998 were as follows:
1999 1998 Gas: Total sales (Mcf) 20,871,116 21,128,372 Mcf per day 115,310 116,731 Average price (per Mcf) $ 1.44 $ 1.90 Oil: Total sales (Bbls) 36,520 45,216 Bbls per day 202 250 Average price (per Bbl) $ 11.12 $ 14.53
Gas and oil sales attributable to the Royalty for the six months ended June 30, 1999 and 1998 were as follows:
1999 1998 Gas sales (Mcf) 9,436,600 10,456,760 Oil sales (Bbls) 16,616 21,935
During the first six months of 1999, gas and oil prices were lower than during the first six months of 1998. 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. -11- 12 CALCULATION OF ROYALTY INCOME: Royalty income received by the Trust for the three months and six months ended June 30, 1999 and 1998, respectively, was computed as shown in the following table:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------------------- ------------------------------ 1999 1998 1999 1998 Gross proceeds of sales from the Underlying Properties: Gas proceeds $ 14,138,802 $ 17,283,052 $ 30,090,028 $ 40,077,044 Oil proceeds 228,556 327,151 406,116 656,830 ------------ ------------ ------------ ------------ Total 14,367,358 17,610,203 30,496,144 40,733,874 ------------ ------------ ------------ ------------ Less production costs: Severance tax - Gas 1,448,732 1,772,144 3,097,060 4,096,889 Severance tax - Oil 20,674 35,311 38,522 74,613 Lease operating expenses and property tax 2,849,124 2,857,822 5,644,926 5,803,562 Capital expenditures 2,997,840 4,040,043 5,271,041 6,303,086 Other (95,445) (95,445) ------------ ------------ ------------ ------------ Total 7,220,925 8,705,320 13,956,104 16,278,150 ------------ ------------ ------------ ------------ Net profits 7,146,433 8,904,883 16,540,040 24,455,724 ------------ ------------ ------------ ------------ Net overriding royalty interest 75% 75% 75% 75% ------------ ------------ ------------ ------------ Royalty income $ 5,359,825 $ 6,678,662 $ 12,405,031 $ 18,341,793 ============ ============ ============ ============
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 June 30, 1999. 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 has been commenced 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 said to be near conclusion, and BROG anticipates summary judgement proceedings to occur in the fall of 1999. 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, the Trust is aware of an administrative claim brought 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 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 not informed the Trust of the proportion of the settlement proceeds, which will be attributable to the Trust. 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, 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 -13- 14 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, 1999. -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: August 13, 1999 (The Trust has no directors or executive officers.) -15- 16 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 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 JUNE 30, 1999, AND THE RELATED CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME AND CHANGES IN TRUST CORPUS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999. 6-MOS DEC-31-1999 JUN-30-1999 1,443,736 0 0 0 0 1,443,736 133,275,528 84,934,900 49,784,364 1,443,736 0 0 0 0 48,340,628 49,784,364 0 13,327,256 0 0 591,464 0 0 12,735,792 0 12,735,792 0 0 0 12,735,792 0 0
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