UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 20, 2015
HUGOTON ROYALTY TRUST
(Exact Name of Registrant as Specified in Its Charter)
Texas
(State or Other Jurisdiction of Incorporation)
| 1-10476 | 58-6379215 | |
| (Commission File Number) | (IRS Employer Identification No.) |
| Southwest Bank Trustee P.O. Box 962020 Fort Worth, Texas |
76162-2020 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(855) 588-7839
(Registrant’s Telephone Number, Including Area Code)
NONE
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02. | Results of Operations and Financial Condition. |
On October 20, 2015, the Registrant issued a news release announcing its monthly cash distribution to unitholders of record on October 30, 2015. A copy of the news release is furnished as Exhibit 99.1.
The information in this Current Report, including the news release attached hereto, is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities of that Section.
| Item 9.01. | Financial Statements and Exhibits. |
(c) Exhibits.
99.1 News Release dated October 20, 2015
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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 hereunto duly authorized.
| HUGOTON ROYALTY TRUST | ||||||
| By: | SOUTHWEST BANK, TRUSTEE | |||||
| Date: October 20, 2015 | By: | /s/ NANCY G. WILLIS | ||||
| Nancy G. Willis | ||||||
| Vice President | ||||||
| EXXON MOBIL CORPORATION | ||||||
| By: | /s/ BETH E. CASTEEL | |||||
| Beth E. Casteel | ||||||
| Vice President – Upstream Business Services | ||||||
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EXHIBIT INDEX
Exhibit Number and Description
99.1 News Release dated October 20, 2015
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EXHIBIT 99.1
[NEWS RELEASE LETTERHEAD OF HUGOTON ROYALTY TRUST APPEARS HERE]
HUGOTON ROYALTY TRUST
DECLARES OCTOBER CASH DISTRIBUTION
Dallas, Texas, October 20, 2015 – Southwest Bank, as Trustee of the Hugoton Royalty Trust (NYSE – HGT) (the “Trust”), today declared a cash distribution to the holders of its units of beneficial interest of $0.008643 per unit, payable on November 16, 2015, to unitholders of record on October 30, 2015. The following table shows underlying gas sales and average prices attributable to the net overriding royalty payments made by XTO Energy Inc. (XTO Energy) to the Trust for both the current month and prior month distributions. Underlying gas sales volumes attributable to the current month distribution were primarily produced in August.
| Underlying Gas Sales Volumes (Mcf) (a) |
Average Gas Price per Mcf |
|||||||||||
| Total | Daily | |||||||||||
| Current Month Distribution |
1,376,000 | 44,000 | $ | 2.93 | ||||||||
| Prior Month Distribution |
1,387,000 | 45,000 | $ | 2.50 | ||||||||
| (a) | Sales volumes are recorded in the month the trust receives the related net profits income. Because of this, sales volumes may fluctuate from month to month based on the timing of cash receipts. |
XTO Energy has advised the trustee that it has deducted budgeted development costs of $300,000, production expense of $1,941,000 and overhead of $1,072,000 in determining the royalty payment to the Trust for the current month.
Other
The current month distribution includes approximately $362,000, or $0.01 per unit, related to a purchaser payment for out of period helium production for the periods May 2014 through December 2014. The payment was split between the Oklahoma and Kansas conveyances $273,000 and $89,000 respectively.
Development Costs
XTO Energy has advised the trustee that based on the current level of actual development costs and the 2015 development budget it increased the monthly development cost deduction from $200,000
to $300,000 beginning with the September 2015 distribution and it expects it to remain at that level through the December 2015 distribution. The monthly deduction is based on the current level of development expenditures, budgeted future development costs and the cumulative actual costs under or over the previous deductions. The development cost deduction will continue to be evaluated and revised as necessary.
Gas Volumes
XTO Energy advised the trustee that repairs and maintenance beginning in first quarter 2015 at a third party gas processing system in the Hugoton area following a force majeure incident have resulted in decreased underlying gas volumes of approximately 5,000 Mcf per day. XTO Energy was advised by the third party that the repairs and maintenance were completed. However, XTO Energy has received notice that the force majeure notice is being extended to the processing portion of the third party plant due to an equipment malfunction. The third party was able to bypass the plant and take gas; however, the plant has not been able to process gas for NGLs or Helium. XTO Energy has received notice that the plant is expected to return to full capacity by the end of October 2015. XTO Energy will continue to monitor the situation and assess its options.
Excess Costs
XTO Energy has advised the trustee that a purchaser payment for out of period helium production led to the partial recovery of excess costs on the properties underlying the Kansas net profits interests. However, after the partial recovery there were no remaining proceeds from properties underlying the Kansas net profits interests to be included in the current month’s distribution.
XTO Energy has advised the trustee that lower gas prices and increased costs caused costs to exceed revenues on properties underlying the Wyoming net profits interests. However, these excess costs did not reduce net proceeds from the remaining conveyance.
Arbitration and Litigation Proceedings – Sandra Goebel
On August 12, 2013, a demand for arbitration styled Sandra G. Goebel vs. XTO Energy, Inc., Timberland Gathering & Processing Company, Inc. and Bank of America, N.A. was filed with the American Arbitration Association (“AAA”). The claimant, Sandra Goebel, is a unitholder in the Trust and alleged that XTO Energy breached the conveyances by misappropriating funds from the Trust by failing to modify its existing sales contracts with its affiliate Timberland Gathering & Processing
Company, Inc. (“Timberland”). Goebel alleged that these contracts did not currently reflect “market rate” terms, and that XTO Energy had a duty to renegotiate the contracts to obtain more favorable terms. The claimant further alleged that Bank of America, N.A. (the previous trustee) breached its fiduciary duty by acquiescing to and facilitating XTO Energy’s alleged self-dealing and concealing information from unitholders that would have revealed XTO Energy’s breaches. The claim also alleged aiding and abetting breach of fiduciary duty by XTO Energy, and disgorgement and unjust enrichment by Timberland. The claimant sought from the respondents damages of an estimated $59.6 million for alleged royalty underpayments, exemplary damages, an accounting by XTO Energy, a declaration, costs, reasonable attorneys’ fees, and pre-judgment and post-judgment interest. Goebel purported to sue on behalf of and for the benefit of the Hugoton Royalty Trust. After dismissal as non-arbitrable, Goebel refiled the matter as a lawsuit styled Sandra G. Goebel vs. XTO Energy, Inc., Timberland Gathering and Processing Company, Inc. and Bank of America, N.A. in Dallas County District Court. Defendants answered with general denials and additionally filed pleas to the jurisdiction, special exceptions, and a plea in abatement challenging, among other things, Goebel’s putative authority to bring claims on behalf of the Trust over the trustee’s objection. On November 13, 2014, the court of appeals granted Defendants’ motion seeking mandamus regarding jurisdiction and special exceptions, and stayed the lawsuit. On July 27, 2015, the court of appeals conditionally granted the petition for writ of mandamus, ordering the trial court to dismiss Goebel’s suit against XTO Energy and Timberland. The court of appeals also ordered the trial court to dismiss Goebel’s derivative claims against Bank of America. The court of appeals noted that the facts currently pleaded and alleged by Goebel would not support a claim against Bank of America under the terms of the Indenture, but ordered the trial court to allow her to re-plead non-derivative claims at her discretion. Pursuant to the court of appeals’ order, the trial court signed an order dismissing XTO and Timberland; Goebel was given 30 days to re-plead her claims in her individual capacity against Bank of America, which expired on September 23, 2015. Goebel failed to re-plead in her individual capacity or otherwise and on October 12, 2015, the trial court dismissed her claims against Bank of America with prejudice. The terms of the trust Indenture provide that Bank of America and/or the trustee shall be indemnified by the Trust and shall have no liability, other than for fraud, gross negligence or acts or omissions in bad faith as adjudicated by final non-appealable judgment of a court of competent jurisdiction.
Reserves
The trustee anticipates that the trust will incur additional legal and other expenses in connection with the Goebel lawsuit. As a result, the trustee has reserved $3.2 million from trust distributions for the Goebel litigation, from prior months’distributions.
For more information on the Trust, please visit our web site at www.hgt-hugoton.com.
Statements made in this press release regarding future events or conditions are forward looking statements. Actual future results, including development costs, the outcome of litigation, and future net profits, could differ materially due to changes in natural gas prices and other economic conditions affecting the gas industry and other factors described in Part I, Item 1A of the Trust’s Annual Report on Form 10-K for the year ended December 31, 2014.
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| Contact: | Nancy Willis Vice President Southwest Bank, Trustee 855-588-7839 |