STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
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March 31,
2019
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December 31,
2018
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(Unaudited)
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ASSETS
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Cash and short-term investments
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$
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1,725,661
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$
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1,604,884
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Net overriding royalty interest in oil and gas properties
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42,498,034
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42,498,034
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Accumulated amortization
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(40,796,461
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)
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(40,744,388
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)
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Total assets
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$
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3,427,234
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$
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3,358,530
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LIABILITIES AND TRUST CORPUS
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Distributions payable
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$
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669,300
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$
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566,518
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Trust corpus (1,863,590 units of beneficial interest authorized, issued and outstanding)
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2,757,934
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2,792,012
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Total liabilities and trust corpus
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$
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3,427,234
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$
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3,358,530
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(The accompanying notes are an integral part of these financial statements.)
2
MESA ROYALTY TRUST
STATEMENTS OF CHANGES IN TRUST CORPUS
(Unaudited)
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Three Months Ended
March 31,
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2019
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2018
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Trust corpus, beginning of period
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$
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2,792,012
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$
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3,097,932
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Distributable income
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687,295
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635,418
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Distributions to unitholders
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(669,300
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)
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(699,364
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)
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Amortization of net overriding royalty interest
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(52,073
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)
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(70,591
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)
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Trust corpus, end of period
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$
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2,757,934
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$
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2,963,395
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(The accompanying notes are an integral part of these financial statements.)
3
MESA ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1Trust Organization and Provisions
The Trust, created under the laws of the State of Texas, maintains its offices at the office of the Trustee, The Bank of New York Mellon Trust Company, N.A. (the "Trustee"), 601 Travis
Street, Floor 16, Houston, Texas 77002. The telephone number of the Trust is 713-483-6020. The Bank of New York Mellon Trust Company, N.A., is the successor Trustee from JPMorgan Chase Bank,
N.A., which is the successor by mergers to the originally named Trustee, Texas Commerce Bank National Association. The Trust has no employees. Administrative functions of the Trust are performed by
the Trustee. The Trustee maintains a website for the Trust that makes available, free of charge, filings by the Trust with the Securities and Exchange Commission ("SEC") and other information. Any
reports filed with the SEC are accessible through our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The Trust's website is
http://mtr.investorhq.businesswire.com/.
Trust Corpus Description.
The Mesa Royalty Trust (the "Trust") was created on November 1, 1979 and is now governed by the Mesa
Royalty Trust
Indenture (as amended, the "Trust Indenture"). Through a series of conveyances, assignments, and acquisitions, the Trust currently owns an overriding royalty interest (the "Royalty") equal to 11.44%
of 90% of the Net Proceeds (as defined in the Conveyance and described below) attributable to the specified interest in certain producing oil and gas properties located in
the:
-
-
Hugoton field of Kansas (the "Hugoton Royalty Properties");
-
-
San Juan Basin field of New Mexico (the "San Juan BasinNew Mexico Properties"); and
-
-
San Juan Basin field of Colorado (the "San Juan BasinColorado Properties", and together with the "San Juan BasinNew
Mexico Properties, the "San Juan Basin Royalty Properties", and together with the Hugoton Royalty Properties, the "Royalty Properties").
Trust Corpus Conveyance History.
On November 1, 1979, Mesa Petroleum Co., predecessor to Mesa Limited Partnership ("MLP"),
which was
the predecessor to MESA Inc., conveyed to the Trust the Royalty equal to 90% of the Net Proceeds (as defined in the Conveyance and described below) attributable to the specified interests in
properties conveyed by the assignor on that date (the "Subject Interests"). The Subject Interests consisted of interests in the Royalty Properties described above. The Royalty is evidenced by
counterparts of an Overriding Royalty Conveyance, dated as of November 1, 1979 (the "Conveyance"). In 1985, the Trust Indenture was amended, and the Trust conveyed to an affiliate of Mesa
Petroleum Co. 88.5571% of the original Royalty (such transfer, the "1985 Assignment"). The effect of the 1985 Assignment was an overall reduction of approximately 88.56% in the size of the
Trust. As a result, the Trust is now entitled to receive 11.44% of 90% of the Net Proceeds attributable to the Royalty Properties each month.
Hugoton Royalty Properties.
Until August 7, 1997, MESA Inc. operated the Hugoton Royalty Properties through Mesa
Operating Co.,
a wholly owned subsidiary of MESA Inc. On August 7, 1997,
4
MESA ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 1Trust Organization and Provisions (Continued)
MESA Inc.
merged with and into Pioneer Natural Resources Company ("Pioneer"), formerly a wholly owned subsidiary of MESA Inc., and Parker & Parsley Petroleum Company merged with
and into Pioneer Natural Resources USA, Inc. (successor to Mesa Operating Co.), a wholly owned subsidiary of Pioneer ("PNR") (collectively, the mergers are referred to herein as the
"Merger"). Subsequent to the Merger, the Hugoton Royalty Properties were operated by PNR until December 31, 2014, at which point Linn Energy Holdings, LLC, a subsidiary of Linn
Energy, LLC ("Old Linn") took over as operator. Pursuant to the bankruptcy proceedings and court-approved plans of reorganization involving Old Linn, which are described in detail below, Linn
Energy, Inc. (together with its subsidiaries, "Linn") became the operator of the Hugoton Royalty Properties on February 28, 2017. On April 18, 2018, Linn announced its Board of
Directors' decision to separate Linn into two stand-alone public companies. On August 7, 2018, Linn completed the spin-off of Riviera Resources, Inc. ("Riviera") through the pro rata
distribution of all of the shares of Riviera's outstanding common stock to Linn's stockholders. In connection with such distribution, Linn ceased to be the operator of the Hugoton Royalty Properties,
and since August 7, 2018, Riviera has operated the Hugoton Royalty Properties.
San Juan BasinColorado Properties.
On April 30, 1991, MLP sold to Conoco, Inc. ("ConocoPhillips") its interests in the
San
Juan Basin Royalty Properties (the "San Juan Basin Sale"). The Trust's interest in the San Juan Basin Royalty Properties was conveyed from PNR's working interest in 31,328 net producing acres in
northwestern New Mexico and southwestern Colorado. ConocoPhillips sold the portion of its interests in the San Juan BasinColorado Properties to MarkWest Energy Partners, Ltd.
(effective January 1, 1993) and Red Willow Production Company ("Red Willow") (effective April 1, 1992). On October 26, 1994, MarkWest Energy Partners, Ltd. sold
substantially all of its interest in the San Juan BasinColorado Properties to BP Amoco Company ("BP"), a subsidiary of BP p.l.c. BP and Red Willow currently operate the San Juan
BasinColorado Properties.
San Juan BasinNew Mexico Properties.
Starting from the date of the San Juan Basin Sale and ending on July 31, 2017,
ConocoPhillips operated substantially all of the San Juan BasinNew Mexico Properties, except an immaterial number of properties assigned to XTO Energy, Inc. ("XTO") effective
January 1, 2005. On July 31, 2017, ConocoPhillips sold its San Juan Basin assets to Hilcorp San Juan LP ("Hilcorp"), an affiliate of Hilcorp Energy Company. On March 29,
2018, XTO sold to Hilcorp an immaterial number of properties, which comprise certain portions of the San Juan BasinNew Mexico Properties. Hilcorp currently operates all of the San Juan
BasinNew Mexico Properties.
Following
Hilcorp's acquisition of ConocoPhillips' and XTO's interests in the San JuanNew Mexico Properties, Hilcorp has made an estimated payment of Net Proceeds to the
Trust each month consistent with the monthly amounts previously paid by ConocoPhillips and XTO. As a result of the payment of estimated Net Proceeds, Hilcorp has informed the Trust that it will
reconcile estimated versus actual revenue figures once it finalizes installation of its revenue decks, although Hilcorp has not indicated when such reconciliation may occur. At the time that Hilcorp
reconciles estimated versus
5
MESA ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 1Trust Organization and Provisions (Continued)
actual
revenue numbers, such estimations and reconciliations by Hilcorp will be added to or subtracted from future Net Proceeds paid to the Trust in accordance with the Trust's basis of financial
presentation. Pursuant to the Trust Indenture, the Trust is not required to pay to Hilcorp any amounts that could be owed if the estimated revenue exceeded actual revenue figures in past periods, plus
any additional required costs. However, Hilcorp may recover such amounts by withholding a portion or all of the Net Proceeds that would otherwise be payable to the Trust in subsequent periods. This
could result in a decrease in Net Proceeds paid to the Trust and could result in a future material reduction in distributions to the Trust's unitholders. Net Proceeds from the San Juan
BasinNew Mexico Properties for the three months ended March 31, 2019 and 2018 were $291,449 and $291,449, respectively, which revenue accounted for approximately 40% and 39%,
respectively, of the total Royalty income realized by the Trust.
As
used in this report, Riviera refers to the current operator of the Hugoton Royalty Properties, Hilcorp refers to the current operator of the San Juan BasinNew Mexico
Properties, and BP and Red Willow refer to the current co-operators of certain tracts of land included in the San Juan BasinColorado Properties, unless otherwise indicated. Riviera, BP,
Red Willow and Hilcorp are each individually referred to herein as "Working Interest Owner" or collectively as the "Working Interest Owners."
The
Royalty Properties are required to be operated by the Working Interest Owners in accordance with reasonable and prudent business judgment and good oil and gas field practices. Each
Working Interest Owner has the right to abandon any well or lease if, in its opinion, such well or lease ceases to produce or is not capable of producing oil, gas or other minerals in commercial
quantities. Each Working Interest Owner markets the production on terms deemed by it to be the best reasonably obtainable in the circumstances. See "Contracts" under Part I, Item 1 of
the Trust's Annual Report on Form 10-K for the year ended December 31, 2018. The Trustee has no power or authority to exercise any control over the operation of the Royalty Properties or
the marketing of production therefrom.
Trustee and Terms of Trust Indenture.
Effective October 2, 2006, the Trustee succeeded JP Morgan Chase Bank, N.A. as Trustee of
the Trust. The
Trust is a passive entity whose purposes are limited to: (1) converting the Royalty to cash, either by retaining it and collecting the proceeds of production (until production has ceased or the
Royalty is otherwise terminated) or by selling or otherwise disposing of the Royalties; and (2) distributing such cash, net of amounts for payments of liabilities to the Trust, to the
unitholders. The Trust has no sources of liquidity or capital resources other than the revenues, if any, attributable to the Royalties and interest on cash held by the Trustee as a reserve for
liabilities or for distribution. The terms of the Trust Indenture provide, among other things, that:
(a) the
Trust cannot engage in any business or investment activity or purchase any assets;
(b) the
Royalty can be sold in part or in total for cash upon approval by the unitholders;
6
MESA ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 1Trust Organization and Provisions (Continued)
(c) the
Trustee can establish cash reserves and borrow funds to pay liabilities of the Trust and can pledge assets of the Trust to secure payment of the borrowings;
(d) the
Trustee will make cash distributions to the unitholders in January, April, July and October each year as discussed more fully in
"
Note 2Basis of Presentation
";
(e) the
Trust will terminate upon the first to occur of the following events: (i) at such time as the Trust's royalty income for two successive years is less than
$250,000 per year or (ii) a vote by the unitholders in favor of termination. Upon termination of the Trust, the Trustee will sell for cash all the assets held in the Trust estate and make a
final distribution to unitholders of any funds remaining after all Trust liabilities have been satisfied; and
(f) Riviera,
Hilcorp, and BP will reimburse the Trust for 59.34%, 27.45% and 1.77%, respectively, for general and administrative expenses of the Trust.
Trustee's Fees.
Pursuant to the Trust Indenture, the Trust pays the Trustee fees for its services each quarter and the Working Interest
Owners
partially reimburse the Trust for the fees paid in connection with the Trustee's services. The net amount of these reimbursements is included in the general and administrative expenses of the Trust.
For the quarter ended March 31, 2019, the Trustee was due $118,750 for its services. The Trust paid $108,288 of this amount to the Trustee, and $10,462 was allocated to offset against interest
due to the Trust under the Trust Indenture. The Trust Indenture requires that cash being held by the Trustee earn interest at 1.5% below the prime rate, which would have yielded the Trust a 4.00%
annualized return from January 1, 2019 through March 31, 2019. However, due to the current interest rate environment, the Trustee was unable to obtain an account in which such an
interest rate was available. In the event such an interest rate is unavailable in the future, the Trustee intends to allocate certain of its fees due to the Trust to meet the minimum interest rate
payable under the Trust Indenture. In future periods the Trustee will continue to allocate a portion of the fees earned for its services to the Trust until all remaining interest due to the Trust is
fully offset.
The
Working Interest Owners partially reimburse the Trust each quarter for amounts paid in connection with the Trustee's services. For the quarter ended March 31, 2019, the
Trustee's fees were $108,288 and the Working Interest Owners reimbursed a sum of $95,897 to the Trustee, which was the same amount reimbursed for the quarter ended March 31, 2018.
Linn Energy, LLC Reorganization.
On May 11, 2016, Old Linn, LinnCo, LLC ("LinnCo"), an affiliate of Old Linn, and
certain of Old
Linn's direct and indirect subsidiaries (collectively with Old Linn and LinnCo, the "Debtors"), filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the Southern District of Texas (the "Court"). The Debtors' Chapter 11 cases were administered jointly under the caption
In
re Linn Energy, LLC, et al.
, Case No. 16 60040.
7
MESA ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 1Trust Organization and Provisions (Continued)
On
January 27, 2017, the Court entered the
Order Confirming (I) Amended Joint Chapter 11 Plan of Reorganization of Linn Energy, LLC
and its Debtor Affiliates Other Than Linn Acquisition Company, LLC and Berry Petroleum Company, LLC and (II) Amended Joint Chapter 11 Plan of Reorganization of Linn
Acquisition Company, LLC and Berry Petroleum Company, LLC
, which approved and confirmed the
Amended Joint Chapter 11 Plan of Reorganization of Linn Energy, LLC and Its Debtor Affiliates Other Than Linn Acquisition Company, LLC and Berry Petroleum Company, LLC (the
"Plan"). The Plan became effective on February 28, 2017 (the "Effective Date").
Pursuant
to the Plan, on the Effective Date, all assets of Old Linn (other than equity interests in Linn Acquisition Company, LLC and Berry Petroleum Company, LLC) were
conveyed to Linn Energy, Inc. (or a subsidiary thereof), and LinnCo, LLC and Linn Energy, LLC were wound down and liquidated. Subsequent to the effectiveness of the Plan, Linn
Energy, Inc. became the reorganized successor to Old Linn. Under the Plan Supplement, as amended, filed with the Court, the Debtors assumed all executory contracts and unexpired leases with the
Trust and Mesa Operating Limited Partnership as the counterparty. Furthermore, pursuant to the Plan, the royalty interests in the Hugoton Royalty Properties owned by the Trust shall be preserved and
remain in full force and effect in accordance with the terms of the granting instruments or other governing documents. On April 18, 2018, Linn announced its Board of Directors' decision to
separate Linn into two stand-alone public companies. On August 7, 2018 Linn completed the spin-off of Riviera through the pro rata distribution of all of the shares of Riviera's outstanding
common stock to Linn's stockholders. In connection with such distribution, Linn ceased to be the operator of the Hugoton Royalty Properties, and since August 7, 2018, Riviera has operated the
Hugoton Royalty Properties.
Discussion of Net Proceeds.
The Conveyance provides for a monthly computation of Net Proceeds. Net Proceeds is defined in the
Conveyance as the
"Gross Proceeds" received by the Working Interest Owners during a particular period, minus certain production and capital costs for such period. "Gross Proceeds" is defined in the Conveyance as the
amount received by the Working Interest Owners from the sale of "Subject Minerals", subject to certain adjustments. "Subject Minerals" means all oil, gas and other minerals, whether similar or
dissimilar, in and under, and which may be produced, saved and sold from, and which accrue and are attributable to, the Subject Interests from and after November 1, 1979. "Production costs"
means, generally, costs incurred on an accrual basis by the Working Interest Owners in operating the Royalty Properties, including capital and non-capital costs. If production and capital costs exceed
Gross Proceeds for any month, the excess, plus interest thereon at 120% of the prime rate of Bank of America, is recovered out of future Gross Proceeds prior to the making of further payment to the
Trust. The Trust, however, is generally not liable for any operating costs or other costs or liabilities attributable to the Royalty Properties or minerals produced therefrom. The Trust is not
obligated to return any Royalty income received in any period.
The
Working Interest Owners are required to maintain books and records sufficient to determine the amounts payable under the Royalty. Additionally, in the event of a controversy between
a Working
8
MESA ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 1Trust Organization and Provisions (Continued)
Interest
Owner and any purchaser as to the correct sales price for any production, amounts received by such Working Interest Owner and promptly deposited by it with an escrow agent are not considered
to have been received by such Working Interest Owner, and, therefore, are not subject to being payable with respect to the Royalty until the controversy is resolved; but all amounts thereafter paid to
such Working Interest Owner by the escrow agent will be considered amounts received from the sale of production. Similarly, operating costs include any amounts a Working Interest Owner is required to
pay whether as a refund, interest or penalty to any purchaser because the amount initially received by such Working Interest Owner as the sales price was in excess of that permitted by the terms of
any applicable contract, statute, regulation, order, decree or other obligation. Within 30 days following the close of each calendar quarter, the Working Interest Owners are required to deliver
to the Trustee a statement of the computation of Net Proceeds attributable to such quarter.
The
brief discussions of the Trust Indenture and the Conveyance contained herein are qualified in their entirety by reference to the Trust Indenture and the Conveyance themselves, which
are exhibits to the Trust's Annual Report on Form 10-K for the year ended December 31, 2018 and are available upon request from the Trustee.
Note 2Basis of Presentation
The accompanying unaudited financial information has been prepared by the Trustee in accordance with the instructions to Form 10-Q. The preparation of the financial statements
requires estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts
of income and expenses
during the reporting period. Actual results could differ from those estimates. The Trustee believes such information includes all the disclosures necessary to make the information presented not
misleading. The information furnished reflects all adjustments which are, in the opinion of the Trustee, necessary for a fair presentation of the results for the interim periods presented. The
financial information should be read in conjunction with the financial statements and notes thereto included in the Trust's Annual Report on Form 10-K for the year ended December 31,
2018. The Trust considers all highly liquid investments with a maturity of three months or less to be cash equivalents. Subsequent events were evaluated through the issuance date of the financial
statements.
In
accordance with the Conveyance, the Working Interest Owners are obligated to calculate and pay the Trust each month an amount equal to 11.44% of 90% of the Net Proceeds (as defined in
the Conveyance) attributable to the month.
The
financial statements of the Trust are prepared on the following basis:
(a) Royalty
income recorded for a month is the amount computed and paid by the Working Interest Owners to the Trustee for such month rather than either the value of a
portion of the oil and gas produced by the Working Interest Owners for such month or the amount subsequently determined to be the Trust's proportionate share of the net proceeds for such month;
9
MESA ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 2Basis of Presentation (Continued)
(b) Interest
income, interest receivable and distributions payable to unitholders include interest to be earned on short-term investments from the financial statement date
through the next date of distribution;
(c) Trust
general and administrative expenses, net of reimbursements, are recorded in the month they are included in the calculation of the monthly distribution amount;
(d) Amortization
of the Royalty is computed on a unit-of-production basis and is charged directly to trust corpus because such amount does not affect distributable income;
and
(e) Distributions
payable are determined on a monthly basis and are payable to unitholders of record as of the last business day of each month or such later date as the
Trustee determines is required to comply with applicable law or stock exchange requirements. However, cash distributions are made quarterly in January, April, July and October, and include interest
earned from the monthly record dates to the date of distribution.
This
basis for reporting distributable income is considered to be the most meaningful because distributions to the unitholders for a month are based on net cash receipts for such month.
However, these statements differ from financial statements prepared in accordance with accounting principles generally accepted in the United States of America because, under such principles, royalty
income for a month would be based on net proceeds from production for such month without regard to when calculated or received, general and administrative expenses would be recorded in the month they
accrue, and interest income for a month would be calculated only through the end of such month.
Note 3Legal Proceedings
There are no pending legal proceedings to which the Trust is a named party. The Trustee has been advised by the Working Interest Owners that the Trust may be subject to litigation in the
ordinary course of business for certain matters that include the Royalty Properties. While each of the Working Interest Owners has advised the Trustee that it does not currently believe any of the
pending litigation will have a material adverse effect net to the Trust, in the event such matters were adjudicated or
settled in a material amount and charges were made against Royalty income, such charges could have a material impact on future Royalty income.
Note 4Income Tax Matters
In a technical advice memorandum dated February 26, 1982, the Internal Revenue Service (the "IRS") advised the Dallas District Director that the Trust is classifiable as a grantor
trust and not as an association taxable as a corporation. As a grantor trust, the Trust incurs no federal income tax liability and each unitholder is subject to tax on the unitholder's pro rata share
of the income and expense of the Trust as if the unitholder were the direct owner of a pro rata share of the Trust's assets. In addition, there is no state tax liability for the period.
10
MESA ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 4Income Tax Matters (Continued)
U.S.
federal tax reform informally known as the Tax Cuts and Jobs Act (the "TCJA") was enacted on December 22, 2017 and made significant changes to the federal income tax rules
applicable to both individuals and entities, including changes to the effective tax rate on a unitholder's allocable share of certain income from the Trust. The TCJA is complex and some areas lack
administrative guidance. Thus, unitholders should consult their tax advisor regarding the TCJA and its effect on an investment in Trust units.
Individuals,
estates, and trusts with income above certain thresholds are subject under Section 1411 of the Code to an additional 3.8% taxalso known as the Net
Investment Income Tax ("NIIT")on their net investment income. Grantor trusts such as Mesa Royalty Trust are not subject to the NIIT; however, the unitholders may be subject to the tax.
For these purposes, investment income would generally include certain income derived from investments, such as the royalty income derived from the units and gain realized by a unitholder from a sale
of units.
The
Trustee assumes that some Trust units are held by a middleman, as such term is broadly defined in U.S. Treasury Regulations (and includes custodians, nominees, certain joint owners,
and brokers holding an interest for a custodian in street name). Therefore, the Trustee considers the Trust to be a non-mortgage widely held fixed investment trust ("WHFIT") for U.S. federal income
tax purposes. The Bank of New York Mellon Trust Company, N.A., 601 Travis Street, Floor 16, Houston, Texas 77002, telephone number 713-483-6020, is the representative of the Trust that will
provide tax information in accordance with applicable U.S. Treasury Regulations governing the information reporting requirements of the Trust as a WHFIT.
Notwithstanding
the foregoing, the middlemen holding units on behalf of unitholders, and not the Trustee of the Trust, are solely responsible for complying with the information reporting
requirements under the Treasury Regulations with respect to such units, including the issuance of IRS Forms 1099 and certain written tax statements. Unitholders whose units are held by
middlemen should consult with such middlemen regarding the information that will be reported to them by the middlemen with respect to the units.
Note 5Excess Production Costs
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As of
March 31,
2019
|
|
As of
December 31,
2018
|
|
San Juan BasinColorado PropertiesRed Willow
|
|
$
|
507
|
|
$
|
2,957
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|
San Juan BasinNew Mexico PropertiesHilcorp
|
|
|
4,741
|
|
|
4,948
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|
|
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|
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Total
|
|
$
|
5,248
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|
$
|
7,905
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11
MESA ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 5Excess Production Costs (Continued)
Excess
production costs result when costs, charges, and expenses attributable to a working interest property exceed the revenue received from the sale of oil, gas, and other hydrocarbons
produced from such property. The excess production costs must be recovered by the Working Interest Owners before any distribution of Royalty income from the properties will be made to the Trust.
Note 6Distributable Income Per Unit
During 2011, the Trustee, acting pursuant to the Trust Indenture, withheld $1.0 million for future unknown contingent liabilities and expenses (such cumulative withholding being
the "Contingent Reserve"). The Trustee reserves the right to determine whether or not to release cash reserves in future periods with respect to any reimbursement expenses. At any given time, the
Contingent Reserve is included in cash and short-term investments.
For
the three months ended March 31, 2019, the Trustee increased the Contingent Reserve by $56,793 of Royalty income received from BP in March 2019 after the distribution to
unitholders had been announced for the month of March 2019, which Royalty income was included in the April 2019 distribution to unitholders. For the three months ended March 31, 2019, the
Trustee decreased the Contingent Reserve by (1) $434 for a duplicated general and administrative expense paid in error by the Trust in February 2019 and not refunded to the Trust until April
2019 and (2) $38,364 for a cash refund of a duplicate payment from a vendor received in November 2018 and distributed to unitholders in February 2019.
As
of March 31, 2019, the value of the Contingent Reserve was $1,056,359, which is included in cash and short-term investments. The effect on distributable income per unit of
adjustments to the Contingent Reserve is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2019
|
|
2018
|
|
Distributable Income Before Reserve for Contingent Liabilities and Expenses
|
|
$
|
687,295
|
|
$
|
635,418
|
|
Increase in the Contingent Reserve
|
|
|
(56,793
|
)
|
|
(55,725
|
)
|
Withdrawal from the Contingent Reserve
|
|
|
38,798
|
|
|
119,671
|
|
|
|
|
|
|
|
|
|
Distributable income Available for Distribution
|
|
$
|
669,300
|
|
$
|
699,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable income Available for Distribution per unit
|
|
$
|
0.3591
|
|
$
|
0.3753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units outstanding
|
|
|
1,863,590
|
|
|
1,863,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12