San Juan Basin Royalty Trust

Hilcorp San Juan LP operates the majority of the trust's underlying properties after acquiring the working interest from ConocoPhillips in 2017. Other, smaller operators also manage wells on the trust's acreage. The trust itself has no operational control and cannot direct the operators on drilling decisions or development timing.

The trust holds a 75% net overriding royalty interest in natural gas and natural gas liquids production from certain leases in the San Juan Basin. An overriding royalty is carved out of the working interest and does not bear any of the costs of drilling, completing, or equipping wells. The trust receives its share of production revenue after deducting severance taxes, transportation costs, and other post-production expenses.

The trust distributes substantially all monthly income — royalty receipts less administrative expenses and any trust reserve amounts — to unit holders on a monthly basis. Distribution amounts fluctuate directly with natural gas prices and production volumes. The trust has no ability to smooth distributions or retain significant cash, so payouts are inherently volatile.

Yes, the trust represents an interest in a depleting natural resource. The trust owns no undeveloped acreage that it can independently bring into production, and it has no ability to acquire new reserves. The annual reserve reports quantify declining proved reserves and associated future cash flows, which are the primary inputs for valuing the trust over time. Distributions will eventually decline to zero absent new third-party development on the trust's existing acreage.

San Juan Basin Royalty Trust is structured as a grantor trust for federal income tax purposes. Income and deductions pass through directly to unit holders, meaning the trust itself pays no federal income tax. Unit holders receive annual tax information packages detailing their share of royalty income, depletion deductions, and other relevant tax items.

Simmons Bank serves as trustee, succeeding Southwest Bank in 2014 when Simmons acquired the institution. The trustee handles administrative functions — collecting royalty payments, maintaining records, filing SEC reports, and distributing income — but has no authority to engage in new business, restructure the trust, or alter the underlying royalty agreement. Its role is strictly ministerial.

The dominant risk is commodity price exposure, specifically to natural gas prices at regional San Juan Basin indices. Additional risks include the physical depletion of reserves without replacement, operator decisions regarding well maintenance and development timing, regulatory changes affecting methane emissions and federal land access, and the concentrated geographic footprint in a single basin in northwestern New Mexico.