CHESAPEAKE GRANITE WASH TRUST (CHKR)·Q4 2019 Earnings Summary

Executive Summary

• CHKR declared a Q4 2019 distribution of $0.0371 per common unit, with distributable income of $1.733M for production from September 1–November 30, 2019 .
• Sequentially, the distribution was modestly below Q3 2019 ($0.0374), while “revenue less production taxes” increased to $2.180M vs. $1.805M in Q3, driven by higher realized natural gas prices; however, higher administrative expenses and cash reserve withholding weighed on distributable income .
• Year-over-year, the distribution was lower vs. Q4 2018 ($0.0631), reflecting weaker commodity prices and lower volumes (147 mboe in Q4 2019 vs. 179 mboe in Q4 2018), particularly NGL pricing .
• The Trustee maintained the quarterly cash reserve withholding policy ($70,000 per quarter or 3.5% of funds), which continues to be a key factor shaping distributable cash to unitholders .

What Went Well and What Went Wrong

What Went Well

• Revenue less production taxes improved sequentially to $2.180M vs. $1.805M in Q3 2019, supported by higher realized natural gas prices of $0.81/mcf vs. $0.55/mcf in Q3 .
• The Trust reiterated the mechanics and timing of royalty cash flows, providing clarity on distribution timing and underlying production attribution, which aids investor modeling: “quarterly distributions generally include royalties… for three months, including the first two months of the quarter just ended and the last month of the prior quarter” .
• The reserve policy remains consistent and transparent ($70,000 each quarter or 3.5% of funds until ~$850,000 is built), offering predictability around retained cash impacting near-term distributions .

What Went Wrong

• Year-over-year distribution declined to $0.0371 from $0.0631 in Q4 2018 amid lower realized commodity prices (oil $51.06/bbl vs. $61.22/bbl; NGL $14.17/bbl vs. $23.02/bbl; gas $0.81/mcf vs. $1.09/mcf) and reduced total oil equivalent volumes (147 mboe vs. 179 mboe) .
• Q4 administrative expenses were a headwind at $377k (subtracted in the distributable cash computation), offsetting higher revenue less production taxes and compressing distributable income to $1.733M .
• Volumes trended down sequentially (147 mboe vs. 157 mboe in Q3) and vs. prior year, limiting distribution capacity even with favorable gas price movements .

Financial Results

YoY comparison (Q4 2018 vs. Q4 2019):

Notes:

• Administrative expenses can be negative or positive across periods due to cash advance timing; Q3 2019 specifically noted the phenomenon: “Negative administrative expenses are primarily due to the cash advance in the prior quarter…” .
• The reserve withholding was consistently $70k per quarter, as disclosed .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Distribution declared: “DISTRIBUTION OF $0.0371 PER COMMON UNIT… paid on March 2, 2020 to common unitholders of record on February 19, 2020” .
• Distribution timing mechanics: “Quarterly distributions generally include royalties attributable to sales of oil, natural gas liquids and natural gas for three months…” .
• Reserve policy: “Commencing with the distribution… the Trustee intends to begin withholding the greater of $70,000 or 3.5%… to gradually increase existing cash reserves by a total of approximately $850,000” .
• On admin expenses variability (prior quarter context): “Negative administrative expenses are primarily due to the cash advance in the prior quarter exceeding actual expenses incurred” .
• Prior-year context on weaker fundamentals: “During the three-month production period ended November 30, 2018, sales volumes and realized prices were both lower than initial Trust estimates” .

Q&A Highlights

• The Trust did not provide an earnings call transcript for Q4 2019; no management Q&A is available in the document set for this period.

Estimates Context

• Wall Street consensus (S&P Global) for CHKR Q4 2019 EPS and revenue was unavailable; as a royalty trust, CHKR typically has limited analyst coverage for quarterly EPS/revenue. No estimate comparison can be provided for this quarter.

Key Takeaways for Investors

• Distribution remains subdued at $0.0371 per unit, pressured by lower volumes and YoY weaker commodity prices; sequential improvement in revenue less production taxes was offset by higher administrative expenses and reserve withholding .
• Gas price strength supported Q4 revenue less production taxes vs. Q3 ($2.180M vs. $1.805M), but oil/NGL realizations and reduced volumes constrained distributable income .
• The reserve build policy remains a structural headwind to near-term cash distributions; expect continued $70k quarterly withholdings until ~$850k is reached .
• With no formal guidance or call, investor focus should be on realized pricing trends and volume trajectory, which directly drive the next distribution .
• Year-over-year comparisons highlight sensitivity to commodity prices (notably NGL and oil) and production volumes; distribution capacity is likely to track these fundamentals closely .
• Administrative expense variability can cause quarter-to-quarter noise; monitor disclosures for any cash advance impacts that may create positive or negative adjustments .
• Near-term trading may be driven by commodity price moves (especially gas) and upcoming distribution announcements; medium-term thesis hinges on sustained volume stability and pricing recovery to lift distributable income .