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CT

CROSS TIMBERS ROYALTY TRUST (CRT)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 distributable income fell sharply YoY and sequentially as gas volumes and prices weakened: distributable income was $1.49M ($0.248869/unit) vs $3.64M ($0.606533/unit) in Q1 2023 and $2.42M ($0.402814/unit) in Q4 2023, driven primarily by a 69% decline in underlying gas volumes and lower gas prices; partially offset by favorable “net excess costs” activity and lower taxes/transportation costs .
  • Net profits income declined 53% YoY to $1.84M, as the trust lapped timing-related receipts recorded in 2023 (New Mexico royalty interests) and faced natural production decline; average gas price fell 16% to $4.57/Mcf and oil price fell 6% to $75.30/Bbl .
  • Monthly distributions for the quarter totaled $0.248869 per unit (Jan: $0.115323; Feb: $0.114156; Mar: $0.019390), with March notably low as excess cost accruals increased on the Oklahoma working interest following late-2023 drilling at the Hewitt Unit .
  • No formal guidance and no earnings call were provided; sell-side consensus estimates were not available for CRT this quarter, so no beat/miss analysis is possible (S&P Global consensus unavailable) .
  • Near-term catalysts for distributions remain commodity price trajectory, timing effects (out-of-period revenue true-ups), and recovery/accumulation of excess costs on the working interest conveyances .

What Went Well and What Went Wrong

  • What Went Well

    • Favorable “net excess costs” activity partially offset weaker topline drivers, contributing a ~$0.8M positive variance YoY in Q1 2024’s bridge .
    • Taxes, transportation and other costs decreased 56% YoY on lower gas deductions and severance taxes; production expense decreased 2% YoY, offering some cost relief .
    • Quote: “XTO Energy has advised the Trustee that gas volumes increased from prior month primarily due to out of period revenues … in the Oklahoma Royalty Interest net profits interests. This contributed to a higher cash distribution in the current month.” (context for April distribution; illustrates timing tailwinds that can recur) .

  • What Went Wrong

    • Underlying gas sales volumes decreased 69% YoY, primarily due to the absence of New Mexico royalty receipts recognized in 2023 (March 2018–December 2020 production) and natural decline; average gas price fell 16% YoY to $4.57/Mcf .
    • Net profits income dropped 53% YoY to $1.84M on weaker gas volumes/prices and higher development costs; average oil price also declined 6% YoY to $75.30/Bbl .
    • Development costs rose 87% YoY due to timing of costs for late-2023 Hewitt Unit drilling (six wells), elevating the working interest burden and contributing to March’s smaller distribution .

Financial Results

Quarterly trend (oldest → newest):

MetricQ3 2023Q4 2023Q1 2024
Net Profits Income ($)$2,676,180 $2,548,233 $1,837,741
Distributable Income ($)$2,451,192 $2,416,884 $1,493,214
Distributable Income per Unit ($)$0.408532 $0.402814 $0.248869

YoY comparison – key Q1 metrics:

MetricQ1 2023Q1 2024
Net Profits Income ($)$3,912,704 $1,837,741
Distributable Income ($)$3,639,198 $1,493,214
Distributable Income per Unit ($)$0.606533 $0.248869
Underlying Oil Sales Volumes (Bbls)43,158 42,662
Underlying Gas Sales Volumes (Mcf)811,264 253,799
Average Oil Price ($/Bbl)$80.49 $75.30
Average Gas Price ($/Mcf)$5.43 $4.57

Underlying drivers – revenue and cost bridge (oldest → newest):

ItemQ1 2023 ($)Q1 2024 ($)
Oil Sales$3,474,032 $3,212,363
Gas Sales$4,403,962 $1,159,078
Total Revenues$7,877,994 $4,371,441
Taxes, Transportation & Other$1,232,816 $537,506
Production Expense$1,592,149 $1,565,161
Development Costs$593,964 $1,113,069
Excess Costs (benefit)$111,616 $(940,783)
Total Costs$3,530,545 $2,274,953
Net Proceeds$4,347,449 $2,096,488
Net Profits Income$3,912,704 $1,837,741

KPIs and distributions:

KPIQ1 2024
Monthly Distributions per UnitJan: $0.115323; Feb: $0.114156; Mar: $0.019390
Expense Reserve Balance$1,000,000
Underlying Cumulative Excess Costs (TX WI + OK WI)$4.10M underlying; $3.07M net to Trust; accrued interest $0.88M underlying; $0.66M net

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
All financial guidanceN/ANoneNoneNo formal guidance provided; royalty trust does not issue guidance

Earnings Call Themes & Trends

No earnings call or Q&A was held for Q1 2024 (CRT does not routinely host calls) .

TopicPrevious Mentions (Q3 2023 and Q4 2023)Current Period (Q1 2024)Trend
Excess costs (working interests)TX WI excess costs remained; OK WI saw recoveries in 2023; cumulative TX WI $2.4M underlying at 9/30/23 . Q4 showed net excess cost activity tailwind .TX WI excess costs +$216k; OK WI +$724k in Q1; cumulative underlying $4.1M remaining at 3/31/24 (net $3.1M) .Higher cumulative balances; timing-sensitive and a headwind for WI conveyances.
Hewitt Unit drilling/timingDecreased development costs in 2H23; fewer projects .Six Hewitt wells completed in Q4 2023 drove higher Q1 development cost timing and OK WI excess costs .Near-term cost burden elevated; fewer 2024 budgeted dev dollars .
Pricing/volume driversQ3 2023: lower prices QoQ; increased volumes on timing; YoY gas prices down . Q4: prices down; costs mixed .YoY: gas volumes -69% (timing and decline); gas price -16%; oil price -6% .Weaker gas fundamentals YoY; timing effects fading vs 2023.
Timing/out-of-period effects2023 benefitted from timing and NM receipts for prior-period gas .April PR notes out-of-period gas revenues increased distributions (illustrative of ongoing timing effects) .Timing effects persist but are episodic; not structural.

Management Commentary

  • Strategic/operational framing: “Net profits income [Q1 2024] was $1,837,741 compared to $3,912,704 for first quarter 2023. This 53 percent decrease … primarily [reflects] decreased gas production ($2.3 million), lower gas prices ($0.6 million), increased development costs ($0.4 million), lower oil prices ($0.2 million), and decreased oil production ($0.1 million), partially offset by net excess costs activity ($0.8 million), decreased taxes, transportation and other costs ($0.6 million), and decreased production expenses ($0.1 million).”
  • Operating drivers: “Gas sales volumes decreased 69 percent … primarily due to the absence of receipts for the New Mexico royalty interest … related to March 2018 to December 2020 production and natural production decline.”
  • Cost cadence: “Development costs … increased 87 percent … primarily because of the timing of the receipt of costs for drilling activity that occurred in the second half of 2023 for the Hewitt Unit.”
  • Distribution color (illustrative timing): “Gas volumes increased from prior month primarily due to out of period revenues … contributing to a higher cash distribution” (April distribution PR) .

Q&A Highlights

  • No analyst Q&A or earnings call was held for Q1 2024 .
  • March distribution PR clarified the spike in OK WI excess costs tied to six new Hewitt Unit wells completed in Q4 2023, which is helpful context for modeling subsequent months .

Estimates Context

  • Wall Street consensus EPS/revenue estimates from S&P Global were not available for CRT for Q1 2024, and CRT’s trust structure lacks conventional GAAP EPS guidance; therefore, no beat/miss analysis versus consensus is provided (S&P Global consensus unavailable) .

Key Takeaways for Investors

  • Distribution volatility remains high and is acutely sensitive to gas volumes/prices and timing effects; Q1 2024 per-unit distributions totaled $0.248869 vs $0.402814 in Q4 2023 and $0.606533 in Q1 2023 .
  • The 69% YoY decline in underlying gas volumes and 16% price decline drove most of the net profits compression; monitor San Juan Basin receipt timing and natural decline cadence .
  • Working-interest “excess costs” (TX and OK) increased to $4.10M underlying ($3.07M net), with accrued interest; continued accumulation delays contributions from WI conveyances until recovered .
  • Development cost timing from late-2023 Hewitt Unit drilling elevated Q1 costs; unit operators reported materially lower budgeted underlying development costs for 2024 ($0.2M) and 2025 ($0.3M), implying potential relief later in 2024–2025 if activity stays muted .
  • Cost tailwinds included lower taxes/transportation and slightly lower production expense YoY, partially mitigating revenue pressure .
  • No guidance and no earnings call; focus near term on monthly 8-Ks for distribution color (e.g., out-of-period revenue true-ups, excess cost moves) and the 10-Q/10-K for cumulative balance changes .
  • Medium-term thesis hinges on: commodity price recovery (especially gas), stabilization of excess costs, and timing normalization. Absent these, natural decline and lower gas price realizations can continue to pressure net profits income and distributions .

Appendix: Source Documents Reviewed

  • Q1 2024 Form 10-Q (full)
  • Monthly cash distribution 8-Ks and press releases (Jan–Jun 2024)
  • FY 2023 10-K (for Q4 2023 trend and context)
  • Q3 2023 10-Q (prior trend)