HUGOTON ROYALTY TRUST (HGTXU)·Q3 2024 Earnings Summary

Executive Summary

• Q3 2024 distributable income was $0 and distributions per unit remained $0.000000, as all three state conveyances stayed in excess cost positions. The Trustee used $166,945 of the cash reserve to pay expenses in the quarter .
• Underlying revenues decreased 8% year over year to $9.02M on weaker natural gas pricing (gas $2.40/Mcf, down 14% YoY), while production expense rose 45%, keeping net profits income at $0 for the quarter .
• Liquidity risk escalated: the Trustee reiterated substantial doubt about the Trust’s ability to continue as a going concern and is evaluating alternatives including termination or sale of the Trust’s net profits interests; financing is viewed as unlikely .
• Arbitration with XTO was settled in June: an $830,381 balance (net to Trust) was recorded as a production cost in Q3, and a $500,000 advance distribution (received in Q2) was used to replenish the expense reserve; cumulative excess costs net to the Trust grew to $8.42M at 9/30/24 .

What Went Well and What Went Wrong

• What Went Well

  • Oil volumes rose 12% YoY (51,512 Bbl vs. 45,936 Bbl) and oil prices improved 5% YoY to $75.84/Bbl, reflecting contributions from new non-operated wells in Major County, Oklahoma .
  • Development costs fell 93% YoY in Q3 (to $469,797 from $6,695,562), moderating cash outflows versus last year’s drilling cadence on the four non-operated wells .
  • The arbitration settlement provided structural clarity and included a one-time $500,000 advance distribution to stabilize the expense reserve, partially mitigating near-term liquidity pressure .

• What Went Wrong

  • Gas pricing remained a major headwind: average gas price declined to $2.40/Mcf in Q3 (down 14% YoY), driving an 8% YoY decline in underlying total revenues to $9.02M and keeping net profits income at $0 .
  • Production expense rose 45% YoY to $6.23M, driven by settlement effects and higher operating costs, offsetting benefits from lower development spend and better oil metrics .
  • Excess costs increased across conveyances; cumulative balances net to the Trust reached $8.42M at quarter end, leaving no proceeds for distributions and intensifying going concern risk .

Financial Results

Monthly distributions in Q3:

Cash reserve trend:

Segment Breakdown (Excess Costs by Conveyance, Net to Trust)

Q3 press-release detail snapshots (underlying volumes/prices, indicative of July–September production timing):

Guidance Changes

Earnings Call Themes & Trends

No earnings call transcript was published for Q3 2024; the Trust communicates via 10‑Q and monthly press releases [ListDocuments returned none for earnings-call-transcript].

Management Commentary

• “These conditions raise substantial doubt about the Trust’s ability to continue as a going concern… the Trustee intends to review options for the Trust which may include alternatives to continuing as a going concern such as seeking to terminate the Trust or marketing the Trust's interest… for a potential sale.”
• “For the quarter ended September 30, 2024, net profits income was $0… After adding interest income of $4,710, deducting administration expense of $171,655, and utilizing $166,945 of the cash reserve… distributable income… was $0 or $0.000000 per unit.”
• “Pursuant to the Settlement Agreement… leaving a balance… $830,381 (net to the Trust), which balance shall be treated as a production cost under the Oklahoma conveyance… XTO Energy will provide the Trust a one-time advance distribution of $500,000…”
• Monthly releases reiterated: “no cash distribution… due to the excess cost positions on all three of the Trust’s conveyances of net profits interests… the Trustee anticipates replenishing the cash reserve prior to declaring any future distributions” .

Q&A Highlights

No Q3 2024 earnings call was held; therefore no analyst Q&A or guidance clarifications are available [ListDocuments returned none for earnings-call-transcript].

Estimates Context

Wall Street consensus (S&P Global) for Q3 2024 EPS/revenue was unavailable for this Royalty Trust in this session; no estimate comparison is provided. The Trust does not report GAAP EPS and relies on net profits/distributable income mechanics .

Key Takeaways for Investors

• Distributions remain suspended; cumulative excess costs net to the Trust rose to $8.42M at 9/30/24, keeping net profits income at $0 and distributions at $0.000000 per unit .
• Liquidity risk is acute: the Trustee highlights substantial doubt about going concern and is exploring strategic alternatives (termination or sale); financing is deemed unlikely, increasing binary outcome risk for units .
• Commodity sensitivity is high: gas remains the primary swing factor; sustained recovery in gas prices and/or further operational cost reductions are prerequisites to excess cost recovery and potential resumption of distributions .
• Operationally, oil provided a modest offset (higher volumes and price), and development costs tapered sharply YoY in Q3, but elevated production expense (settlement-related and operating) overwhelmed positives .
• Settlement with XTO is implemented: $830,381 production cost hit recorded in Q3 and $500,000 reserve advance received; future recoupment is constrained by a $250,000 minimum cash threshold, stabilizing near-term operations .
• Near-term trading implications: headlines around strategic review, monthly “no distribution” releases, and gas price volatility are likely primary catalysts; position sizing should reflect binary risk and illiquidity of OTCQB trading .
• Medium-term thesis: watch cumulative excess cost trajectory by conveyance and gas price path; evidence of sustained excess cost recoveries (especially in Oklahoma/Wyoming) would be the first step toward restoring net profits income and distributions .