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SJ

SAN JUAN BASIN ROYALTY TRUST (SJT)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 distributable income fell 88.6% year over year to $4.09M ($0.087806 per unit), driven by a sharp decline in realized natural gas prices to $3.19/Mcf and higher lease operating expenses and capex .
  • Royalty income dropped to $5.09M from $36.42M in Q1 2023 as total gross proceeds fell ~70.7% to $18.23M and net profits margin compressed to ~37% from ~78% .
  • Hilcorp’s 2024 capital plan was raised materially vs 2023 and subsequently trimmed from $36.0M to $34.0M; the Trustee began increasing cash reserves toward $2.0M to buffer lower commodity prices and higher costs .
  • Post-quarter distributions were suspended for May and June due to excess production costs and further price weakness (March and April average gas prices of $1.50 and $1.24 per Mcf), a key near-term stock reaction catalyst for income-focused holders .

What Went Well and What Went Wrong

  • What Went Well
    • Project pipeline positioned for production support: Hilcorp planned two Mancos drilling projects and 36 recompletions/workovers in Mesaverde/Fruitland Coal, plus compression facilities work .
    • Operational continuity: no changes to sales, gathering, and processing contracts in Q1 2024, maintaining market-sensitive arrangements .
    • Legal overhang removed: the Trust was nonsuited and released from a March 2024 personal injury lawsuit, eliminating potential distraction .
  • What Went Wrong
    • Pricing collapse drove income compression: average gas price fell to $3.19/Mcf in Q1 vs $10.53/Mcf a year ago, cutting gross proceeds and royalty income sharply .
    • Cost headwinds intensified: lease operating expense/property tax rose 18.4% YoY to $8.03M, and capex surged to ~$0.99M vs ~$0.03M in Q1 2023, compressing net profits .
    • Distributions at risk: excess production costs and lower prices led to no distributions in May and June, and reserves are being used/replenished to sustain trust expenses .

Financial Results

MetricQ1 2023Q2 2023Q3 2023Q1 2024
Royalty Income ($USD)$36,416,704 $8,519,333 $4,320,039 $5,091,060
Distributable Income ($USD)$35,971,276 $8,087,503 $3,947,050 $4,092,544
Distributable Income per Unit ($)$0.771771 $0.173518 $0.084685 $0.087806
Total Gross Proceeds ($USD)$62,252,238 $21,320,395 $14,676,845 $18,230,985
Net Profits ($USD)$48,555,605 $11,359,110 $5,760,052 $6,788,080
Severance Taxes (% of Gross Proceeds)11.05% 12.00% 13.30% 13.29%
Net Profits Margin (%)78.0% (48,555,605/62,252,238) 53.3% (11,359,110/21,320,395) 39.2% (5,760,052/14,676,845) 37.2% (6,788,080/18,230,985)
Avg Gas Price ($/Mcf)$10.53 $3.69 $2.04 $3.19

Segment breakdown: Not applicable—single royalty interest asset .

KPIs

KPIQ1 2023Q1 2024
Natural Gas Production – Subject Interests (Mcf)5,863,499 5,595,016
Natural Gas Production – Royalty (Mcf)3,702,362 1,726,619
Avg Gas Price ($/Mcf)$10.53 $3.19
Lease Operating Expense + Property Tax ($USD)$6,784,844 $8,029,832
Capital Expenditures ($USD)$33,660 $990,794
Severance Taxes – Gas ($USD)$6,834,673 $2,376,679
Severance Taxes – Oil ($USD)$43,456 $45,600
Distributable Income ($USD)$35,971,276 $4,092,544
Distributable Income per Unit ($)$0.771771 $0.087806

Monthly per-unit distributions (trend)

PeriodPer Unit
Jan 2024 (paid Feb 14)$0.016270
Feb 2024 (paid Mar 14)$0.030258
Mar 2024 (paid Apr 12)$0.041278
Apr 2024 (paid May 14)$0.022864

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Hilcorp Capital Expenditures (Subject Interests)FY 2024$36.0M $34.0M (revised Mar 6, 2024) Lowered
Trustee Cash Reserves Target2024$1.0M baseline Increase to $2.0M; $1.4M at Mar 31; $1.8M at Apr 30 Raised
Monthly Distribution StatusMay 2024Distributions ongoingNo distribution (excess production costs, low prices) Lowered
Monthly Distribution StatusJune 2024Distributions ongoingNo distribution (excess production costs, low prices) Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2023 and Q3 2023)Current Period (Q1 2024)Trend
Natural gas pricingQ2: $3.69/Mcf; Q3: $2.04/Mcf; lower prices flagged as primary driver of lower royalty income Q1: $3.19/Mcf; Trustee: “sharp decline in natural gas prices” drove DI down 88.6% Deteriorated YoY; modest sequential uptick vs Q3
Capital expenditures2023 plan ~$4.4M focused on recompletions/workovers 2024 plan increased materially: $36.0M, revised to $34.0M; $25.0M Mancos drilling, $8.0M recompletions/workovers, $1.0M compression Material step-up vs 2023 (then modest trim)
Cash reserves policyMaintained $1.0M in 2023 Plan to raise to $2.0M; $1.4M at Mar 31; $1.8M at Apr 30 Increasing to buffer volatility
Audit/compliance oversightOngoing audits of Hilcorp reporting; 2017–2020 settlement of $1,037,093 paid Sep 2023 Continued audits; detailed analyses of pricing/rates; ongoing consultant and counsel reviews Ongoing; governance emphasis persistent
Legal/regulatoryNo material proceedings; note on federal land withdrawal not impacting assets Non-suit granted Mar 27, 2024, releasing Trust from personal injury litigation Resolved favorably
Distribution trajectoryQ2/Q3 2023: distributions continued albeit lower; per-unit $0.1735 (Q2), $0.0847 (Q3) April distribution declared; May and June no distributions due to excess costs/low prices Negative into Q2 2024

Management Commentary

  • “Distributable Income decreased approximately 88.62%… primarily attributable to a sharp decline in natural gas prices.”
  • “Hilcorp… will allocate approximately $25.0 million… toward two drilling projects in the Mancos formation… $8.0 million… to 36 well recompletions and workovers… and approximately $1.0 million… to natural gas compression.”
  • “The Trustee… is increasing the cash reserves… to $2.0 million. The Trustee reserved $400,000… in March and April 2024.”
  • “There were no changes to the contracts pursuant to which Hilcorp sells production… and for the gathering and processing of production during the three months ended March 31, 2024.”
  • “Royalty Income for the three months ended March 31, 2024… lower than… 2023 due primarily to a large decline in natural gas prices. The average natural gas price decreased from $10.53 per Mcf… to $3.19 per Mcf.”

Q&A Highlights

  • No earnings call or Q&A was held; the Trust communicates via filings and monthly 8-K press releases [ListDocuments result shows no earnings-call-transcript].
  • Clarifications from filings:
    • Capex plan revision: $36.0M to $34.0M for 2024, with explicit project allocations and caveat that actuals may vary .
    • Cash reserve strategy: building to $2.0M to cover expenses amid revenue shortfalls .
    • Distribution outlook: April paid; May/June suspended due to excess production costs and lower realized pricing (March $1.50/Mcf; April $1.24/Mcf) .
    • Audit posture and contract status: ongoing audits; no changes in marketing/gathering contracts .

Estimates Context

  • Wall Street consensus (S&P Global) for quarterly EPS and revenue was unavailable for SJT; our attempts to retrieve Q1 2024 estimates returned an SPGI rate-limit error, and the Trust generally lacks formal analyst coverage—comparisons are anchored on filed results [GetEstimates errors noted].

Key Takeaways for Investors

  • Income compression is primarily price-driven: average gas price fell to $3.19/Mcf, pushing DI per unit down to $0.087806; sensitivity to gas price remains the dominant driver of distributions .
  • Cost and capex intensity elevated: LOE/property tax rose to $8.03M and capex to ~$0.99M, materially reducing net profits margin to ~37% despite some sequential resilience vs late 2023 .
  • Capex plan supports asset base but near-term cash flow burden is high: 2024 plan ($34.0M) emphasizes Mancos drilling and recompletions that could bolster volumes later, but near-term distributions are at risk while costs flow through .
  • Liquidity prudence: Trustee is building cash reserves to $2.0M to ensure stability in periods of revenue shortfall, a defensive posture implying cautious near-term distributions .
  • Distribution signaling turned negative post-quarter: no distributions for May and June due to excess production costs and further price weakness—expect heightened dividend volatility in 2Q .
  • Governance and oversight improved: continued auditing and prior settlement recovery underscore active Trustee monitoring of operator reporting and costs .
  • Legal risk minimal this quarter: Trust was released from a personal injury case via non-suit, removing potential distraction .