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SJ

SAN JUAN BASIN ROYALTY TRUST (SJT)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 was severely impacted by low realized natural gas prices and elevated production costs, driving Royalty Income down to $1.85M and Distributable Income to $1.07M ($0.022864 per Unit); only April paid a distribution, with no distributions for May/June due to excess production costs .
  • Hilcorp recorded cumulative excess production costs of $1.66M gross ($1.24M net to the Trust) for the quarter, which must be recovered before future distributions; capital expenditures rose sharply under the 2024 plan ($829,872 in Q2; full-year plan $34.0M) .
  • Gross Proceeds fell to $11.27M (from $21.32M in Q2 2023) while Production Costs reached $10.45M; average realized gas price in Q2 was $1.92/Mcf (vs $3.69/Mcf in Q2 2023) .
  • The Trustee increased cash reserves (targeting $2.0M) and reiterated that no distributions will be made until net proceeds are sufficient to pay liabilities and replenish reserves, a key stock narrative catalyst tied to commodity pricing and capex cadence normalization .

What Went Well and What Went Wrong

  • What Went Well

    • Early Q2 distribution paid (April), with Distributable Income per Unit of $0.022864 for the quarter, reflecting February production before costs spiked .
    • Operational activity progressing: seven workovers completed YTD, two new wells in progress, six workovers in progress, supporting future volumes once pricing and cost headwinds ease .
    • Management oversight continues: “The Trustee continues to engage with Hilcorp... and the Trust’s third-party compliance auditors continue to audit payments... including sales revenues, production costs, capital expenditures…” .

  • What Went Wrong

    • No distributions in May and June owing to excess production costs and low gas prices; March and April production months recorded negative net proceeds to the Trust .
    • Hilcorp’s capital spending stepped up materially (Q2 capex $829,872; 2024 plan $34.0M), increasing Production Costs and contributing to cumulative excess costs .
    • Realized gas prices collapsed YoY (Q2 2024: $1.92/Mcf vs $3.69/Mcf), compressing Gross Proceeds and pushing Total Production Costs ($10.45M) close to quarterly Gross Proceeds ($11.27M) .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Gross Proceeds ($)$21,320,395 $18,230,985 $11,267,509
Total Production Costs ($)$9,961,285 $11,442,905 $10,449,334
Net Profits before Royalty ($)$11,359,110 $6,788,080 $2,473,220
Royalty Income ($)$8,519,333 $5,091,060 $1,854,914
Distributable Income ($)$8,087,503 $4,092,544 $1,065,685
Distributable Income per Unit ($)$0.173518 $0.087806 $0.022864
Capital Expenditures ($)$122,203 $990,794 $829,872
Excess Production Costs (gross) ($)$0 $0 $1,655,045

Notes: Net profits margin (Net Profits/Gross Proceeds) is implied by reported values. Q2 distributions: April paid; May and June suspended due to excess production costs .

KPIs and Operating Detail

  • Realized Natural Gas Price ($/Mcf): Q2 2023 $3.69; Q1 2024 $3.19; Q2 2024 $1.92 .
  • Subject Interests Gas Volumes (Mcf): Q2 2023 5,613,332; Q1 2024 5,595,016; Q2 2024 5,457,753 .
  • Monthly LOE incl. property taxes (avg): Q2 2023 ~$2.4M; Q2 2024 ~$2.6M .
  • Monthly realized gas price trend (production months): March 2024 $1.50/Mcf; April 2024 $1.24/Mcf; June 2024 $1.41/Mcf .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Cash Reserves Target2024Historically $1.0M maintainedReplenish to and increase to $2.0M before resuming distributions Raised
Monthly DistributionsOngoingDistributions variable by net proceedsNo distributions until net proceeds cover liabilities and replenish reserves Lowered/Suspended
Operator Capex Plan (Hilcorp)FY 2024$36.0M initial (Feb 16)Updated to $34.0M (Mar 6) with ~$25M for two Mancos wells; ~$8M recompletions/workovers; ~$1M compression Lowered modestly

The Trust does not issue traditional revenue/margin/OpEx guidance; distributions are a function of realized net proceeds after Production Costs.

Earnings Call Themes & Trends

(No Q2 earnings call transcript located; the Trust typically communicates via 10-Q/8-K/press releases.)

TopicPrevious Mentions (Q2 2023 and Q1 2024)Current Period (Q2 2024)Trend
Commodity PricesQ2’23 realized gas $3.69/Mcf; Q1’24 $3.19/Mcf Q2’24 $1.92/Mcf; April trough $1.24/Mcf; June $1.41/Mcf Deteriorated YoY; modest MoM stabilization into June
Capital ExpendituresQ1’24 capex $990,794 as 2024 plan ramp began Q2’24 capex $829,872; 2024 plan $34.0M focused on Mancos plus recompletions Elevated vs 2023; remains a headwind to net proceeds
Cash Reserves/DistributionsReserves increased to $1.8M by April 30; distributions variable No May/June distributions; reserves to be replenished/increased to $2.0M before future payouts More conservative payout posture
Audit/ComplianceOngoing comprehensive audits since 2021 transition Continued engagement with Hilcorp; audits across revenues and costs Ongoing oversight unchanged
Production/OperationsWorkovers and development in plan 7 workovers completed YTD; 2 wells in progress; 6 workovers in progress Activity progressing; impact contingent on prices/costs

Management Commentary

  • “Excess production costs occur when production costs and capital expenditures exceed the gross proceeds for a certain period.”
  • “Prior to any future distributions to Unit Holders, the Trustee plans to replenish the cash reserves and continue to increase the cash reserves to $2.0 million.”
  • “The Trustee continues to engage with Hilcorp regarding its ongoing accounting and reporting to the Trust, and the Trust’s third-party compliance auditors continue to audit payments... inclusive of sales revenues, production costs, capital expenditures...”
  • “Hilcorp informed the Trust that its 2024 Plan will allocate approximately $25.0 million... toward two drilling projects in the Mancos formation... $8.0 million... recompletions and workovers... $1.0 million... natural gas compression.”

Q&A Highlights

  • No Q2 earnings call transcript was found for the Trust; no Q&A items to report [ListDocuments returned no earnings-call-transcript results].

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2024 EPS/revenue was unavailable via our S&P Global access at query time (rate limit) and coverage is often limited for royalty trusts. As a result, no beat/miss vs consensus is presented [GetEstimates error].

Key Takeaways for Investors

  • Distributions paused: No May/June payouts due to excess production costs; future distributions hinge on reversal of excess costs and replenishment of cash reserves to $2.0M .
  • Pricing sensitivity: Realized gas prices remain the primary driver; Q2 average $1.92/Mcf severely compressed net proceeds; modest improvement into June bears monitoring .
  • Cost headwinds: Elevated LOE and ramped capex under Hilcorp’s 2024 plan (updated $34.0M) weighed on quarterly results and created excess costs to claw back in future months .
  • Operational activity: Workovers and new wells in progress should support medium-term volumes, but benefit realization depends on commodity prices and cost discipline .
  • Oversight continues: Ongoing audits of revenues/costs and active Trustee engagement with Hilcorp continue; any audit findings or remedies could be catalysts .
  • Near-term trading implication: Unit performance likely tracks gas price momentum and monthly distribution announcements; a clear catalyst would be the first month with positive net proceeds and reserve rebuild .
  • Medium-term thesis: Resumption of distributions requires improved realized pricing and/or normalization of capital intensity; sustained low-price regime plus elevated capex risks prolonged payout suspension .

Additional Detail: Production Month Releases During Q2

  • May 20 (March production): No distribution; excess production costs ~$432,297 gross; March average gas price $1.50/Mcf .
  • June 17 (April production): No distribution; excess production costs ~$1,222,748 gross; April average gas price $1.24/Mcf .
  • Aug 20 (June production, reported in Q3 calendar but within Q2 10‑Q discussion): No distribution; June revenues $2.85M gas/$0.27M oil; excess costs ~$8.46M gross charged forward; June average gas price $1.41/Mcf .