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SJ

SAN JUAN BASIN ROYALTY TRUST (SJT)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 produced zero Royalty Income and zero Distributable Income, driven by Production Costs exceeding Gross Proceeds by $10.29M; cumulative excess Production Costs reached $11.52M for the nine months, deferring any cash distributions until net proceeds turn positive .
  • Gross Proceeds fell 36.8% year over year on lower natural gas prices ($1.49/Mcf vs $2.04/Mcf) and modest volume declines; capital spending surged as Hilcorp executed its 2024 plan, sharply increasing Production Costs and flipping net profits negative .
  • The Trustee increased cash reserves (targeting $2.0M) to cover expenses during revenue shortfalls; multiple press releases confirmed “no cash distribution” for July–November 2024 as excess costs continued to roll forward .
  • Operator guidance highlights a 2024 capital plan reduced from $36.0M to $34.0M, with emphasis on two Mancos wells and 36 recompletions/workovers; this spending is the key driver of near‑term net proceeds and distribution timing .
  • There was no earnings call transcript for Q3 2024; consensus estimates from S&P Global were unavailable, preventing comparisons to Street expectations (SPGI request failed) [ListDocuments: earnings-call-transcript=0] [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

  • Operational execution progressed: “ten workover wells completed, two new wells in progress, and 11 workover wells in progress” through nine months, positioning for future production uplift once capital is absorbed .
  • Realized oil pricing improved year over year: $70.63/bbl in Q3 2024 vs $62.00/bbl in Q3 2023, partially offsetting gas weakness .
  • Continued governance and oversight: Trustee and third‑party auditors are actively auditing Hilcorp’s pricing, rates, revenues, costs, and adjustments, with outside counsel supporting potential remedies if non‑compliance is suspected .

What Went Wrong

  • Excess Production Costs drove negative net proceeds: Production Costs exceeded Gross Proceeds by $10.29M in Q3; cumulative excess rose to $11.52M year‑to‑date, halting distributions until recovered from future Gross Proceeds .
  • Gas price and volume pressure: average realized natural gas price fell to $1.49/Mcf (from $2.04/Mcf), and Subject Interests volumes declined to 5.69MMcf (from 5.99MMcf), compressing Gross Proceeds .
  • Capital expenditures spiked: Q3 capital spending jumped ~$10.45M vs Q3 2023 and ~$12.12M year‑to‑date, materially increasing Production Costs and deferring Royalty Income .

Financial Results

Summary (Quarterly comparison: oldest → newest)

MetricQ3 2023Q2 2024Q3 2024
Total Gross Proceeds ($USD)$14,676,845 $11,267,509 $9,275,221
Total Production Costs ($USD)$8,916,793 $10,449,334 $19,569,841
Royalty Profits (Losses) ($USD)$5,760,052 $818,175 ($10,294,620)
Royalty Income ($USD)$4,320,039 $1,854,915 $0
Distributable Income ($USD)$3,947,050 $1,065,685 $0
Distributable Income per Unit ($)$0.084685 $0.022864 $0.000000
Avg Nat Gas Price ($/Mcf)$2.04 $1.92 $1.49
Subject Interests Nat Gas Volumes (Mcf)5,989,625 5,457,753 5,691,025

Gross Proceeds Composition (Q3 2023 vs Q3 2024)

CategoryQ3 2023 ($USD)Q3 2024 ($USD)
Natural Gas$12,221,864 $8,490,465
Oil$1,072,190 $784,756
Other$1,382,791 $0

Production Costs Breakdown (Q3 2023 vs Q3 2024)

CategoryQ3 2023 ($USD)Q3 2024 ($USD)
Severance Tax – Gas$1,835,573 $1,042,670
Severance Tax – Oil$116,995 $86,811
LOE & Property Tax$6,524,847 $7,550,762
Capital Expenditures$439,378 $10,889,598
Total Production Costs$8,916,793 $19,569,841

KPIs and Operating Context

KPIQ3 2023Q2 2024Q3 2024
Cumulative Excess Production Costs ($USD)$0 $1,655,045 $11,517,368
Cash Reserves ($USD, period-end)N/A$1,467,743 $1,099,699
Avg Oil Price ($/Bbl)$62.00 $71.17 $70.63
Distributions Declared per Unit ($)$0.084685 $0.022864 (Apr only) $0.000000
Workovers Completed/In Progress (YTD status)N/A7 completed; 2 new wells in progress; 6 workovers in progress 10 completed; 2 new wells in progress; 11 workovers in progress

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operator Capital PlanFY 2024$36.0M (Feb 16, 2024) $34.0M (Mar 6, 2024) Lowered
Capital Allocation DetailFY 2024Two Mancos wells ($25.0M), 36 recompletions/workovers ($8.0M), compression ($1.0M) Confirmed allocations, status updated (10 workovers completed; 2 new wells; 11 workovers in progress by Sep 30) Execution ongoing
Cash Reserves Policy2024$1.0M historical baseline Targeting $2.0M; $1.8M reached Apr 30; $1.10M at Sep 30 after uses Raised and utilized
Monthly Cash DistributionsJul–Nov 2024N/ANone declared for July, August, September, October, November 2024 Suspended (pending recovery of excess costs)

Earnings Call Themes & Trends

No Q3 2024 earnings call transcript was found; themes below derive from Q1–Q3 10‑Qs and press releases.

TopicPrevious Mentions (Q2 2024 and Q1 2024)Current Period (Q3 2024)Trend
Commodity PricesGas price declines pressured Gross Proceeds (Q2 avg $1.92/Mcf; Q1 avg $3.19/Mcf) Gas price $1.49/Mcf; continued weakness YoY Negative
Capital ExpendituresPlan cut to $34.0M; capex up sharply vs 2023 (Q2 capex $829,872; YTD increase vs prior year) Capex surged (~$10.89M in Q3), driving excess costs Increasing spend
Audit/ComplianceOngoing comprehensive audit of pricing, costs, adjustments; settlement in 2023 Audits continue; outside counsel engaged Ongoing oversight
Liquidity/Cash ReservesCash reserves raised to $1.8M; used to fund expenses amid no Royalty Income Plan to replenish/increase to $2.0M; $1.10M at Q3‑end Defensive posture
DistributionsApril distribution only in Q2; none in May/June/July No distributions in Q3; continued in Oct/Nov Suspended

Management Commentary

  • “No cash distribution… due to excess production costs… and continued low natural gas pricing. Excess production costs… due primarily to significant lease operating expenses and capital expenditures associated with Hilcorp’s 2024 capital project plan.” — Trustee press releases (July/ Aug/ Sept/ Oct/ Nov) .
  • “Prior to any future distributions… the Trustee plans to replenish the cash reserves and continue to increase the cash reserves to $2.0 million.” — Trustee press releases .
  • “Hilcorp informed the Trustee that there were ten workover wells completed, two new wells in progress, and 11 workover wells in progress during the nine months ended September 30, 2024.” — Q3 10‑Q .
  • “Production Costs exceeded Gross Proceeds… cumulative balance… to be recovered in future periods when the Gross Proceeds exceed Production Costs” — Q3 10‑Q .

Q&A Highlights

  • No Q3 2024 earnings call transcript was available; therefore, there were no analyst Q&A themes to report [ListDocuments: earnings-call-transcript=0].

Estimates Context

  • Street estimates from S&P Global could not be retrieved for Q3 2024 (tool returned a request limit error), and SJT, as a royalty trust, typically lacks EPS guidance; therefore, comparisons to consensus are unavailable for this period [GetEstimates error].
  • Implication: Without consensus, estimate revisions will hinge on updates to realized gas prices and the pace of capex normalization, which drive net proceeds and timing of distribution resumption .

Key Takeaways for Investors

  • Distribution resumption depends on reversing excess Production Costs; watch realized gas prices and monthly capex cadence, which have been the dominant drivers of negative net proceeds this year .
  • Near term liquidity is supported by cash reserves; the Trustee targets $2.0M and will replenish reserves before resuming distributions, reducing short‑term payout visibility .
  • Operator’s 2024 capital plan (now $34.0M) is a double‑edged sword: it inflates current Production Costs but may support future volumes; monitor progress on Mancos drilling and recompletion activity .
  • Gross Proceeds and DI are highly leverageable to gas price changes; a modest recovery in San Juan pricing could quickly reduce excess costs and restart Royalty Income .
  • Ongoing audits and oversight are positives for governance; prior settlements underscore the Trustee’s willingness to pursue remedies if needed .
  • Risk guardrails: Trust termination triggers include two successive years with gross revenue < $1.0M, underscoring long‑run sensitivity to commodity cycles and depletion; not a near‑term base case, but a structural constraint to consider .
  • Trading lens: Monthly “no distribution” 8‑Ks are key catalysts; look for press releases indicating net proceeds turning positive as signals for payout normalization .