UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended ~~September~~June 30, ~~2021~~2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 1-7884

MESA ROYALTY TRUST

(Exact name of registrant as specified in its charter)

	Texas			~~76-6284806~~
	(State or other jurisdiction of Incorporation or Organization)			76-6284806 (I.R.S. Employer Identification No.)
	The Bank of New York Mellon Trust Company, N.A., Trustee 601 Travis Street, Floor 16 Houston, Texas			~~77002~~
	(Address of Principal Executive Offices)			77002 (Zip Code)

1-713-483-6020

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

	Title of each class			Trading Symbol(s)			Name of each exchange on which registered
	Units of Beneficial Interest			MTR			New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November~~August 15, ~~2021 —~~ 2022—1,863,590 Units of Beneficial Interest were outstanding in Mesa Royalty Trust.

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q includes “forward-looking statements” about Mesa Royalty Trust (the “Trust”) and other matters discussed herein that are subject to risks and uncertainties that are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact included in this document, including, without limitation, statements under “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations,” including the Trust’s or any Working Interest Owner’s (as defined in “Note 1 — Trust Organization and Provisions”) future financial position, status in any insolvency proceeding, business strategy, budgets, projected costs, statements regarding the COVID-19 pandemic and related containment measures, political and regulatory matters, such as tax and environmental policy, expected market conditions and commodity pricing, prices received by Working Interest Owners, plans and objectives, oil and natural gas prices, information ~~regarding target~~relating to future distributions, statements regarding reconciliation and adjustment of estimated versus actual revenue and expense amounts, statements pertaining to future exploration and development activities and costs, estimates regarding production costs and expenses, estimates of cash flows, statements regarding the number of ~~development~~ wells to be ~~completed~~drilled and producing in future periods, and ~~information~~estimates regarding production and reserves, are forward-looking statements. Actual outcomes and results, which are substantially all outside of the Trust’s control, may differ materially from those projected. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “future,” “believe,” “expect,” “anticipate,” “potential,” “possibly,” “could,” “may,” “can,” “foresee,” “plan,” “goal,” “forecast,” “assume,” “target,” “should,” “intend” or other words that convey the uncertainty of future events or outcomes. These statements are based on certain assumptions made by the Trust in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors ~~we believe~~the Trustee believes are appropriate under the circumstances. The Trustee (as defined herein) relies on the Working Interest Owners for information regarding the Subject Interests (as defined in “Note 1 — Trust Organization and Provisions”), the Royalty (as defined in “Note 1 — Trust Organization and Provisions”), and the Working Interest Owners themselves.

Although the information provided by the Working Interest Owners provides a reasonable basis for the forward-looking statements contained herein, no assurance can be given that such expectations will prove to be correct. The Working Interest Owners alone control historical operating data, and handle receipt and payment of funds relating to the royalty properties and payments to the Trust for the related royalty. The Trustee cannot assure that errors or adjustments or expenses accrued by the Working Interest Owners, whether historical or future, will not affect future royalty income and distributions by the Trust. However, whether actual results and developments will conform with such expectations and predictions is subject to a number of risks and uncertainties, including the risk factors discussed in Part I, Item 1A of the Trust’s Annual Report on Form 10-K for the year ended December 31, 2020, the risks discussed in the Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, the risks discussed in the Trust’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, and those set forth from time to time in the Trust’s filings with the Securities and Exchange Commission (the “SEC”), which could affect the future results of the energy industry in general, and the Trust and Working Interest Owners in particular, and could cause those results to differ materially from those expressed in such forward-looking statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Working Interest Owners’ businesses and the Trust. Such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in such forward-looking statements. The Trust undertakes no obligation to publicly update or revise any forward-looking statements, except as required by applicable law.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

MESA ROYALTY TRUST

STATEMENTS OF DISTRIBUTABLE INCOME

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Royalty income		$	—		$	49,984		$	630,687		$	703,387
Royalty and other income														$	1,036,950		$	594,172		$	1,769,844		$	630,687
Interest income			35			89			92			5,731			1,026			31			1,055			58
General and administrative expense			(53,641)			(73,854)			(149,794)			(167,149)			(64,707)			(61,851)			(122,158)			(96,153)
Income available for distribution prior to cash reserves used for Trust expenses			(53,606)			(23,781)			480,985			541,969
Cash reserves used for current Trust expenses			53,606			23,781			51,367			23,781
Income available for distribution prior to cash reserves withheld for Trust expenses															973,269			532,352			1,648,741			534,592
Cash reserves withheld for Trust expenses															(37,500)			—			(109,500)			(2,240)
Distributable income		$	—		$	—		$	532,352		$	565,750		$	935,769		$	532,352		$	1,539,241		$	532,352
Distributable income per unit		$	—		$	—		$	0.2857		$	0.3036		$	0.5021		$	0.2857		$	0.8260		$	0.2857
Units outstanding			1,863,590			1,863,590			1,863,590			1,863,590			1,863,590			1,863,590			1,863,590			1,863,590

STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS

	September 30, 2021			December 31, 2020			June 30, 2022			December 31, 2021
	(Unaudited)						(Unaudited)
ASSETS
Cash and short-term investments		$	1,019,741		$	1,076,485		$	2,069,912		$	1,266,979
Net overriding royalty interest in oil and gas properties			42,498,034			42,498,034			42,498,034			42,498,034
Accumulated amortization			(41,013,540)			(40,984,296)			(41,058,835)			(41,026,117)
Total assets		$	2,504,235		$	2,590,223		$	3,509,111		$	2,738,896
LIABILITIES AND TRUST CORPUS
Distributions payable		$	7,316		$	—		$	934,644		$	241,979
Trust corpus (1,863,590 units of beneficial interest authorized, issued and outstanding)			2,496,919			2,590,223			2,574,467			2,496,917
Total liabilities and trust corpus		$	2,504,235		$	2,590,223		$	3,509,111		$	2,738,896

(The accompanying notes are an integral part of these financial statements.)

MESA ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Trust Organization and Provisions

The Mesa Royalty Trust (the “Trust”), created under the laws of the State of Texas, maintains its offices at the office of the Trustee, The Bank of New York Mellon Trust Company, N.A., (the “Trustee”), 601 Travis Street, Floor 16, Houston, Texas 77002. The telephone number of the Trust is 713-483-6020. The Trust has no employees. Administrative functions of the Trust are performed by the Trustee. The Trustee maintains a website for the Trust that makes available, free of charge, filings by the Trust with the Securities and Exchange Commission (“SEC”) and other information. Any reports filed with the SEC are accessible through our website as soon as reasonably practicable after wethe Trustee electronically ~~file~~files such material with, or ~~furnish~~furnishes it to, the SEC. The Trust’s website is http://mtr.q4web.com/home/default.aspx.

Trust Corpus Description. The Trust was created on November 1, 1979 and is now governed by the Mesa Royalty Trust Indenture (as amended, the “Trust Indenture”). Through a series of conveyances, assignments, and acquisitions, the Trust currently owns an overriding royalty interest (the “Royalty”) equal to 11.44% of 90% of the Net Proceeds (as defined in the Conveyance and described below) attributable to the specified interest in certain producing oil and gas properties located in the:

•

Hugoton field of Kansas (the “Hugoton Royalty Properties”);

•

San Juan Basin field of New Mexico (the “San Juan Basin — New Mexico Properties”); and

•

San Juan Basin field of Colorado (the “San Juan Basin — Colorado Properties”, and together with the San Juan Basin — New Mexico Properties, the “San Juan Basin Royalty Properties”, and together with the Hugoton Royalty Properties, the “Royalty Properties”).

Trust Corpus Conveyance History. On November 1, 1979, Mesa Petroleum Co., predecessor to Mesa Limited Partnership (“MLP”), which was the predecessor to MESA Inc., conveyed to the Trust the Royalty equal to 90% of the Net Proceeds (as defined in the Conveyance and described below) attributable to the specified interests in properties conveyed by the assignor on that date (the “Subject Interests”). The Subject Interests consisted of interests in the Royalty Properties described above. The Royalty is evidenced by counterparts of an Overriding Royalty Conveyance, dated as of November 1, 1979 (the “Conveyance”). In 1985, the Trust Indenture was amended, and the Trust conveyed to an affiliate of Mesa Petroleum Co. 88.5571% of the original Royalty (such transfer, the “1985 Assignment”). The effect of the 1985 Assignment was an overall reduction of approximately 88.56% in the size of the Trust. As a result, the Trust is now entitled to receive 11.44% of 90% of the Net Proceeds attributable to the Royalty Properties each month.

Hugoton Royalty Properties. On November 22, 2019, Riviera Resources, Inc. ~~(“Riviera”)~~ completed the sale of its interest in its remaining properties located in the Hugoton Basin to Scout Energy Group V, LP (“Scout”). Since November 23, 2019, Scout has operated the Hugoton Royalty Properties.

San Juan Basin — Colorado Properties. On April 30, 1991, MLP sold to Conoco, Inc. (“ConocoPhillips”) its interests in the San Juan Basin Royalty Properties (the “San Juan Basin Sale”). The Trust’s interest in the San Juan Basin Royalty Properties was conveyed from Pioneer Natural Resources’ working interest in 31,328 net producing acres in northwestern New Mexico and southwestern Colorado. ConocoPhillips sold the portion of its interests in the San Juan Basin — Colorado Properties to MarkWest Energy Partners, Ltd. (effective January 1, 1993) and Red Willow Production Company (“Red Willow”)

(effective April 1, 1992). On October 26, 1994, MarkWest Energy Partners, Ltd. sold substantially all of its interest in the San Juan Basin — Colorado Properties to BP Amoco Company (“BP”), a subsidiary of BP p.l.c. On February 28, 2020, BP completed the sale of all of its interest in the San Juan Basin — Colorado Properties to SIMCOE LLC, (“Simcoe”), an affiliate of IKAV Energy Inc. ~~(“Simcoe”).~~ BP, under a transition services agreement with Simcoe, operated the properties until December 1, 2020. Simcoe and Red Willow currently operate the San Juan Basin — Colorado Properties.

Following Simcoe’s acquisition of BP’s interest in the San Juan Basin-Colorado Properties, there was a transition period to transfer historical information, knowledge and processes from one owner to the other. During the transition period, Net Proceeds were received by the Trust from BP through the Trust month of January 2021. As reported by Simcoe, the BP statements did not include expenses attributable to Simcoe for this period. According to Simcoe, in the future it is expected that there will be additional adjustments on the monthly statements for deficit or overpayment amounts until all transition period differences are resolved.

Simcoe has informed the Trustee that the amount paid to the Trust in the month of May 2021 includes adjusted proceeds for prior periods. There was unusually high pricing due to extreme winter weather in early 2021, and income for subsequent periods was reduced as pricing declined. Simcoe has also informed the Trustee that the amounts paid to the Trust in the months of May and June 2021 are subject to further adjustment in future periods for certain expenses that Simcoe asserts it is entitled to deduct under the Conveyance. Simcoe is expected to recover such expense amounts by withholding a portion or all of the Net Proceeds that would otherwise be payable to the Trust in future periods. Any reduction in income paid to the Trust for these properties may materially reduce or eliminate distributions to the Trust’s unitholders in future periods.

San Juan Basin — New Mexico Properties. Starting from the date of the San Juan Basin Sale and ending on July 31, 2017, ConocoPhillips operated substantially all of the San Juan Basin — New Mexico Properties, except a small number of properties that had been assigned to XTO Energy, Inc. (“XTO”) effective January 1, 2005. On July 31, 2017, ConocoPhillips sold its San Juan Basin assets to Hilcorp San Juan LP (“Hilcorp”), an affiliate of Hilcorp Energy Company. On March 29, 2018, XTO sold to Hilcorp its interests in the San Juan Basin — New Mexico Properties. Hilcorp currently operates all of the San Juan Basin — New Mexico Properties.

Following Hilcorp’s acquisition of ConocoPhillips’ and XTO’s interests in the San Juan Basin — New Mexico Properties, there was a transition period to transfer historical information, knowledge and processes from one owner to the other. During this transition period, Hilcorp recorded estimates of revenues and expenses and made payments to the Trust based on historical amounts previously paid by ConocoPhillips, and the Trust recognized such amounts in accordance with its accounting practices. Accordingly, Hilcorp made an estimated monthly payment of $97,150 in Net Proceeds to the Trust from September 2017 to March 2019 based upon the July 2017 production month previously paid by ConocoPhillips. In April 2019, Hilcorp began to generate actual (instead of estimated) Net Proceeds due to the Trust on a monthly basis. Hilcorp informed the Trust that it will utilize actual revenue and expense amounts and either add or subtract reconciled historical amounts on a month-by-month basis. These amounts will be recognized over time by the Trust in accordance with the Trust’s modified cash basis of accounting. In December 2019, Hilcorp made the first payment to the Trust in reconciling historical amounts for one accounting month. For the twelve months ended December 31, 2020, Hilcorp reconciled 10 additional historical amounts for the accounting months of October 2017 through July 2018. For the three months ended March 31, 2021, Hilcorp reconciled seven additional historical amounts (including the incremental costs of approximately $1.1 million referred to below) for the accounting months of August 2018 through February 2019, which

Hilcorp ~~has~~ informed the Trust that significant incremental costs of approximately $1.1 million attributable to the Trust were incurred in 2018 with respect to a newly drilled well in the San Juan Basin — New Mexico Properties. Hilcorp has reconciled these costs resulting in a charge to the Trust for which the amount is included in the ~~true-up~~true up of historical amounts referred to above. With the assistance of a third party consultant, the Trust has commenced a review of the reconciliation calculations by Hilcorp and the amount of Net Proceeds calculated and paid.

In April 2021, Hilcorp informed the Trust that Hilcorp iswas in process of a system conversion that ~~has~~ delayed the ability to provide current information. For the Trust distribution months of April through ~~September~~November, 2021, Hilcorp recorded estimates of revenues and expenses and calculated payments to the Trust based on Hilcorp’s December 2020 production month, and the Trust recognized such amounts in accordance with its accounting practices. Accordingly, Hilcorp calculated an estimated payment of $90,649 in Net Proceeds to the Trust for each month from April 2021 through ~~September~~November 2021. These Net Proceeds were adjusted against the outstanding excess production costs referred to above. Per information provided by Hilcorp, ~~when~~ the system conversion ~~is complete,~~was completed in December 2021. In January 2022, Hilcorp ~~will perform~~performed a true-up of the estimated amounts, utilizing actual revenue and ~~provide~~expense amounts to reconcile historical amounts on a month-by-month basis, and provided the true-up to the Trust.

~~For~~ The true-up resulted in a net adjustment of $89,617 received by the ~~nine months ended September 30, 2021, Net Proceeds from~~Trust in the ~~San Juan Basin — New Mexico Properties adjusted against the outstanding excess production costs and recovered~~first quarter of 2022. Per information provided by Hilcorp, ~~were $777,327, leaving a~~the true-up of the 2021 estimated amounts is complete and there is currently no balance ~~of $198,465~~ to be recovered from future proceeds if any. Because of the anticipated future offset, the amounts of Net Proceeds reported for the San Juan Basin — New Mexico Properties during the nine months ended September 30, 2021 may not be representative of Net Proceeds that will be received in future quarters.

~~Pursuant~~related to the Trust Indenture, the Trust is not required to pay to Hilcorp any amounts that could be owed if the estimated revenue exceeded actual revenue amounts or estimated expenses were less than actual expense amounts in past periods. However, Hilcorp may recover such amounts by withholding a portion or all of the Net Proceeds that would otherwise be payable to the Trust in subsequent periods. This could result in a decrease in Net Proceeds paid to the Trust and could result in future material reductions in distributions to the Trust’s unitholders.this true-up.

As used in this report, Scout refers to the current operator of the Hugoton Royalty Properties, Hilcorp refers to the current operator of the San Juan Basin — New Mexico Properties, and Simcoe and Red Willow refer to the current co-operators of certain tracts of land included in the San Juan Basin — Colorado Properties, unless otherwise indicated. Scout, Simcoe, Red Willow and Hilcorp are each individually referred to herein as “Working Interest Owner” or collectively as the “Working Interest Owners.”

The Royalty Properties are required to be operated by the Working Interest Owners in accordance with reasonable and prudent business judgment and good oil and gas field practices. Each Working Interest Owner has the right to abandon any well or lease if, in its opinion, such well or lease ceases to produce or is not capable of producing oil, gas or other minerals in commercial quantities. Each Working Interest Owner ~~is required to market~~markets the production on terms deemed by it to be the best reasonably obtainable in the

circumstances. See “Contracts” under Part I, Item 1 of the Trust’s Annual Report on Form 10-K for the year ended December 31, 2021. The Trustee has no power or authority to exercise any control over the operation of the Royalty Properties or the marketing of production therefrom. In addition, the Trust does not undertake or control any capital projects or make capital expenditures related to any of the Royalty Properties.

Trustee and Terms of Trust Indenture. The Trust is a passive entity whose purposes are limited to: (1) converting the Royalty to cash, either by retaining it and collecting the proceeds of production (until production has ceased or the Royalty is otherwise terminated) or by selling or otherwise disposing of the Royalties; and (2) distributing such cash, net of amounts for payments of liabilities to the Trust, to the unitholders. The Trust has no sources of liquidity or capital resources other than the revenues, if any, attributable to the Royalties and interest on cash held by the Trustee as a reserve for liabilities or for distribution. The terms of the Trust Indenture and agreements with the Working Interest Owners provide, among other things, that:

(a)

the Trust cannot engage in any business or investment activity or purchase any assets;

(b)

the Royalty can be sold in part or in total for cash upon approval by the unitholders;

(c)

the Trustee can establish cash reserves and borrow funds to pay liabilities of the Trust and can pledge assets of the Trust to secure payment of the borrowings;

(d)

the Trustee will make cash distributions to the unitholders in January, April, July and October each year as discussed more fully in “Note 2 — Basis of Presentation”;

(e)

the Trust will terminate upon the first to occur of the following events: (i) at such time as the Trust’s Royalty income for two successive years is less than $250,000 per year or (ii) a vote by the unitholders in favor of termination. Upon termination of the Trust, the Trustee will sell for cash all the assets held in the Trust estate and make a final distribution to unitholders of any funds remaining after all Trust liabilities have been satisfied; and

(f)

Scout, Hilcorp, and Simcoe will reimburse the Trust for 59.34%, 27.45% and 1.77%, respectively, of general and administrative expenses of the Trust.

Trustee’s Fees. Pursuant to the Trust Indenture, the Trust pays the Trustee fees for its services each ~~quarter and the Working Interest Owners partially reimburse the Trust for the fees paid in connection with the Trustee’s services.~~quarter. The net amount of these reimbursements is included in the general and administrative expenses of the Trust. For the quarter ended ~~September~~June 30, ~~2021,~~2022, the Trustee was due $118,750 for its services. The Trust paid $108,288 of this amount to the Trustee, and $10,462 was allocated to offset against interest due to the Trust under the Trust Indenture. The Trustee was due ~~$356,250~~$237,500 for its services for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The Trust paid ~~$324,865~~$216,576 of this amount to the Trustee and ~~$31,385~~$20,924 was allocated to offset against interest due to the Trust under the Trust Indenture. The Trust Indenture requires that cash being held by the Trustee earn interest at 1.5% below the prime rate, which would have yielded the Trust a 1.75% annualized return from January 1, ~~2021~~2022 through ~~September~~March 15, 2022, a 2% annualized return from March 16, 2022 through May 3, 2022, a 2.5% annualized return from May 4, 2022 through June 14, 2022 and a 3.25% annualized return from June 15, 2022 through June 30, ~~2021.~~2022. However, due to the current interest rate environment, the Trustee was unable to obtain an account in which such an interest rate was available. In the event such an interest rate is unavailable in the future, the Trustee intends to allocate certain of its fees due to the Trust to meet the minimum interest rate payable under the Trust Indenture. In future periods, the Trustee will continue to allocate a portion of the fees earned for its services to the Trust until all remaining interest due to the Trust is fully offset.

The Working Interest Owners partially reimburse the Trust each quarter for amounts paid in connection with the Trustee’s services. For the quarter ended ~~September~~June 30, ~~2021,~~2022, the Trustee’s fees were $108,288 and the Working Interest Owners reimbursed a sum of $95,897 to the Trustee, which was the same amount reimbursed for the quarter ended ~~September~~June 30, ~~2020.~~2021. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the

Trustee’s fees were ~~$324,865~~$216,576 and the Working Interest Owners reimbursed a sum of ~~$287,691~~$191,794 to the Trustee, which was the same amount reimbursed for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

Discussion of Net Proceeds. The Conveyance provides for a monthly computation of Net Proceeds. Net Proceeds is defined in the Conveyance as the “Gross Proceeds” received by the Working Interest Owners during a particular period, minus certain production and capital costs for such period. “Gross Proceeds” is defined in the Conveyance as the amount received by the Working Interest Owners from the sale of “Subject Minerals”, subject to certain adjustments. “Subject Minerals” means all oil, gas and other minerals, whether similar or dissimilar, in and under, and which may be produced, saved and sold from, and which accrue and are attributable to, the Subject Interests from and after November 1, 1979. “Production costs” means, generally, costs incurred on an accrual basis by the Working Interest Owners in operating the Royalty Properties, including capital and non-capital costs. If production and capital costs exceed Gross Proceeds for any month, the excess, plus interest thereon at 120% of the prime rate of Bank of America, is recovered out of future Gross Proceeds prior to the making of further payment to the Trust. The Trust, however, is

generally not liable for any operating costs or other costs or liabilities attributable to the Royalty Properties or minerals produced therefrom. The Trust is not obligated to return any Royalty income received in any period.

The Working Interest Owners are required to maintain books and records sufficient to determine the amounts payable under the Royalty. Additionally, in the event of a controversy between a Working Interest Owner and any purchaser as to the correct sales price for any production, amounts received by such Working Interest Owner and promptly deposited by it with an escrow agent are not considered to have been received by such Working Interest Owner, and, therefore, are not subject to being payable with respect to the Royalty until the controversy is resolved; but all amounts thereafter paid to such Working Interest Owner by the escrow agent will be considered amounts received from the sale of production. Similarly, operating costs include any amounts a Working Interest Owner is required to pay whether as a refund, interest or penalty to any purchaser because the amount initially received by such Working Interest Owner as the sales price was in excess of that permitted by the terms of any applicable contract, statute, regulation, order, decree or other obligation. Within 30 days following the close of each calendar quarter, the Working Interest Owners are required to deliver to the Trustee a statement of the computation of Net Proceeds attributable to such quarter.

The brief discussions of the Trust Indenture and the Conveyance contained herein are qualified in their entirety by reference to the Trust Indenture and the Conveyance themselves, which are exhibits to the Trust’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 and are available upon request from the Trustee.

Note 2 — Basis of Presentation

The accompanying unaudited financial information has been prepared by the Trustee in accordance with the instructions to Form 10-Q. The preparation of the financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Trustee believes such information includes all the disclosures necessary to make the information presented not misleading. The information furnished reflects all adjustments which are, in the opinion of the Trustee, necessary for a fair presentation of the results for the interim periods presented. The financial information should be read in conjunction with the financial statements and notes thereto included in the Trust’s Annual Report on Form 10-K for the year

royalty interest is measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount.

The financial statements of the Trust are prepared on the following modified cash basis of accounting:

(a)

Royalty income recorded for a month is the amount computed and paid by the Working Interest Owners to the Trustee for such month rather than either the value of a portion of the oil and gas produced by the Working Interest Owners for such month or the amount subsequently determined to be the Trust’s proportionate share of the Net Proceeds for such month;

(b)

Interest income, interest receivable and distributions payable to unitholders include interest to be earned on short-term investments from the financial statement date through the next date of distribution;

(c)

Trust general and administrative expenses, net of reimbursements, are recorded in the month they are included in the calculation of the monthly distribution amount;

(d)

Amortization of the Royalty is computed on a unit-of-production basis and is charged directly to trust corpus because such amount does not affect distributable income; and

(e)

Distributions payable are determined on a monthly basis and are payable to unitholders of record as of the last business day of each month or such later date as the Trustee determines is required to comply with applicable law or stock exchange requirements. However, cash distributions are made quarterly in January, April, July and October, and include interest earned from the monthly record dates to the date of distribution.

This basis for reporting distributable income is considered to be the most meaningful because distributions to the unitholders for a month are based on net cash receipts for such month. However, these statements differ from financial statements prepared in accordance with accounting principles generally accepted in the United States of America because, under such principles, Royalty income for a month would be based on Net Proceeds from production for such month without regard to when calculated or received, general and administrative expenses would be recorded in the month they accrue, and interest income for a month would be calculated only through the end of such month.

Note 3 — Legal Proceedings

There are no pending legal proceedings to which the Trust is a named party. The Trustee has been advised by the Working Interest Owners that the Trust may be subject to litigation in the ordinary course of

Individuals, estates, and trusts with income above certain thresholds are subject under Section 1411 of the Code to an additional 3.8% tax — also known as the Net Investment Income Tax (“NIIT”) — on their net investment income. Grantor trusts such as the Trust are not subject to the NIIT; however, the unitholders may be subject to the tax. For these purposes, investment income would generally include certain income derived from investments, such as the royalty income derived from the units and gain realized by a unitholder from a sale of units.

The Trustee assumes that some Trust units are held by a middleman, as such term is broadly defined in U.S. Treasury Regulations (and includes custodians, nominees, certain joint owners, and brokers holding an interest for a custodian in street name). Therefore, the Trustee considers the Trust to be a non-mortgage widely held fixed investment trust (“WHFIT”) for U.S. federal income tax purposes. The Bank of New York Mellon Trust Company, N.A., 601 Travis Street, Floor 16, Houston, Texas 77002, telephone number 713-483-6020, is the representative of the Trust that will provide tax information in accordance with applicable U.S. Treasury Regulations governing the information reporting requirements of the Trust as a WHFIT.

Notwithstanding the foregoing, the middlemen holding units on behalf of unitholders, and not the Trustee of the Trust, are solely responsible for complying with the information reporting requirements under the Treasury Regulations with respect to such units, including the issuance of IRS Forms 1099 and certain written tax statements. Unitholders whose units are held by middlemen should consult with such middlemen regarding the information that will be reported to them by the middlemen with respect to the units.

Each unitholder should consult its own tax advisor with respect to its particular circumstances.

Note 5 — Excess Production Costs

As of
September 30,
2021

As of
December 31,
2020

Hugoton Properties $ 306,944 $ 430,888
San Juan Basin – Colorado Properties – Simcoe 425,073 —
San Juan Basin – Colorado Properties – Red Willow 26,920 36,453
San Juan Basin – New Mexico Properties – Hilcorp 212,615 18,874
Total $ 971,552 $ 486,215

	As of June 30, 2022			As of December 31, 2021
Hugoton Properties		$	—		$	8,100
San Juan Basin – Colorado Properties – Simcoe			250,148			341,707
San Juan Basin – Colorado Properties – Red Willow			15,299			24,794
San Juan Basin – New Mexico Properties – XTO (Hilcorp)			11,539			29,184
Total		$	276,986		$	403,785

Excess production costs result when costs, charges, and expenses attributable to a Royalty Property exceed the revenue received from the sale of oil, gas, and other hydrocarbons produced from such property. The excess production costs are recoverable by the Working Interest Owners before any distribution of Royalty income from the properties will be made to the Trust. As a result of excess production costs incurred in one monthly operating period and then recovered in a subsequent monthly operating period, the Royalty income paid to the Trust may not agree to the Trust’s royalty interest in the Net Proceeds (as defined in the Conveyance). Excess production costs are reported by the Working Interest Owners for prior production months and may be based upon estimates that are subject to adjustment in future periods.

Note 6 — Distributable Income Per Unit

widely in response to (i) relatively minor changes in the supply of and demand for oil and natural gas, (ii) market uncertainty and (iii) a variety of additional factors that are beyond the Trustee’s control. Royalty ~~Income~~income may be based upon spot market prices or on prices determined by contract.

The Trustee, acting pursuant to the Trust Indenture, may withhold Royalty income for future unknown contingent liabilities and expenses (such cumulative withholding being the “Contingent Reserve”). The Trustee reserves the right to determine whether or not to ~~increase or~~ release cash reserves in future periods with respect to any reimbursement expenses. At any given time, the Contingent Reserve is included in cash and short-term investments.

The ~~balance in~~Trustee utilizes the Contingent Reserve ~~was increased~~in its discretion in accordance with the Conveyance, and ~~decreased during~~adjusts the ~~period,~~balance of the Contingent Reserve as ~~further described below.~~

~~For~~necessary when funds are added or removed. The net effects of such adjustments for the three months ended ~~September~~June 30, ~~2021, the Trustee increased the Contingent Reserve by $35 for interest earned on the operating and reserve accounts.~~

For the three months ended September 30, 2021, the Trustee decreased the Contingent Reserve by (1) $53,641 for general and administrative net unreimbursed expenses paid by the Trust and (2) $7,316 for the distribution payable to unitholders in October 2021.

~~For the nine months ended September 30, 2021, the Trustee increased the Contingent Reserve by (1) $8,565 for a reimbursement not received from Hilcorp until January 2021 but included~~2022 resulted in the December 2020 distribution to unitholders calculation, (2) $36,515 of Royalty income received in February 2021 from Simcoe but withheld as cash reserves for current Trust expenses, (3) $27 for interest earned on the operating and reserve accounts for the quarter ended March 31, 2021, (4) $31 for interest earned on the operating and reserve accounts for the quarter ended June 30, 2021, (5) $156 received from Amoco in April 2021, receipt of which is pending identification, (6) $594,172 of income received in May and June from Simcoe, $560,409 of which is included in the May and June 2021 distributions to unitholders, and the remaining $33,763 which was received from Simcoe in June 2021 after the distribution to unitholders had been announced for the month of June 2021 and was included in the July 2021 distribution to unitholders and (7) $35 for interest earned on the operating and reserve accounts for the quarter ended September 30, 2021.

For the nine months ended September 30, 2021, the Trustee decreased the Contingent Reserve by (1) $42,867 for general and administrative net unreimbursed expenses paid by the Trust for the quarter ended March 31, 2021, (2) $62,007 for general and administrative net unreimbursed expenses paid by the Trust for the quarter ended June 30, 2021, (3) $537,730 for the distribution payable to unitholders in July 2021, (4) $53,641 for general and administrative net unreimbursed expenses paid by the Trust for the quarter ended September 30, 2021 and (5) $7,316 for the distribution payable to unitholders in October 2021.

~~As of September 30, 2021, the value~~balance of the Contingent Reserve ~~was $1,012,425, which is included in cash~~being equal to $1,073,346 as of June 30, 2021 and ~~short-term investments.~~ equal to $1,135,268 as of June 30, 2022.

The effect on distributable income per unit of adjustments to the Contingent Reserve is as follows:

	Three Months Ended September 30						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Distributable income before reserve for contingent liabilities and expenses		$	(53,606)		$	(23,781)		$	480,985		$	541,969		$	973,269		$	532,352		$	1,648,741		$	534,592
Increase in Contingent Reserve			(35)			(7,621)			(639,501)			(201,994)
Withdrawal from Contingent Reserve			60,957			31,402			703,561			204,710
Increase in the Contingent Reserve															(1,038,357)			(594,359)			(1,770,899)			(639,466)
Withdrawal from the Contingent Reserve															999,732			599,737			1,660,631			642,604
Distributable income available for distribution		$	7,316		$	—		$	545,045		$	544,685		$	934,644		$	537,730		$	1,538,473		$	537,730
Distributable income available for distribution per unit		$	0.0039		$	—		$	0.2925		$	0.2923		$	0.5015		$	0.2885		$	0.8255		$	0.2885
Units outstanding			1,863,590			1,863,590			1,863,590			1,863,590			1,863,590			1,863,590			1,863,590			1,863,590

Item 2. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.

The following review of ~~Mesa Royalty Trust’s (the “Trust”)~~the financial condition and results of operations of Mesa Royalty Trust (the “Trust”) should be read in conjunction with the financial statements and notes thereto. The discussion of net production attributable to the Hugoton Royalty Properties and San Juan Basin Royalty Properties (as each is defined below) represents production volumes that are to a large extent hypothetical as the Trust does not own and is not entitled to any specific production volumes. Any discussion of “actual” production volumes represents the hydrocarbons that were produced from the properties in which the Trust has an overriding royalty interest. See Note 7 to the financial statements in the Trust’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

The Trust was created on November 1, 1979 and is now governed by the Mesa Royalty Trust Indenture (as amended, the “Trust Indenture”). Through a series of conveyances, assignments, and acquisitions, the Trust currently owns an overriding royalty interest (the “Royalty”) equal to 11.44% of 90% of the Net Proceeds (as defined and described in an Overriding Royalty Conveyance dated as of November 1, 1979 (the “Conveyance”)) attributable to the specified interest in certain producing oil and gas properties located in the:

•

Hugoton field of Kansas (the “Hugoton Royalty Properties”);

•

San Juan Basin field of New Mexico (the “San Juan Basin — New Mexico Properties”); and

•

On November 22, 2019, Riviera Resources, Inc. (“Riviera”) completed the sale of its interest in its remaining properties located in the Hugoton Basin to Scout Energy Group V, LP (“Scout”). Since November 23, 2019, Scout has operated the Hugoton Royalty Properties.

Pursuant to past conveyances, Scout, Hilcorp, Simcoe and Red Willow are the operators of certain portions of the Hugoton Royalty Properties and San Juan Basin Royalty Properties (each of Scout, Hilcorp,

Simcoe and Red Willow being a “Working Interest Owner”, and together, the “Working Interest Owners”). As used in this report, Scout refers to the current operator of the Hugoton Royalty Properties, Hilcorp refers to the current operator of the San Juan Basin — New Mexico Properties, and Simcoe and Red Willow refer to the current co-operators of certain tracts of land included in the San Juan Basin — Colorado Properties, unless otherwise indicated.

The Trust is a passive entity whose purposes are limited to: (1) converting the Royalties to cash, either by retaining them and collecting the proceeds of production (until production has ceased or the Royalties are otherwise terminated) or by selling or otherwise disposing of the Royalties; and (2) distributing such cash, net of amounts for payments of liabilities to the Trust, to the unitholders. The Trust has no sources of liquidity or capital resources other than the revenues, if any, attributable to the Royalties and interest on cash held by the Trustee as a reserve for liabilities or for distribution. The Trust does not undertake or control any capital projects or make capital expenditures. While the Trust’s Royalty income is net of capital expenditures, these capital expenditures are controlled and paid by the Working Interests Owners, and the Trust receives Royalty income net of these expenses. In addition, the Trust does not have any off-balance sheet arrangements or other contingent obligations.

Note Regarding Forward-Looking Statements

This Form 10-Q includes “forward-looking statements” about the Trust and other matters discussed herein that are subject to risks and uncertainties that are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this

document, including, without limitation, statements under “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations,” including the Trust’s or any Working Interest Owner’s future financial position, status in any insolvency proceeding, business strategy, budgets, projected costs, statements regarding the COVID-19 pandemic and related containment measures, political and regulatory matters, such as tax and environmental policy, expected market conditions and commodity pricing, prices received by Working Interest Owners, plans and objectives, oil and natural gas prices, information ~~regarding~~relating to future distributions, statements regarding reconciliation and adjustment of estimated versus actual revenue and expense amounts, statements pertaining to future exploration and development activities and costs, estimates regarding production costs and expenses, estimates of cash flows, statements regarding the number of ~~development~~ wells to be ~~completed~~drilled and producing in future periods, and ~~information~~estimates regarding production and reserves, are forward-looking statements. Actual outcomes and results, which are substantially all outside of the Trust’s control, may differ materially from those projected. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “future,” “believe,” “expect,” “anticipate,” “potential,” “possibly,” “could,” “may,” “can,” “foresee,” “plan,” “goal,” “forecast,” “assume,” “target,” “should,” “intend” or other words that convey the uncertainty of future events or outcomes. These statements are based on certain assumptions made by the Trust in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors ~~we believe~~the Trustee believes are appropriate under the circumstances. The Trustee relies on the Working Interest Owners for information regarding the Subject Interests (as defined herein in “Note 1 — Trust Organization and Provisions”), the Royalty, and the Working Interest Owners themselves.

SUMMARY OF ROYALTY INCOME, PRODUCTION AND AVERAGE PRICES

(Unaudited)

The Trust’s Royalty income from the Royalty Properties and its distributions to unitholders are heavily influenced by commodity prices received by Working Interest Owners. Commodity prices may fluctuate widely in response to (i) relatively minor changes in the supply of and demand for oil and natural gas, (ii) market uncertainty and (iii) a variety of additional factors that are beyond the Trustee’s control. ~~In 2020 there was a substantial decrease in oil and natural gas~~Royalty income may be based upon spot market prices ~~due in part to significantly decreased demand as a result of the COVID-19 pandemic and an oversupply of crude oil. Both factors put substantial downward pressure~~or on the price of oil and natural gas during 2020. Although there has been an increase in the price for natural gas in the first nine months of 2021, including unusually high pricing due to extreme winter weather in early 2021, the Trust cannot guarantee that the above factors will not continue to negatively impact natural gas commodity prices. To the extent prices ~~are~~ determined by ~~contract, any increases in spot prices may not result in a corresponding increase in Net Proceeds received by the Trust or in the amount of cash available to pay cash distributions to unitholders.~~contract.

The following summary illustrates the net effect of the components of the actual Royalty computation for the periods indicated.

Three Months Ended September 30,
2021 2020

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

The Trust’s proportionate share of Gross proceeds(1)(5)
$ 665,006 $ 279,222 $ 8,919 $ 456,408 $ 144,298 $ 22,255
Less the Trust’s proportionate share of:
Capital costs recovered (733) (585) (19) (19,958) (304) (4,307)
Operating costs (891,375) (161,363) (3,620) (435,021) (138,255) (19,808)
Net proceeds(2)
$ (227,102) $ 117,274 $ 5,280 $ 1,429 $ 5,739 $ (1,860)
Royalty income(2)
$ — $ — $ — $ 36,002 $ 1,773 $ 12,209
Average sales price $ — $ — $ — $ 0.69 $ 8.49 $ 39.41
Average production costs(3)
$ — $ — $ — $ 8.67 $ 663.35 $ 77.85
(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Net production volumes attributable to
the Royalty paid(4)
— — — 52,492 209 310

	Three Months Ended June 30,
	2022									2021
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
The Trust’s proportionate share of Gross proceeds(1)(5)		$	1,058,674		$	495,401		$	22,330		$	1,148,384		$	267,412		$	8,919
Less the Trust’s proportionate share of:
Capital costs recovered			(3,503)			(1,727)			(82)			(1,789)			(905)			(19)
Operating costs			(527,860)			(217,148)			(5,949)			(354,001)			(147,716)			(3,620)
Net proceeds(2)		$	527,311		$	276,526		$	16,299		$	792,594		$	118,791		$	5,280
Royalty income(2)		$	704,237		$	316,794		$	16,299		$	594,172		$	—		$	—
Average sales price		$	5.10		$	33.10		$	85.69		$	5.16		$	—		$	—
Average production costs(3)		$	3.85		$	22.87		$	31.70		$	3.09		$	—		$	—

			(Mcf)						(Bbls)						(Bbls)						(Mcf)						(Bbls)						(Bbls)
Net production volumes attributable to the Royalty paid(4)					137,963						9,572						190						115,090						—						—

1514

Nine Months Ended September 30,
2021 2020

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

The Trust’s proportionate share of Gross proceeds(1)(5)
$ 2,724,818 $ 795,345 $ 79,203 $ 1,702,735 $ 583,063 $ 58,618
Less the Trust’s proportionate share of:
Capital costs recovered (1,036,884) (3,088) (161,402) (39,814) (10,473) (6,099)
Operating costs (1,763,837) (455,908) (32,898) (1,365,475) (387,705) (44,507)
Net proceeds(2)
$ (75,903) $ 336,349 $ (115,097) $ 297,446 $ 184,885 $ 8,012
Royalty income(2)
$ 630,687 $ — $ — $ 499,092 $ 182,164 $ 22,131
Average sales price $ 4.49 $ — $ — $ 1.35 $ 11.66 $ 40.86
Average production costs(3)
$ 19.94 $ — $ — $ 3.80 $ 25.49 $ 93.44
(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Net production volumes attributable to
the Royalty paid(4)
140,431 — — 369,725 15,619 542

	Six Months Ended June 30,
	2022									2021
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
The Trust’s proportionate share of Gross proceeds(1)(5)		$	2,430,381		$	1,096,262		$	60,469		$	2,059,812		$	516,122		$	70,284
Less the Trust’s proportionate share of:
Capital costs recovered			(63,852)			(29,318)			(2,309)			(1,036,152)			(2,503)			(161,383)
Operating costs			(1,104,851)			(469,733)			(21,018)			(872,461)			(294,544)			(29,278)
Net proceeds(2)		$	1,261,678		$	597,211		$	37,142		$	151,199		$	219,075		$	(120,377)
Royalty income(2)		$	1,143,880		$	590,381		$	35,583		$	630,687		$	—		$	—
Average sales price		$	6.79		$	51.07		$	88.09		$	4.47		$	—		$	—
Average production costs(3)		$	6.93		$	43.17		$	57.75		$	13.52		$	—		$	—

			(Mcf)						(Bbls)						(Bbls)						(Mcf)						(Bbls)						(Bbls)
Net production volumes attributable to the Royalty paid(4)					168,545						11,560						404						141,218						—						—

(1)

Gross Proceeds from natural gas liquids attributable to each of the Hugoton Royalty Properties and San Juan Basin Royalty Properties are reported by the Working Interest ~~Owner~~Owners net of a volumetric in-kind processing fee retained by Scout and Hilcorp, respectively.

(2)

Royalty income is computed after deducting the Trust’s proportionate share of capital costs, operating costs and interest on any cost carryforward from the Trust’s proportionate share of Gross Proceeds. As a result of excess production costs incurred in one monthly operating period and then recovered in a subsequent monthly operating period, the Royalty income paid to the Trust may not agree to the Trust’s ~~royalty~~Royalty interest in the Net Proceeds (as defined in the Conveyance). The excess production costs are recoverable by the Working Interest Owners before any distribution of Royalty income will be made to the Trust. See “Note 5 — Excess Production Costs” in the Notes to Financial Statements contained in Item 1 of this Form 10-Q.

~~San Juan Basin — New Mexico Properties. Excess production costs~~Also, as a result of Royalty income reported by the Working Interest Owners in one quarterly operating period and received by the Trustee in a subsequent quarterly operating period, the Royalty income paid to the Trust may not agree to the Trust’s Royalty interest in the amount of $14,150 and $16,086 as of September 30, 2021 and September 30, 2020, respectively, were related to the San Juan Basin — New Mexico Properties formerly operated by XTO, currently operated by Hilcorp. Excess production costs related to the San Juan Basin — New Mexico Properties formerly operated by XTO and currently operated by Hilcorp were $0 and $4,183, respectively, for the three months ended September 30, 2021, and 2020. Hilcorp recovered prior period excess production costs of $2,134 and $0, respectively related to the San Juan Basin — New Mexico Properties formerly operated by XTO and currently operated by Hilcorp during each of the quarters ended September 30, 2021 and 2020.

Excess production costs related to the San Juan Basin — New Mexico Properties formerly operated by XTO and currently operated by Hilcorp were $0 and $10,765, respectively, for the nine months ended September 30, 2021 and 2020. Hilcorp recovered prior period excess production costs of $4,724 and $0, respectively related to the San Juan Basin — New Mexico Properties formerly operated by XTO and currently operated by Hilcorp during each of the nine months ended September 30, 2021 and 2020.

Excess production costs in the amount of $198,465 and $11,990 as of September 30, 2021 and September 30, 2020, respectively, and for the nine months ended September 30, 2021 and 2020, respectively were related to the San Juan Basin — New Mexico Properties operated by Hilcorp. Excess production costs related to the San Juan Basin — New Mexico Properties were $0 and $11,990, respectively, for the three months ended September 30, 2021, and 2020. Hilcorp recovered prior period excess production costs of $271,947 and $0, respectively related to the San Juan Basin — New Mexico Properties during each of the quarters ended September 30, 2021 and 2020.

~~San Juan Basin — Colorado Properties~~. Excess production costs in the amount of $26,920 and $34,250 as of September 30, 2021 and September 30, 2020, respectively, were related to the San Juan Basin — Colorado Properties operated by Red Willow. Excess production costs related to the San Juan Basin — Colorado Properties operated by Red Willow were $0 and $1,360, respectively, for the three months ended September 30, 2021 and 2020.

Excess production costs related to the San Juan Basin — Colorado Properties operated by Red Willow were $0 and $4,652, respectively, for the nine months ended September 30, 2021 and 2020. Red Willow recovered prior period excess production costs of $4,405 and $0, respectively related to the San Juan Basin — Colorado Properties operated by Red Willow during each of the quarters ended September 30, 2021 and 2020. Red Willow recovered prior period excess production costs of $9,533 and $0, respectively related to the San Juan Basin — Colorado Properties operated by Red Willow during each of the nine months ended September 30, 2021 and 2020.

Excess production costs in the amount of $425,073 and $0 as of September 30, 2021 and September 30, 2020, respectively, and for the three and nine months ended September 30, 2021 and 2020, respectively, were related to the San Juan Basin — Colorado Properties operated by Simcoe.

~~Hugoton Royalty Properties~~. Excess production costs in the amount of $306,944 and $185,635 as of September 30, 2021 and September 30, 2020, respectively, were related to the Hugoton Properties operated by Scout. Excess production costs related to the Hugoton Properties operated by Scout were $0 and $29,500, for the three months ended September 30, 2021 and 2020. Excess production costs related to the Hugoton Royalty Properties operated by Scout were $0 and $185,635, respectively, for the nine months ended September 30, 2021 and 2020. Scout recovered prior period excess production costs of $42,039 and $0, respectively related to the Hugoton Properties operated by Scout during each of the quarters ended September 30, 2021 and 2020. Scout recovered prior period excess production costs of $123,943 and $0, respectively related to the Hugoton Properties operated by Scout during each of the nine months ended September 30, 2021 and 2020.Net Proceeds.

(3)

Average production costs attributable to the Royalty are calculated as stated capital costs plus operating costs, divided by stated net production volumes attributable to the Royalty paid. As noted above in footnote (2), production costs may be incurred in one operating period and then recovered in a subsequent operating period, which may cause Royalty income paid to the Trust not to agree to the Trust’s Royalty interest in the Net Proceeds.

(4)

Net production volumes attributable to the Royalty are determined by dividing Royalty income by the average sales price received. Any differences noted are due to rounding.

Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

Financial Review

	Three Months Ended September 30,						Three Months Ended June 30,
	2021			2020			2022			2021
Royalty income		$	—		$	49,984
Royalty and other income								$	1,036,950		$	594,172
Interest income			35			89			1,026			31
General and administrative expense			(53,641)			(73,854)			(64,707)			(61,851)
Income available for distribution prior to cash reserves used for Trust expenses			(53,606)			(23,781)
Cash reserves used for current Trust expenses			53,606			23,781
Income available for distribution prior to cash reserves withheld for Trust expenses									973,269			532,352
Cash reserves withheld for Trust expenses									(37,500)			—
Distributable income		$	—		$	—		$	935,769		$	532,352
Distributable income per unit		$	—		$	—		$	0.5021		$	0.2857
Units outstanding			1,863,590			1,863,590			1,863,590			1,863,590

Royalty and Interest Income. The Trust’s Royalty and other income was $0$1,036,950 for the quarter ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~$49,984~~$594,172 for the quarter ended ~~September~~June 30, ~~2020.~~2021. This ~~decrease~~increase was primarily a result of ~~no Royalty income received from any of the Working Interest Owners for the three months ended September 30, 2021, as~~ actual expenses ~~and adjustments for all Working Interest Owners were~~being greater than actual revenues in ~~either current or~~ past ~~periods.~~periods as reported by Hilcorp and Scout. Such amounts ~~are being~~were recovered by ~~the Working Interest Owners~~Hilcorp and Scout by withholding the Net Proceeds that would otherwise be payable to the ~~Trust.~~Trust in 2021. Hilcorp completed its recovery in the first quarter of 2022, and Royalty income was received by the Trust for each month in the quarter ended June 30, 2022. Scout completed its recovery in the first quarter of 2022 and calculated Net Proceeds from the Hugoton Royalty Properties, however, Royalty income from this calculation was not received by the Trust from Scout until May of 2022, along with Royalty income for each month in the quarter ended June 30, 2022. The receipt of Net Proceeds from both Hilcorp and Scout, along with the timing of the receipt of Royalty income from Scout, resulted in the increase for the three months ended June 30, 2022, as compared to the same period ended June 30, 2021.

The Trust’s interest income for the ~~three months~~quarters ended ~~September~~June 30, 2022 and 2021 was $1,026 and ~~2020 was $35 and $89,~~$31, respectively. In accordance with the Trust Indenture and as explained below, interest on cash on hand was paid at a rate equivalent to a 1.75% annualized return from January 1, ~~2021~~2022 through ~~September~~March 15, 2022, a 2% annualized return from March 16, 2022 through May 3, 2022, a 2.5% annualized return from May 4, 2022 through June 14, 2022 and a 3.25% annualized return from June 15, 2022 through June 30, ~~2021.~~2022.

General and Administrative Expense. General and administrative expense was ~~$53,641~~$64,707 and ~~$73,854~~$61,851 for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Trustee’s fees are included in general and administrative expense. The decrease for the three months ended September 30, 2021 as compared to September 30, 2020 was primarily a result of the timing of expenses received and paid by the Trust and a September 2020 reimbursable amount not received from Hilcorp until October 2020.

For the quarter ended ~~September~~June 30, ~~2021,~~2022, the Trustee was due $118,750 for its services. The Trust paid $108,288 of this amount to the Trustee, and $10,462 was allocated to offset against interest due to the Trust

under the Trust Indenture. The Trust Indenture requires that cash being held by the Trustee earn interest at 1.5% below the prime rate, which would have yielded the Trust a 1.75% annualized return from January 1, ~~2021~~2022 through ~~September~~March 15, 2022, a 2% annualized return from March 16, 2022 through May 3, 2022, a 2.5% annualized return from May 4, 2022 through June 14, 2022 and a 3.25% annualized return from June 15, 2022 through June 30, ~~2021.~~2022. However, due to the current interest rate environment, the Trustee was unable to obtain an account in which such an interest rate was available. In the event such an interest rate is unavailable in the future, the Trustee intends to allocate certain of its fees due to the Trust to meet the minimum interest rate payable under the Trust Indenture. In future periods, the Trustee will continue to allocate a portion of the fees earned for its services to the Trust until all remaining interest due to the Trust is fully offset.

~~September~~ June 30, ~~2021,~~2022, the Trustee’s fees were $108,288 and the Working Interest Owners reimbursed a sum of $95,897 to the Trustee, which was the same amount reimbursed for the quarter ended ~~September~~June 30, ~~2020.~~2021. As of each of the quarters ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, there were $0 and ~~$11,990,~~$0, respectively, of unreimbursed expenses.

The ~~Trustee, acting pursuant to~~terms of the Trust Indenture provide, among other things, that the Trustee may ~~withhold Royalty income~~establish cash reserves and borrow funds to pay liabilities of the Trust, and may pledge assets of the Trust to secure payment of the borrowings in accordance with the Trust Indenture. At any given time, the amount reserved for such future unknown contingent liabilities and expenses (such cumulative withholding being the “Contingent Reserve”). is included in cash and short-term investments. The Trustee ~~reserves~~utilizes the ~~right~~Contingent Reserve in its discretion in accordance with the Conveyance, and adjusts the balance of the Contingent Reserve as necessary when funds are added or removed. The net effects of such adjustments for the three months ended June 30, 2022 resulted in the balance of the Contingent Reserve being equal to ~~determine whether or not~~$1,073,346 as of June 30, 2021 and equal to ~~increase or release cash reserves in future periods with respect to any reimbursement expenses.~~$1,135,268 as of June 30, 2022. The Trustee intends to increase the Contingent Reserve ~~from $1.0 million~~ to a total of $2.0 million.

~~The balance in the Contingent Reserve was increased and decreased during the period, as further described below.~~

~~For the three months ended September 30, 2021, the Trustee increased the Contingent Reserve by $35 for interest earned on the operating and reserve accounts.~~

Distributable Income Available for Distribution. The portion of the Trust’s distributable income available for distribution each period includes the Royalty income received from the Working Interest Owners during such period, plus interest income earned to the date of distribution (if any) and increases or withdrawals from the Contingent Reserve (if any). Distributable income available for distribution for the quarter ended ~~September~~June 30, ~~2021~~2022 was ~~$7,316,~~$934,644, representing ~~$0.0039~~$0.5015 per unit, as compared to ~~$0,~~$537,730, representing $0$0.2885 per unit, for the quarter ended ~~September~~June 30, ~~2020.~~2021. Based on 1,863,590 units outstanding for the quarters ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, the per unit distributions for each month in such periods were as follows:

2021 2020
July $ 0.0039 $ —
August — —
September — —
$ 0.0039 $ —

	2022			2021
April		$	0.1015		$	—
May			0.2504			0.2714
June			0.1496			0.0171
		$	0.5015		$	0.2885

Operational Review

~~In 2020, the business of the Working Interest Owners was adversely affected by the COVID-19 pandemic and measures taken to mitigate its impact. The~~Global Oil Market Impact in 2022

Average oil and gas ~~industry experienced sharp declines~~prices during the first and second quarters of 2022 were meaningfully higher compared to average prices during most of the previous quarterly periods over the last decade. In 2021, oil

prices were supported by oil supply cuts by OPEC+. Oil demand in 2021 broadly trended higher throughout the ~~demand~~year, which also helped support strengthening oil prices. Beginning in March 2022, Russia’s incursion into Ukraine created volatility in global supply of numerous commodities, including oil. In response, the U.S. has implemented numerous measures to help mitigate potential supply shortfalls and high oil prices, most notably by releasing millions of barrels of crude oil from its Strategic Petroleum Reserve. The confluence of these major events have contributed to increased fluctuations in oil prices during 2022. If commodity prices for crude oil and natural gas ~~worldwide. The global economy and commodity prices were severely negatively impacted, as economic activity and demand for energy declined~~fall or remain volatile, monthly distributions to unitholders could be substantially reduced or there may be no distributions in response to the COVID-19 pandemic, as well as due to other geopolitical factors. The magnitude of the impact of the COVID-19 pandemic will depend on the duration and extent of the pandemic, including increases in COVID-19 case counts, any additional waves of the virus, new variants of the virus and the availability and ultimate efficacy of the vaccine on new variants of the virus. The effects from the pandemic continue to have a material adverse effect on Trust distributions.

future periods. The Trust did not make distributions ~~to unitholders from the time of the income distribution~~ for ~~the month of May 2020, paid to unitholders on July 31, 2020, until the income distribution for the months of May and June 2021, paid to unitholders on July 30,~~some periods in 2021, as costs, charges and expenses attributable to the Trust’s Royalty properties, and applicable reserves, exceeded the revenue received from the sale of oil, natural gas and other hydrocarbons produced from such properties for such periods, as reported by the Working Interest Owners. ~~No income was received from any~~Additionally, sharp increases in inflation coupled with supply chain disruptions are expected to increase expenses for Working Interest ~~Owner~~Owners and are expected to have an adverse impact on Royalty income during 2022.

COVID-19 Pandemic

We continue to monitor the COVID-19 pandemic as cases and hospitalizations have dropped significantly in 2022. The full extent to which the ~~three months ended September 30, 2021. There is no indication if or when distributions~~COVID-19 pandemic impacts the Trust will depend on future developments that are highly uncertain and cannot be predicted, including new information that may ~~be announced in~~emerge concerning the ~~future.~~severity and new variants of the virus.

Hugoton Royalty Properties

Natural gas and natural gas liquids production attributable to the Hugoton Royalty Properties accounted for ~~none~~33% of the Royalty income of the Trust during the ~~third~~second quarter of ~~2021.~~2022.

	Three Months Ended September 30,						Three Months Ended June 30,
	2021			2020			2022			2021
Royalty income attributable to Hugoton Royalty Properties		$	—		$	—		$	345,326		$	—
Operating costs attributable to Hugoton Royalty Properties		$	372,042		$	278,709		$	468,742		$	293,587
Capital expenditures attributable to Hugoton Royalty Properties		$	—		$	—		$	1,760		$	1,377

Royalty Income. Royalty income attributable to the Hugoton Royalty Properties ~~was~~increased to $345,326 in the second quarter of 2022 from $0 in ~~both~~ the ~~third~~second quarter of ~~2021 and the third quarter of 2020.~~2021. The ~~lack of Royalty income~~increase was primarily a result of actual expenses being greater than actual revenues in past periods as reported by Scout. Such amounts ~~are being~~were recovered by Scout by withholding the Net Proceeds that would otherwise be payable to the Trust in the ~~quarters~~quarter ended ~~September~~June 30, ~~2021~~2021. Scout completed its recovery and ~~September 30, 2020. For the three months ended September 30, 2021,~~calculated Net Proceeds from the Hugoton Royalty Properties ~~adjusted against~~in the ~~outstanding excess production costs~~first quarter of 2022. However, Royalty income from this calculation was not received by the Trust from Scout until May of 2022. The receipt of Net Proceeds from Scout, along with the timing of the receipt of Royalty income from Scout, resulted in the increase for the three months ended June 30, 2022, as compared to the same period ended June 30, 2021. If Royalty income from Hugoton for the first quarter of 2022 had been received by the Trust in the quarter ended March 31, 2022, Hugoton’s Royalty income for the quarter ended June 30, 2022 would have been $105,910. The Trustee is in ongoing discussions with Scout regarding financial and ~~recovered~~operational information required to be delivered to the Trustee for purposes of timely disclosures by the Trust. In addition, with the assistance of a third party consultant, the Trust has commenced a review of certain of Scout’s financial and operational statements and the Net Proceeds payable by Scout ~~were $42,039, leaving a balance of $306,944~~ to ~~be recovered from future proceeds, if any.~~the Trust.

(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Actual production volumes attributable
to the Royalty paid for Hugoton
Royalty Properties
89,833 4,157 — 85,068 5,522 —
Net production volumes attributable to
the Royalty paid for Hugoton
Royalty Properties
— — — — — —

	Three Months Ended June 30,
	2022									2021
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price		$	5.91		$	27.64		$	—		$	3.63		$	16.93		$	—

	(Mcf)		(Bbls)		(Bbls)		(Mcf)		(Bbls)		(Bbls)
Actual production volumes attributable to the Royalty paid for Hugoton Royalty Properties		75,519		4,699		—		72,895		4,224		—
Net production volumes attributable to the Royalty paid for Hugoton Royalty Properties		47,806		2,267		—		—		—		—

Average Sales Price. Average sales prices per thousand cubic feet (“Mcf”) of natural gas and barrel (“Bbl”) for natural gas liquids for the Hugoton Royalty Properties are directly dependent on the prices ~~paid~~Scout realizes for natural gas sold under short-term and multi-month contracts at market clearing prices to ~~Scout under the relevant contracts with~~multiple purchasers. Overall market prices received for natural gas from Hugoton Royalty Properties were higher for the three months ended ~~September~~June 30, ~~2021~~2022, as compared to the three months ended ~~September~~June 30, ~~2020.~~2021.

San Juan Basin Royalty Properties

Royalty income from the San Juan Basin Royalty Properties is calculated and paid to the Trust on a state-by-state basis depending upon whether the property is ~~situated~~located in Colorado or New Mexico. A majority of the Royalty income from the San Juan Basin Royalty Properties is attributable to the San Juan Basin — New Mexico Properties.

San Juan Basin — Colorado Properties

	Three Months Ended September 30,						Three Months Ended June 30,
	2021			2020			2022			2021
Royalty income attributable to San Juan Basin – Colorado Properties		$	—		$	21,636		$	—		$	594,172
Operating costs attributable to San Juan Basin – Colorado Properties		$	474,272		$	25,702		$	3,655		$	1,706

Royalty Income. Royalty income from the San Juan Basin — Colorado Royalty Properties was $0 during the ~~third~~second quarter of ~~2021,~~2022, as compared to ~~$21,636~~$594,172 during the ~~third~~second quarter of ~~2020. This~~2021. The decrease was primarily a result of ~~prior period adjustments reported by~~revenue received from Simcoe in May 2021 which included adjusted proceeds for prior periods and also included unusually high pricing due to extreme winter weather in early

2021. Simcoe informed the ~~three months ended September 30, 2021, compared~~Trustee that the amounts paid to the ~~three~~Trust in the months ~~ended September 30, 2020. Amounts not yet offset as a result~~ of ~~these adjustments will be recovered by~~May and June 2021 were subject to further adjustment in future periods for certain expenses that Simcoe asserts it is entitled to deduct under the Conveyance. Simcoe is recovering such expense amounts by withholding the Net Proceeds that would otherwise be payable to the Trust in ~~future periods. If not for~~ the ~~prior period adjustments~~quarter ended June 30, 2022. Net Proceeds from the San Juan Basin — Colorado Properties operated by Simcoe, ~~Royalty income received from~~adjusted against the outstanding expenses and recovered by Simcoe ~~would have been $24,721 in the third quarter of 2021 as compared to $21,636~~ for the quarter ended ~~September~~June 30, ~~2020,~~2022 were $18,065, leaving a balance of ~~$425,073~~$250,148 to be recovered from future proceeds, if any. Because of anticipated future adjustments, the amounts of Net Proceeds reported for the San Juan Basin — Colorado Properties during the three months ended ~~September~~June 30, ~~2021~~2022 may not be representative of Net Proceeds that will be received in future quarters. Per information provided by Simcoe, in April 2022, there was a prior period adjustment related to pricing that resulted in negative gross proceeds and negative net Royalty income attributable to the Trust for the month of April 2022.

Operating Costs. Operating costs on these properties were ~~$474,272~~$3,655 in the ~~third~~second quarter of ~~2021, an increase of $448,570~~2022, as compared to ~~$25,702~~$1,706 in the ~~third~~second quarter of ~~2020.~~2021. The ~~increase was~~low operating costs in the second quarters of both 2022 and 2021 were primarily the result of updates Simcoe made to prior period adjustments reported by Simcoe in ~~the three months ended September 30,~~ 2021, ~~compared to the three months ended September 30, 2020,~~ that Simcoe ~~asserts~~asserted it iswas entitled to deduct under the Conveyance. Simcoe’s operator statements for the quarters ended June 30, 2022 and June 30, 2021 show overpayment corrections which reduced Simcoe’s operating expenses to approximately $0 for the second quarters of both 2022 and 2021. The operating costs shown above of $3,655 and $1,706 are primarily attributable to the San Juan Basin — Colorado Properties operated by Red Willow. If not for the ~~adjustments,~~reductions, operating costs would have been ~~$24,479~~$24,882 for the three months ended ~~September~~June 30, 2022 and $19,008 for the three months ended June 30, 2021.

	Three Months Ended June 30,
	2022									2021
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price(1)		$	0.31		$	0.77		$	—		$	5.16		$	—		$	—

	(Mcf)		(Bbls)		(Bbls)		(Mcf)		(Bbls)		(Bbls)
Actual production volumes attributable to the Royalty paid for San Juan Basin – Colorado Properties		83,529		400		—		118,716		—		—
Net production volumes attributable to the Royalty paid for San Juan Basin – Colorado Properties		—		—		—		115,091		—		—

(1)

Per information provided by Simcoe, Simcoe pays Working Interest Owners on the same blended Weighted Average Sales Price (“WASP”) (fixed plus market) that Simcoe receives from their purchaser. WASP is defined as: for each delivery point, a price per MMBtu for each month equal to gas proceeds less transportation costs, divided by the total number of first of month baseload MMBtus of gas sold at such delivery point. Sales prices received by Simcoe may be lower than current market prices which may result in less than current market average gas prices received by the Trust.

2120

Three Months Ended September 30,
2021 2020

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Average sales price $ 0.66 $ — $ — $ 0.51 $ — $ —
(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Actual production volumes attributable
to the Royalty paid for San Juan
Basin – Colorado Properties
80,733 — — 92,914 — —
Net production volumes attributable to
the Royalty paid for San Juan
Basin – Colorado Properties
— — — 42,311 — —

San Juan Basin — New Mexico Properties

	Three Months Ended September 30,					Three Months Ended June 30,
			2021		2020	2022			2021
Royalty income attributable to San Juan Basin – New Mexico Properties		$	—	$	28,348		$	692,004		$	—
Operating costs attributable to San Juan Basin – New Mexico Properties		$	210,044	$	288,673		$	278,560		$	210,044
Capital expenditures attributable to San Juan Basin – New Mexico Properties		$	1,336	$	24,570		$	3,552		$	1,336

Royalty Income. Royalty income from the San Juan Basin — New Mexico Properties was $692,004 during the second quarter of 2022, as compared to Royalty income of $0 during the ~~third~~second quarter of ~~2021 as compared with Royalty income of $28,348 during the third quarter of 2020.~~2021. This ~~decrease~~increase was primarily a result of actual expenses being greater than actual revenues in past periods ~~of 2021~~ as reported by Hilcorp. Such expense amounts ~~are being~~were recovered by Hilcorp by withholding the Net Proceeds that would otherwise be payable to the Trust in ~~the quarter ended September 30, 2021, as compared~~2021.

In addition to the ~~quarter ended September 30, 2020. If not for the recovery withholding by~~above, in April 2021, Hilcorp ~~Royalty income received from Hilcorp would have been $271,947 in the third quarter of 2021 as compared to $28,348 for the quarter ended September 30, 2020. Hilcorp has~~ informed the Trust that Hilcorp iswas in process of a system conversion that ~~has~~ delayed the ability to provide current information. For ~~each month in~~ the ~~quarter ended September 30,~~Trust distribution months of April through November 2021, Hilcorp recorded estimates of revenues and expenses and calculated payments to the Trust based on ~~its~~Hilcorp’s December 2020 production ~~month.~~month, and the Trust recognized such amounts in accordance with its accounting practices. Accordingly, Hilcorp calculated an estimated payment of $90,649 in Net Proceeds to the Trust for each ofmonth from April 2021 through November 2021. These Net Proceeds were adjusted against the ~~three months ended September 30, 2021. When~~outstanding excess production costs referred to above. Per information provided by Hilcorp, the system conversion ~~is complete,~~was completed in December 2021. As a result of the system conversion, properties currently operated by Hilcorp, ~~has informed~~formerly operated by XTO and reported separately from Hilcorp, were combined into one reporting entity.

In the ~~Trust that it will utilize~~first quarter of 2022, Hilcorp performed a true-up of the 2021 estimated amounts for both Hilcorp and the properties currently operated by Hilcorp, formerly operated by XTO, and provided the true-up to the Trust. The true-up utilized actual revenue and expense amounts ~~and either add or subtract reconciled~~to reconcile historical amounts on a ~~month-by month basis. These adjustments will~~month-by-month basis and resulted in a balance owed to the Trust of $89,617, primarily due to increases in pricing during the true-up period. Per information provided by Hilcorp, the true-up of the 2021 estimated amounts is complete and there is currently no balance to be ~~recognized~~recovered from future proceeds related to this true-up.

Hilcorp also completed its recovery of excess production costs in the first quarter of 2022, and Royalty income was received by the Trust for each month in ~~accordance with~~ the ~~Trust’s modified cash basis of accounting. Because of anticipated future adjustments, the amounts~~quarter ended June 30, 2022. The receipt of Net Proceeds ~~reported~~from Hilcorp resulted in the increase for ~~the San Juan Basin — New Mexico Properties during~~ the three months ended ~~September~~June 30, 2022, as compared to the same period ended June 30, 2021. While there were no known excess production costs related to Hilcorp to offset Royalty income for the three months ended June 30, 2022, in June 2022, Hilcorp informed the Trust that the excess production costs that occurred prior to 2021, ~~may not~~of $11,538, related to the properties formerly operated by XTO and currently operated by Hilcorp, would be ~~representative of Net Proceeds that will~~offset from the net Royalty income to be received by the Trust from Hilcorp in ~~future quarters.~~July 2022.

Operating Costs and Capital Expenditures. Operating costs were $278,560 in the second quarter of 2022, an increase of approximately 33%, as compared to $210,044 in the ~~third~~second quarter of ~~2021, a decrease of approximately 27% as compared to $288,673 in the third quarter of 2020.~~2021. The ~~decrease~~increase was primarily a result of ~~including March through May 2018 true-ups~~an increase in severance tax due to increases in pricing for natural gas, natural gas liquids and oil and condensate in the second quarter of ~~historical amounts by Hilcorp in~~2022, as compared to the second quarter of 2021.

2221

three months ended September 30, 2020 as compared to no true-up of historical amounts in the three months ended September 30, 2021. Excluding the true-up, operating costs were $198,075 in the third quarter of 2020 as compared to $210,044 in the third quarter of 2021, an increase in 2021 of approximately 6%.

Capital expenditures on these properties were ~~$1,336~~$3,552 in the ~~third~~second quarter of ~~2021, as compared to $24,570 in the third quarter of 2020. Excluding the true-up referred to above, capital expenditures were $707 in the third quarter of 2020~~2022, as compared to $1,336 in the ~~third~~second quarter of 2021.

Three Months Ended September 30,
2021 2020

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Average sales price $ 2.02 $ 17.32 $ 36.60 $ 1.41 $ 8.49 $ 39.41
(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Actual production volumes attributable
to the Royalty paid for San Juan
Basin – New Mexico Properties
138,806 11,310 244 144,399 11,503 572
Net production volumes attributable to
the Royalty paid for San Juan
Basin – New Mexico Properties
— — — 10,181 209 310

	Three Months Ended June 30,
	2022									2021
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price		$	4.68		$	34.79		$	85.69		$	2.02		$	17.32		$	36.60

	(Mcf)		(Bbls)		(Bbls)		(Mcf)		(Bbls)		(Bbls)
Actual production volumes attributable to the Royalty paid for San Juan Basin – New Mexico Properties		125,445		10,498		261		138,806		11,310		244
Net production volumes attributable to the Royalty paid for San Juan Basin – New Mexico Properties		90,158		7,305		190		—		—		—

Following Hilcorp’s acquisition of ConocoPhillips’ and XTO’s interests in the San Juan Basin — New Mexico Properties, there was a transition period to transfer historical information, knowledge and processes from one owner to the other. During this transition period, Hilcorp recorded estimates of revenues and expenses and made payments to the Trust based on historical amounts previously paid by ConocoPhillips, and the Trust recognized such amounts in accordance with its ~~accounting practices.~~modified cash basis of accounting. Accordingly, Hilcorp made an estimated monthly payment of $97,150 in Net Proceeds to the Trust from September 2017 to March 2019 based upon the July 2017 production month previously paid by ConocoPhillips. In April 2019, Hilcorp began to generate actual (instead of estimated) Net Proceeds due to the Trust on a monthly basis. Hilcorp informed the Trust that it ~~will~~would utilize actual revenue and expense amounts and either add or subtract reconciled historical amounts on a month-by-month basis. These amounts ~~will~~would be recognized over time by the Trust in accordance with the Trust’s modified cash basis of accounting. In December 2019, Hilcorp made the first payment to the Trust in reconciling historical amounts for one accounting month. For the twelve months ended December 31, 2020, Hilcorp reconciled 10 additional historical amounts for the accounting monthsAs of ~~October 2017 through July 2018. For the three months ended~~ March 31, 2021, Hilcorp had reconciled ~~seven additional~~all historical amounts (including the incremental costs of approximately $1.1 million referred to below) ~~for the accounting months of August 2018 through February 2019,~~, which resulted in a charge to the Trust of $975,792. ~~As of March 31, 2021,~~ Hilcorp informed the Trust that its true-up reconciliation for the estimates of revenue and expenses ~~is complete.~~was completed in March 2021.

Although Hilcorp indicated that all estimated historical monthly amounts received by the Trust from September 2017 to March 2019 ~~are~~were fully reconciled, Net Proceeds from the San Juan Basin — New Mexico Properties that would otherwise be payable to the Trust in subsequent periods ~~will continue~~continued to be adjusted against the outstanding excess production costs until such amounts ~~are~~were fully recovered by Hilcorp.

of April through November 2021, Hilcorp recorded estimates of revenues and expenses and calculated payments to the Trust based on Hilcorp’s December 2020 production month, and the Trust recognized such amounts in accordance with its accounting practices. Accordingly, Hilcorp calculated an estimated payment of $90,649 in Net Proceeds to the Trust for each month from ~~the San Juan Basin — New Mexico Properties (excluding properties operated by Hilcorp, formerly operated by XTO)~~April 2021 through November 2021. These Net Proceeds were adjusted against the outstanding excess production costs ~~and recovered~~referred to above. Per information provided by Hilcorp, ~~were $271,947, leaving~~the system conversion was completed in December 2021.

In January 2022, Hilcorp performed a ~~balance~~true-up of ~~$198,465~~the estimated amounts, utilizing actual revenue and expense amounts to reconcile historical amounts on a month-by-month basis, and provided the true-up to the Trust. Per information provided by Hilcorp, the true-up is complete and there is currently no balance to be recovered from future proceeds if any. Because of the anticipated future offset, the amounts of Net Proceeds reported for the San Juan Basin — New Mexico Properties during the quarter ended September 30, 2021 may not be representative of Net Proceeds that will be received in future quarters.related to this true-up.

Pursuant to the Trust Indenture, the Trust is not required to pay to Hilcorp any amounts that could be owed if the estimated revenue exceeded actual revenue ~~figures~~amounts or estimated expenses were less than actual expense amounts in past ~~periods, plus any additional required costs.~~periods. However, Hilcorp may recover such amounts by withholding a portion or all of the Net Proceeds that would otherwise be payable to the Trust in subsequent periods. This could result in a decrease in Net Proceeds paid to the Trust and could result in future material reductions in distributions to the Trust’s unitholders.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

Financial Review

	Nine Months Ended September 30,						Six Months Ended June 30,
	2021			2020			2022			2021
Royalty income		$	630,687		$	703,387		$	1,769,844		$	630,687
Interest income			92			5,731			1,055			58
General and administrative expense			(149,794)			(167,149)			(122,158)			(96,153)
Income available for distribution prior to cash reserves used for Trust expenses			480,985			541,969
Cash reserves used for current Trust expenses			51,367			23,781
Income available for distribution prior to cash reserves withheld for Trust expenses									1,648,741			534,592
Cash reserves withheld for Trust expenses									(109,500)			(2,240)
Distributable income		$	532,352		$	565,750		$	1,539,241		$	532,352
Distributable income per unit		$	0.2857		$	0.3036		$	0.8260		$	0.2857
Units outstanding			1,863,590			1,863,590			1,863,590			1,863,590

Royalty and Interest Income. The Trust’s Royalty income was $1,769,844 for the six months ended June 30, 2022, as compared to $630,687 for the ~~nine~~six months ended ~~September~~June 30, ~~2021, a decrease of approximately 10% as compared to $703,387 for the nine months ended September 30, 2020~~2021. This increase was primarily as a result of actual expenses being greater than actual revenues in past ~~periods.~~periods as reported by Hilcorp and Scout. Such amounts ~~are being~~were recovered by ~~both~~Hilcorp and Scout ~~and Hilcorp~~ by withholding the Net Proceeds that would otherwise be payable to the Trust in 2021. Hilcorp and Scout completed their recoveries in the first ~~nine~~quarter of 2022, and Royalty income was received by the Trust from both Hilcorp and Scout for each month in the six months ended June 30, 2022. The receipt of ~~2021~~Net Proceeds from both Hilcorp and Scout resulted in the increase for the six months ended June 30, 2022, as compared to the ~~first nine months of 2020.~~ same period ended June 30, 2021.

The Trust’s interest income for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021 was $1,055 and ~~2020~~$58, respectively. In accordance with the Trust Indenture and as explained below, interest on cash on hand was ~~$92~~

For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Trustee was due ~~$356,250~~$237,500 for its services. The Trust paid ~~$324,865~~$216,576 of this amount to the Trustee, and ~~$31,385~~$20,924 was allocated to offset against interest due to the Trust under the Trust Indenture. The Trust Indenture requires that cash being held by the Trustee earn interest at 1.5% below the prime rate, which would have yielded the Trust a 1.75% annualized return from January 1, ~~2021~~2022 through ~~September~~March 15, 2022, a 2% annualized return from March 16, 2022 through May 3, 2022, a 2.5% annualized return from May 4, 2022 through June 14, 2022 and a 3.25% annualized return from June 15, 2022 through June 30, ~~2021.~~2022. However, due to the current interest rate environment, the Trustee was unable to obtain an account in which such an interest rate was available. In the event such an interest rate is unavailable in the future, the Trustee intends to allocate certain of its fees due to the Trust to meet the minimum interest rate payable under the Trust Indenture. In future periods, the Trustee will continue to allocate a portion of the fees earned for its services to the Trust until all remaining interest due to the Trust is fully offset.

Unreimbursed Expenses and the Contingent Reserve. The Working Interest Owners partially reimburse the Trust each quarter for amounts paid in connection with the Trustee’s services. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Trustee’s fees were ~~$324,865~~$216,576 and the Working Interest Owners reimbursed a sum of ~~$287,691~~$191,794 to the Trustee, which was the same amount reimbursed for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. As of each of the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, there were $0 ~~and $11,990, respectively,~~ of unreimbursed expenses.

~~The balance in~~utilizes the Contingent Reserve ~~was increased~~in its discretion in accordance with the Conveyance, and ~~decreased during~~adjusts the ~~period, as further described below.~~

~~For the nine months ended September 30, 2021, the Trustee increased~~balance of the Contingent Reserve ~~by (1) $8,565 for a reimbursement not received from Hilcorp until January 2021 but included in the December 2020 distribution to unitholders calculation, (2) $36,515~~as necessary when funds are added or removed. The net effects of ~~Royalty income received in February 2021 from Simcoe but withheld as cash reserves for current Trust expenses, (3) $27 for interest earned on the operating and reserve accounts~~such adjustments for the ~~quarter ended March 31, 2021, (4) $31 for interest earned on the operating and reserve accounts for the quarter~~six months ended June 30, 2021, (5) $156 received from BP/Amoco in April 2021, the receipt of which is pending identification from Simcoe, (6) $594,172 of proceeds received in May and June 2021 from Simcoe, $560,409 of which is included2022 resulted in the ~~May and June 2021 distributions to unitholders, and the remaining $33,763~~balance of which was received from Simcoe in June 2021 after the distribution to unitholders had been announced for the month of June 2021, which proceeds were included in the July 2021 distribution to unitholders and (7) $35 for interest earned on the operating and reserve accounts for the quarter ended September 30, 2021.

~~For the nine months ended September 30, 2021, the Trustee decreased~~ the Contingent Reserve by (1) $42,867 for general and administrative net unreimbursed expenses paid by the Trust for the quarter ended March 31, 2021, (2) $62,007 for general and administrative net unreimbursed expenses paid by the Trust for the quarter endedbeing equal to $1,073,346 as of June 30, 2021 ~~(3) $537,730 for~~and equal to $1,135,268 as of June 30, 2022. The Trustee intends to increase the ~~distribution payable~~Contingent Reserve to unitholders in July 2021, (4) $53,641 for general and administrative net unreimbursed expenses paid by the Trust for the quarter ended September 30, 2021 and (5) $7,316 for the distribution payable to unitholders in October 2021.a total of $2.0 million.

Operational Review

Global Oil Market Impact in 2022

Average oil and gas prices during the first and second quarters of 2022 were meaningfully higher compared to average prices during most of the previous quarterly periods over the last decade. In 2021, oil

2524

~~ended September 30,~~prices were supported by oil supply cuts by OPEC+. Oil demand in 2021 ~~was $545,045, representing $0.2925 per unit, compared~~broadly trended higher throughout the year, which also helped support strengthening oil prices. Beginning in March 2022, Russia’s incursion into Ukraine created volatility in global supply of numerous commodities, including oil. In response, the U.S. has implemented numerous measures to ~~$544,685, representing $0.2923 per unit, for the nine months ended September 30, 2020.~~

~~Operational Review~~

~~In 2020, the business~~help mitigate potential supply shortfalls and high oil prices, most notably by releasing millions of ~~the Working Interest Owners was adversely affected by the COVID-19 pandemic and measures taken~~barrels of crude oil from its Strategic Petroleum Reserve. The confluence of these major events have contributed to ~~mitigate its impact. The~~increased fluctuations in oil ~~and gas industry experienced sharp declines in the demand~~prices during 2022. If commodity prices for crude oil and natural gas ~~worldwide. The global economy and commodity prices were severely negatively impacted, as economic activity and demand for energy declined~~fall or remain volatile, monthly distributions to unitholders could be substantially reduced or there may be no distributions in response to the COVID-19 pandemic, as well as due to other geopolitical factors. The magnitude of the impact of the COVID-19 pandemic will depend on the duration and extent of the pandemic, including increases in COVID-19 case counts, any additional waves of the virus, new variants of the virus and the availability and ultimate efficacy of the vaccine on new variants of the virus. The effects from the pandemic continue to have a material adverse effect on Trust distributions.

future periods. The Trust did not make distributions ~~to unitholders from the time of the income distribution~~ for ~~the month of May 2020, paid to unitholders on July 31, 2020, until the income distribution for the months of May and June 2021, paid to unitholders on July 30,~~some periods in 2021, as costs, charges and expenses attributable to the Trust’s Royalty properties, and applicable reserves, exceeded the revenue received from the sale of oil, natural gas and other hydrocarbons produced from such properties for such periods, as reported by the Working Interest Owners. ~~All income received~~Additionally, sharp increases in ~~May and June 2021 came from Simcoe. No income was received in May or June 2021 from any other~~inflation coupled with supply chain disruptions are expected to increase expenses for Working Interest ~~Owner. Simcoe has informed~~Owners and are expected to have an adverse impact on Royalty income during 2022.

COVID-19 Pandemic

We continue to monitor the ~~Trustee that~~COVID-19 pandemic as cases and hospitalizations have dropped significantly in 2022. The full extent to which the ~~amounts paid to~~COVID-19 pandemic impacts the Trust inwill depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the ~~months of May~~severity and June 2021 are subject to further adjustment in future periods for certain expenses that Simcoe is entitled to deduct under the Conveyance. Simcoe is expected to recover such expense amounts by withholding a portion or allnew variants of the Net Proceeds that would otherwise be payable to the Trust in future periods. Any reduction in income paid to the Trust for these properties may materially reduce or eliminate distributions to the Trust’s unitholders in future periods. No income was received from any Working Interest Owner in the three months ended September 30, 2021. There is no indication if or when distributions may be announced in the future.virus.

Hugoton Royalty Properties

Natural gas and natural gas liquids production attributable to the Hugoton Royalty Properties accounted for ~~none~~20% of the Royalty income of the Trust during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

	Nine Months Ended September 30,						Six Months Ended June 30,
	2021			2020			2022			2021
Royalty income attributable to Hugoton Royalty Properties		$	—		$	248,445		$	345,326		$	—
Operating costs attributable to Hugoton Royalty Properties		$	964,125		$	876,499		$	852,917		$	592,083
Capital expenditures attributable to Hugoton Royalty Properties		$	14,614		$	—		$	31,958		$	14,614

Royalty Income. Royalty income attributable to the Hugoton Royalty Properties ~~decreased~~increased to $0$345,326 for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 from ~~$248,445~~$0 for the same period in ~~2020.~~2021. The ~~decrease~~increase was primarily a result of actual expenses being greater than actual revenues in past ~~periods.~~periods as reported by Scout. Such amounts ~~are being~~were recovered by Scout by withholding the Net Proceeds that would otherwise be payable to the Trust in the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2021. Scout completed its recovery in the first quarter of 2022, and Royalty income was received by the Trust from Scout for each month in the six months ended June 30, 2022. The receipt of Net Proceeds from Scout resulted in the increase for the six months ended June 30, 2022, as compared to the ~~nine months~~same period ended ~~September~~June 30, ~~2020. If not~~2021. The Trustee is in ongoing discussions with Scout regarding financial and operational information required to be delivered to the Trustee for purposes of timely disclosures by the ~~recovery withholding~~Trust. In addition, with the assistance of a third party consultant, the Trust has commenced a review of certain of Scout’s financial and operational statements and the Net Proceeds payable by Scout ~~Royalty income attributable~~ to the ~~Hugoton Royalty Properties would~~Trust.

six months ended ~~September~~June 30, ~~2020.~~2021. The increase ~~of approximately 10%~~ was primarily due to ~~increased power costs incurred by Scout, associated with the extreme winter weather in early 2021, which costs are being repaid~~corrections to ~~the power company incrementally through the remainder of 2021,~~prior periods’ expenses made in the ~~quarter~~six months ended ~~September~~June 30, ~~2021~~2022, as compared to the ~~quarter~~six months ended ~~September~~June 30, ~~2020.~~2021. Capital expenditures attributable to the Hugoton Royalty Properties were $31,958 during the six months ended June 30, 2022, as compared to $14,614 during the ~~nine~~six months ended ~~September~~June 30, ~~2021, as compared to $0 during the nine months ended September 30, 2020.~~2021.

Nine Months Ended September 30,
2021 2020

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Average sales price $ 3.57 $ 17.55 $ — $ 2.70 $ 9.79 $ —
(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Actual production volumes attributable to the Royalty paid for Hugoton Royalty
Properties
247,778 12,412 — 289,617 16,026 —
Net production volumes attributable to the Royalty paid for Hugoton Royalty
Properties
— — — 69,693 6,145 —

	Six Months Ended June 30,
	2022									2021
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price		$	5.13		$	24.87		$	—		$	3.51		$	16.29		$	—

	(Mcf)		(Bbls)		(Bbls)		(Mcf)		(Bbls)		(Bbls)
Actual production volumes attributable to the Royalty paid for Hugoton Royalty Properties		193,508		9,862		—		157,945		8,255		—
Net production volumes attributable to the Royalty paid for Hugoton Royalty Properties		55,092		2,519		—		—		—		—

San Juan Basin Royalty Properties

San Juan Basin — Colorado Properties

	Nine Months Ended September 30,						Six Months Ended June 30,
	2021			2020			2022			2021
Royalty income attributable to San Juan Basin – Colorado Properties		$	630,687		$	135,214		$	—		$	630,687
Operating costs attributable to San Juan Basin – Colorado Properties		$	483,993		$	89,587		$	4,894		$	9,721

Royalty Income. Royalty income from the San Juan Basin — Colorado Royalty Properties was ~~$630,687~~$0 for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~$135,214~~$630,687 during the same period in ~~2020.~~2021. The ~~increase~~decrease was primarily a result of ~~Royalty income~~revenue received from Simcoe in May 2021 which included adjusted proceeds for prior periods and also included unusually high pricing due to extreme winter weather in early 2021. Simcoe ~~has~~ informed the Trustee that the amounts paid to the Trust in the months of May and June 2021 ~~are~~were subject to further adjustment in future periods for certain expenses that Simcoe asserts it is entitled to deduct under the Conveyance. Simcoe is ~~expected to recover~~recovering such expense amounts by withholding ~~a portion or all of~~ the ~~net proceeds~~Net Proceeds that would otherwise be payable to the Trust in the six months ended June 30, 2022. Net Proceeds from the San Juan Basin — Colorado Properties operated by Simcoe, adjusted against the outstanding expenses and recovered by Simcoe for the six months ended June 30, 2022 were $91,559, leaving a balance of $250,148 to be recovered from future ~~periods.~~proceeds, if any. Because of anticipated future adjustments, the amounts of Net Proceeds reported for the San Juan Basin — Colorado Properties during the six months ended June 30, 2022 may not be representative of Net Proceeds that will be received in future quarters. Per information provided by Simcoe, in April 2022, there was a prior period adjustment related to pricing that resulted in negative gross proceeds and negative net Royalty income attributable to the Trust for the month of April 2022.

six months ended June 30, 2022 and June 30, 2021 were primarily the result of updates Simcoe made to prior period adjustments reported by Simcoe in ~~the nine months ended September 30,~~ 2021, ~~compared to the nine months ended September 30, 2020,~~ that Simcoe isasserted it was entitled to deduct under the Conveyance. Simcoe’s operator statements for the six months ended June 30, 2022 and June 30, 2021 show overpayment corrections of $82,753 and $19,238, respectively, which reduced Simcoe’s operating expenses to $0 and $1,930, respectively, for the six months ended June 30, 2022 and June 30, 2021. The operating costs shown above of $4,894 and $9,721 are primarily attributable to the San Juan Basin — Colorado Properties operated by Red Willow. If not for the ~~adjustments,~~reductions, operating costs would have been ~~$53,438~~$87,647 for the ~~nine~~six months ended ~~September~~June 30, 2022 and $28,958 for the six months ended June 30, 2021. The increase was primarily a result of corrections Simcoe made to prior periods’ expenses in the six months ended June 30, 2022, as compared to the six months ended June 30, 2021.

	Six Months Ended June 30,
	2022									2021
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price(1)		$	0.65		$	0.63		$	—		$	4.34		$	—		$	—

	(Mcf)		(Bbls)		(Bbls)		(Mcf)		(Bbls)		(Bbls)
Actual production volumes attributable to the Royalty paid for San Juan Basin – Colorado Properties		161,615		1,247		—		148,890		—		—
Net production volumes attributable to the Royalty paid for San Juan Basin – Colorado Properties		—		—		—		141,218		—		—

(1)

Nine Months Ended September 30,
2021 2020

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Average sales price $ 4.49 $ — $ — $ 0.71 $ — $ —
(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Actual production volumes attributable
to the Royalty paid for San Juan
Basin – Colorado Properties
229,623 — — 309,063 — —
Net production volumes attributable to
the Royalty paid for San Juan
Basin – Colorado Properties
140,431 — — 191,305 — —

Per information provided by Simcoe, Simcoe pays Working Interest Owners on the same blended WASP price (fixed plus market) that Simcoe receives from their purchaser. Sales prices received by Simcoe may be lower than current market prices which may result in less than current market average gas prices received by the Trust.

San Juan Basin — New Mexico Properties

	Nine Months Ended September 30,						Six Months Ended June 30,
	2021			2020			2022			2021
Royalty income attributable to San Juan Basin – New Mexico Properties		$	—		$	319,728		$	1,424,518		$	—
Operating costs attributable to San Juan Basin – New Mexico Properties		$	804,524		$	831,601		$	737,791		$	594,480
Capital expenditures attributable to San Juan Basin – New Mexico Properties		$	1,186,761		$	56,386		$	63,521		$	1,185,424

Royalty Income. Royalty income from the San Juan Basin — New Mexico Properties was $0$1,424,518 for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022, as compared to ~~$319,728~~$0 during the same period in ~~2020. The decrease~~2021. This increase was primarily a result of actual expenses being greater than actual revenues in past ~~periods.~~periods as reported by Hilcorp. Such amounts ~~are being~~were recovered by Hilcorp by withholding the Net Proceeds that would otherwise be payable to the Trust in ~~the nine months ended September 30, 2021, as compared~~2021.

In addition to the ~~nine months ended September 30, 2020. If not for the recovery withholding by~~above, in April 2021, Hilcorp ~~Royalty income received from Hilcorp would have been $777,327 for the nine months ended September 30, 2021 as compared to $319,728 for the nine months ended September 30, 2020. Hilcorp has~~ informed the Trust that Hilcorp iswas in process of a system conversion that ~~has~~ delayed the ability to provide current information. For ~~each month in~~ the ~~second and third quarters ended June 30,~~Trust distribution months of April through November 2021, ~~and September 30, 2021, respectively,~~ Hilcorp recorded estimates of revenues and expenses and calculated payments to the Trust based on ~~its~~Hilcorp’s December 2020 production ~~month.~~month, and the Trust recognized such amounts in accordance with its accounting practices. Accordingly, Hilcorp calculated an estimated payment of $90,649 in Net Proceeds to the Trust for each month infrom April 2021 through November 2021. These Net Proceeds were adjusted against the ~~quarters ended June 30, 2021 and September 30, 2021. When~~outstanding excess production costs referred to above. Per information provided by Hilcorp, the system conversion ~~is complete,~~was completed in December 2021. As a result of the system conversion, properties currently operated by Hilcorp, ~~has informed~~formerly operated by XTO and reported separately from Hilcorp, were combined into one reporting entity.

In the ~~Trust that it will utilize~~first quarter of 2022, Hilcorp performed a true-up of the 2021 estimated amounts for both Hilcorp and the properties currently operated by Hilcorp, formerly operated by XTO, and provided the true-up to the Trust. The true-up utilized actual revenue and expense amounts ~~and either add or subtract reconciled~~to reconcile historical amounts on a ~~month-by month basis. These adjustments will~~month-by-month basis, and resulted in a balance owed to the Trust of $89,617, primarily due to increases in pricing during the true-up period. Per information provided by Hilcorp, the true-up of the 2021 estimated amounts is complete and there is currently no balance to be ~~recognized~~recovered from future proceeds related to this true-up.

~~Because of anticipated future adjustments, the amounts~~six months ended June 30, 2022. The receipt of Net Proceeds ~~reported~~from Hilcorp resulted in the increase for the ~~San Juan Basin — New Mexico Properties during the nine~~six months ended ~~September~~June 30, 2022, as compared to the same period ended June 30, 2021. While there were no known excess production costs related to Hilcorp to offset Royalty income for the three months ended June 30, 2022, in June 2022, Hilcorp informed the Trust that the excess production costs that occurred prior to 2021, ~~may not~~of $11,538, related to the properties formerly operated by XTO and currently operated by Hilcorp, would be ~~representative of Net Proceeds that will~~offset from the net Royalty income to be received by the Trust from Hilcorp in ~~future quarters.~~July 2022.

Operating Costs and Capital Expenditures. Operating costs were ~~$804,524~~$737,791 during the ~~nine~~six months ended ~~September~~June 30, ~~2021, a decrease~~2022, an increase of approximately 3%24%, as compared to ~~$831,601~~$594,480 during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase was primarily a result of an increase in severance tax due to increases in pricing for natural gas, natural gas liquids and oil and condensate in the six months ended June 30, 2022, as compared to the six months ended 2021.

Capital expenditures on these properties were ~~$1,186,761~~$63,521 during the ~~nine~~six months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$1,130,375~~$1,121,903, as compared to ~~$56,386~~$1,185,424 during the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~capital expenditure increase~~decrease was due primarily to including ancapital expenditures of approximately $1.1 million ~~true-up of historical amounts~~ attributable to the Trust ~~incurred~~(incurred in 2018 with respect to a newly drilled well in the San Juan Basin — New Mexico ~~Properties,~~Properties) in the ~~nine~~six months ended ~~September~~June 30, ~~2021 as compared to the nine months ended September 30, 2020.~~2021.

Nine Months Ended September 30
2021 2020

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Natural
Gas

Natural
Gas Liquids

Oil and
Condensate

Average sales price $ 2.62 $ 16.53 $ 43.45 $ 1.62 $ 12.88 $ 40.86
(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Actual production volumes attributable
to the Royalty paid for San Juan
Basin – New Mexico Properties
435,955 34,943 1,823 432,961 32,840 1,442
Net production volumes attributable to
the Royalty paid for San Juan
Basin – New Mexico Properties
— — — 108,727 9,474 542

	Six Months Ended June 30,
	2022									2021
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price		$	7.59		$	58.37		$	88.09		$	2.89		$	16.15		$	44.51

	(Mcf)		(Bbls)		(Bbls)		(Mcf)		(Bbls)		(Bbls)
Actual production volumes attributable to the Royalty paid for San Juan Basin – New Mexico Properties		175,521		14,565		686		297,149		23,633		1,579
Net production volumes attributable to the Royalty paid for San Juan Basin – New Mexico Properties		113,453		9,041		404		—		—		—

Liquidity and Capital Resources

The Trustee, acting pursuant to the Trust Indenture, may withhold Royalty income for future unknown contingent liabilities and expenses, such cumulative withholding referred to as the Contingent Reserve. The Trustee reserves the right to determine whether or not to increase or release cash reserves in future periods with respect to any reimbursement expenses. At any given time, the Contingent Reserve is included in cash and short-term investments.

The Trustee may establish and increase cash reserves as permitted by the Trust Indenture. The Trustee has recently evaluated the adequacy of the Contingent Reserve based on the likelihood of future regular receipts of Royalty income from the Royalty Properties, volatility in commodity prices and other market conditions affecting Royalty income, and the anticipated costs and expenses related to the future termination of the Trust. On the basis of this evaluation, the Trustee intends to increase the Contingent Reserve from $1.0 million to a total of $2.0 ~~million.~~million, which will reduce Net Proceeds available to the Trust and distributions to Trust unitholders. The amount and timing of the addition to the Contingent Reserve will be determined by the Trustee ~~intends~~on a monthly basis and is expected to ~~retain~~vary in ~~reserve~~ future ~~Royalty income, if any, received in~~periods depending on circumstances at the ~~remainder of fiscal year 2021 and subsequent periods until the cash reserve is fully funded at this increased level.~~time. The Trustee intends to continue to evaluate the adequacy of the Contingent Reserve and may at any time, without notice to the unitholders, increase or decrease the amount of the Contingent Reserve based on this ongoing evaluation. Future filings by the Trust with the SEC will include information regarding the Trustee’s evaluation of cash reserves and funding of the Contingent Reserve.

~~None.~~

~~Contractual Obligations~~

~~None.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. The Trustee maintains disclosure controls and procedures designed to ensure that information required to be disclosed by the Trust in the reports that it files or submits under the ~~“Exchange Act”,~~Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Trust in the reports that it files or submits under the Exchange Act is accumulated and communicated by the Working Interest Owners to The Bank of New York Mellon Trust Company, N.A., as Trustee of the Trust, and its employees who participate in the preparation of the Trust’s periodic reports as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, the Trust officer acting on behalf of the Trustee responsible for the administration of the Trust conducted an evaluation of the Trustee’s disclosure controls and procedures. The officer acting on behalf of the Trustee concluded that the Trust’s disclosure controls and procedures were ~~effective.~~effective with respect to the Trustee and its employees.

Due to the contractual arrangements of (i) the Trust Indenture and (ii) the rights of the Trust under the Conveyance regarding information furnished by the Working Interest Owners, the Trustee relies on information provided by the Working Interest Owners, including (i) the status of litigation, (ii) historical operating data, plans for future operating and capital expenditures and reserve information, (iii) information relating to projected production, and (iv) conclusions regarding reserves by their internal reserve engineers or other experts in good faith. See Part II Item 1A. “Other Information — Risk Factors — Trust unitholders and the Trustee have no control over the operation or development of the Royalty ~~Properties and have~~

~~little influence over operation or development”~~Properties” and “The Trustee relies upon the Working Interest Owners for information regarding the Royalty Properties” in the Trust’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for a description of certain risks relating to these arrangements and reliance, including filings such as this filing outside the time periods specified notwithstanding effective disclosure controls and procedures, of the Trustee regarding information under its control.

The officer acting on behalf of the Trustee has not conducted a separate evaluation of the disclosure controls and procedures with respect to information furnished by the Working Interest Owners. The Trustee notes that it is conducting an ongoing review of certain information and calculations by the Working Interest Owners, along with an outside joint venture auditor. See “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” under Part II, Item 7 of the Trust’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 for information concerning controls and procedures with respect to the ~~Royalty.~~Royalty and information related to the Trustee’s review of certain information and calculations by the Working Interest Owners.

Changes in Internal Control over Financial Reporting. In connection with the evaluation by the Trustee of changes in internal control over financial reporting of the Trust that occurred during the Trust’s last fiscal quarter, no change in the Trust’s internal control over financial reporting was identified that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting. The Trustee notes for purposes of clarification that it has no authority over, has not evaluated and makes no statement concerning the internal control over financial reporting of the Working Interest Owners.

3130

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

There are no pending legal proceedings to which the Trust is a named party. The Trustee has been advised by each of the Working Interest Owners that the Trust may be subject to litigation in the ordinary course of business for certain matters that include the Royalty Properties. While each of the Working Interest Owners has advised the Trustee that it does not currently believe any of the pending litigation will have a material adverse effect net to the Trust, in the event such matters were adjudicated or settled in a material amount and charges were made against Royalty income, such charges could have a material impact on future Royalty income.

Item 1A. Risk Factors.

For a discussion of the Trust’s potential risks and uncertainties, please see “Risk Factors” in Part I, Item 1A of the Trust’s Annual Report on Form 10-K for the year ended December 31, ~~2020, the risks discussed in the Trust’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and the risks discussed in the Trust’s Quarterly Report on Form 10-Q for~~2021. During the quarter ended June 30, ~~2021. Additionally, see below for additional risks and uncertainties during the quarter ended September 30, 2021.~~

~~Any decreases~~2022, there was no material change in prices of natural gas on the spot market, or in prices reported by Working Interest Owners under applicable contractual arrangements, may materially and adversely affect cash generated from operations, results of operations and reduce Net Proceeds available to the Trust and distributions to Trust unitholders.

Natural gas and natural gas liquids produced from the Royalty Properties may be sold by the Working Interest Owners at market clearing prices or on the spot market or at prices determined by contract. To the extent prices are determined by contract, any increases in spot prices may not result in a corresponding increase in Net Proceeds received by the Trust or in the amount of cash available to pay cash distributions to unitholders.

~~The Trust has established a cash reserve for contingent liabilities and to pay expenses in accordance with the Trust Indenture and intends to increase~~ such ~~contingent reserve from $1.0 million to a total of $2.0 million, which will reduce Net Proceeds available to the Trust and distributions to Trust unitholders.~~risk factors.

The Trust’s sole source of capital is the Royalty income received from its share of the Net Proceeds from the Royalty Properties. Pursuant to the Trust Indenture, the Trust may establish a cash reserve through the withholding of cash for contingent liabilities and to pay future Trust expenses. The Trustee has established a cash reserve for contingent liabilities and expenses in accordance with the Trust Indenture, which will reduce Net Proceeds available to the Trust and distributions to Trust unitholders. The Trustee intends to increase the contingent reserve from $1.0 million to a total of $2.0 million, which will reduce Net Proceeds available to the Trust and distributions to Trust unitholders. Because the excess production costs are recoverable by the Working Interest Owners before any distribution of Royalty income from the properties will be made to the Trust, the Trust will not have Royalty income to begin increasing the contingent reserve until such excess production costs are fully recovered with respect to a particular Working Interest Owner.

Item 6. Exhibits.

Exhibit Number		SEC File or Registration Number	Exhibit Number
4(a)*	*Mesa Royalty Trust Indenture between Mesa Petroleum Co. and Texas Commerce Bank National Association, as Trustee, dated November 1, 1979	2-65217	1(a)
4(b)*	*Form of Overriding Royalty Conveyance between Mesa Petroleum Co. and Texas Commerce Bank, as Trustee, dated November 1, 1979	2-65217	1(b)
4(c)*	*First Amendment to the Mesa Royalty Trust Indenture dated as of March 14, 1985 (Exhibit 4(c) to Form 10-K for year ended December 31, 1984 of Mesa Royalty Trust)	1-7884	4(c)
4(d)*	*Form of Assignment of Overriding Royalty Interest, effective April 1, 1985, from Texas Commerce Bank National Association, as Trustee, to MTR Holding Co. (Exhibit 4(d) to Form 10-K for year ended December 31, 1984 of Mesa Royalty Trust)	1-7884	4(d)
4(e)*	*Purchase and Sale Agreement, dated March 25, 1991, by and among Mesa Limited Partnership, Mesa Operating Limited Partnership and ConocoPhillips, as amended on April 30, 1991 (Exhibit 4(e) to Form 10-K for year ended December 31, 1991 of Mesa Royalty Trust)	1-7884	4(e)
31	Certification furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Previously filed in paper format with the Securities and Exchange Commission and incorporated herein by reference.

3331

	As of September 30, 2021			As of December 31, 2020
Hugoton Properties		$	306,944		$	430,888
San Juan Basin – Colorado Properties – Simcoe			425,073			—
San Juan Basin – Colorado Properties – Red Willow			26,920			36,453
San Juan Basin – New Mexico Properties – Hilcorp			212,615			18,874
Total		$	971,552		$	486,215

	Three Months Ended September 30,
	2021									2020
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
The Trust’s proportionate share of Gross proceeds(1)(5)		$	665,006		$	279,222		$	8,919		$	456,408		$	144,298		$	22,255
Less the Trust’s proportionate share of:
Capital costs recovered			(733)			(585)			(19)			(19,958)			(304)			(4,307)
Operating costs			(891,375)			(161,363)			(3,620)			(435,021)			(138,255)			(19,808)
Net proceeds(2)		$	(227,102)		$	117,274		$	5,280		$	1,429		$	5,739		$	(1,860)
Royalty income(2)		$	—		$	—		$	—		$	36,002		$	1,773		$	12,209
Average sales price		$	—		$	—		$	—		$	0.69		$	8.49		$	39.41
Average production costs(3)		$	—		$	—		$	—		$	8.67		$	663.35		$	77.85

	Nine Months Ended September 30,
	2021									2020
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
The Trust’s proportionate share of Gross proceeds(1)(5)		$	2,724,818		$	795,345		$	79,203		$	1,702,735		$	583,063		$	58,618
Less the Trust’s proportionate share of:
Capital costs recovered			(1,036,884)			(3,088)			(161,402)			(39,814)			(10,473)			(6,099)
Operating costs			(1,763,837)			(455,908)			(32,898)			(1,365,475)			(387,705)			(44,507)
Net proceeds(2)		$	(75,903)		$	336,349		$	(115,097)		$	297,446		$	184,885		$	8,012
Royalty income(2)		$	630,687		$	—		$	—		$	499,092		$	182,164		$	22,131
Average sales price		$	4.49		$	—		$	—		$	1.35		$	11.66		$	40.86
Average production costs(3)		$	19.94		$	—		$	—		$	3.80		$	25.49		$	93.44

	2021			2020
July		$	0.0039		$	—
August			—			—
September			—			—
		$	0.0039		$	—

	Nine Months Ended September 30
	2021									2020
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price		$	2.62		$	16.53		$	43.45		$	1.62		$	12.88		$	40.86

By:		~~Mesa Royalty Trust~~
	~~By:~~ The Bank of New York Mellon Trust Company, N.A., as Trustee
By:	~~By:~~ /s/ Elaina Rodgers Elaina Rodgers Vice President & Trust Officer