UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended March 31, 20202021

OR

Commission File Number:1-10476

Hugoton Royalty Trust

(Exact name of registrant as specified in its charter)

c/o The Corporate Trustee:

Simmons Bank

2911 Turtle Creek Blvd, Suite 850

Dallas, Texas 75219

(Address of principal executive offices) (Zip Code)

(855)588-7839

(Registrant’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if change since last report)

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

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 RegulationS-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, anon-accelerated filer, 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 Rule12b-2 of the Exchange Act (check one):Act:

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 Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒☑

Indicate the number of units of beneficial interest outstanding, as of the latest practicable date:

Outstanding as of May 1, 20202021

40,000,000

HUGOTON ROYALTY TRUST

FORM10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 20202021

TABLE OF CONTENTS

HUGOTON ROYALTY TRUST

GLOSSARY OF TERMS

The following are definitions of significant terms used in this Form10-Q:

HUGOTON ROYALTY TRUST

PART I- FINANCIAL INFORMATION

Item 1. Financial Statements.

The condensed financial statements included herein are presented, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Unless specified otherwise, all amounts included herein are presented in US dollars. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations, although the Trustee believes that the disclosures are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Trust’s latest Annual Report on Form10-K. In the opinion of the Trustee, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the assets, liabilities and trust corpus of the Hugoton Royalty Trust at March 31, 20202021 and the distributable income and changes in trust corpus for the three-month periods ended March 31, 20202021 and 20192020 have been included. Distributable income for such interim periods is not necessarily indicative of the distributable income for the full year. The condensed financial statements as of March 31, 2020,2021, and for the three-month periods ended March 31, 20202021 and 20192020 have been subjected to a review by PricewaterhouseCoopers LLP, the Trust’s independent registered public accounting firm, whose report is included herein.

Report of Independent Registered Public Accounting Firm

To the Unitholders of Hugoton Royalty Trust and

Simmons Bank, Trustee:Trustee

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed statement of assets, liabilities and trust corpus of Hugoton Royalty Trust (the “Trust”) as of March 31, 2020,2021, and the related condensed statements of distributable income and of changes in trust corpus for the three-month periods ended March 31, 20202021 and 2019,2020, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with the modified cash basis of accounting described in Note 1.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statementsstatement of assets, liabilities and trust corpus as of December 31, 2019,2020, and the related statements of distributable income and of changes in trust corpus for the year then ended (not presented herein), and in our report dated March 30, 2020,31, 2021, which included a paragraph describing the modified cash basis of accounting and a paragraph regarding substantial doubt about the Trust’s ability to continue as a going concern, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed statement of assets, liabilities and trust corpus as of December 31, 2019,2020, is fairly stated, in all material respects, in relation to the statementsstatement of assets, liabilities and trust corpus from which it has been derived.

Substantial Doubt About the Trust’s Ability to Continue as a Going Concern

The accompanying interim financial statements have been prepared assuming that the Trust will continue as a going concern. Note 2 of the Trust’s audited financial statements as of December 31, 2020 and 2019, and for the years then ended, includes a statement that substantial doubt exists about the Trust’s ability to continue as a going concern. Note 2 of the Trust’s audited financial statements also discloses the events and conditions, management’s evaluation of the events and conditions, and management’s plans regarding these matters, including the fact that increases in excess costs have resulted in insufficient net proceeds available to the Trust and the depletion of the expense reserve available to the Trust for the payment of its obligations. Our report on those financial statements includes a paragraph referring to the matters in Note 2 of those financial statements. As indicated in Note 1 of the accompanying interim financial statements, as of March 31, 2021, and for the three-months then ended, the events and conditions impacting the Trust have not changed, and as a result, the Trust has stated that substantial doubt exists about the Trust’s ability to continue as a going concern. The accompanying interim financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Review Results

These interim financial statements are the responsibility of the Trust’s management.Trustee. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying interim financial statements have been prepared assuming that the Trust will continue as a going concern. Note 2 of the Trust’s audited financial statements as of December 31, 2019 and 2018, and for the years then ended, includes a statement that substantial doubt exists about the Trust’s ability to continue as a going concern. Note 2 of the Trust’s audited financial statements also discloses the events and conditions, management’s evaluation of the events and conditions, and management’s plans regarding these matters, including the fact that a reduction in net profits income as a result of excess costs have led to a decline to the expense reserve available to the Trust for the payment of its obligations. Our report on those financial

statements includes a paragraph referring to the matters in Note 2 of those financial statements. As indicated in Note 1 of the accompanying interim financial statements, as of March 31, 2020, and for the three months then ended, the events and conditions impacting the Trust have not changed, and as a result, the Trust has stated that substantial doubt exists about the Trust’s ability to continue as a going concern. The accompanying interim financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis of Accounting

As described in Note 1, these financial statements were prepared on the modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.accounting principles.

/s/ PricewaterhouseCoopers LLP

Dallas, TX

May 15, 2020

HUGOTON ROYALTY TRUST

Condensed Statements of Assets, Liabilities and Trust Corpus(Unaudited)

(a)The expense reserve allows the Trustee to pay its obligations should it be unable to pay them out of the net profits income.

The accompanying notes to condensed financial statements are an integral part of these statements.

HUGOTON ROYALTY TRUST

Condensed Statements of Distributable Income (Unaudited)

The accompanying notes to condensed financial statements are an integral part of these statements.

HUGOTON ROYALTY TRUST

Condensed Statements of Changes in Trust Corpus(Unaudited)

The accompanying notes to condensed financial statements are an integral part of these statements.

HUGOTON ROYALTY TRUST

Notes to Condensed Financial Statements(Unaudited)

The financial statements of Hugoton Royalty Trust (the “Trust”) are prepared on the following basis and are not intended to present financial position and results of operations in conformity with U.S. generally accepted accounting principles (“GAAP”):

The Trust’s financial statements differ from those prepared in conformity with U.S. GAAP because revenues are recognized when received rather than accrued in the month of production, expenses are recognized when paid rather than when incurred and certain cash reserves may be established by the Trustee for contingencies which would not be recorded under U.S. GAAP. This comprehensive basis of accounting other than U.S. GAAP corresponds to the accounting permitted for royalty trusts by the U.S. Securities and Exchange Commission, as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.

Most accounting pronouncements apply to entities whose financial statements are prepared in accordance with U.S. GAAP, directing such entities to accrue or defer revenues and expenses in a period other than when such revenues were received or expenses were paid. Because the Trust’s financial statements are prepared on the modified cash basis, as described above, most accounting pronouncements are not applicable to the Trust’s financial statements.

Impairment of Net Profits Interest

The Trustee reviews the Trust’s net profits interests (“NPI”) in oil and gas properties for impairment whenever events or circumstances indicate that the carrying value of the NPI may not be recoverable. In general, the Trustee does not view temporarily low prices as an indication of impairment. The markets for crude oil and natural gas have a history of significant price volatility and though prices will occasionally drop significantly, industry prices over the long term will continue to be driven by market supply and demand. If events and circumstances indicate that the carrying value may not be recoverable, the Trustee would use the estimated undiscounted future net cash flows from the NPI to evaluate the recoverability of the Trust assets. If the undiscounted future net cash flows from the NPI are less than the NPI carrying value, the Trust would recognize an impairment loss for the difference between the NPI carrying value and the estimated fair value of the NPI. The determination as to whether the NPI is impaired requires a significant amount of judgment by the Trustee and is based on the best information available to the Trustee at the time of the evaluation, including information provided by XTO Energy such as estimates of future production and development and operating expenses.

Significantly, during the third quarter of 2019, long term gas prices used to develop projections of future cash flows declined further and excess costs on all three conveyances increased substantially. In light of these facts and circumstances, a trigger event occurred in the third quarter of 2019 indicating a need for further analysis. An assessment of the estimated undiscounted future net cash flows for the NPI indicated that such cash flows were less than the carrying value of the NPI. Accordingly, during the third quarter of 2019, the NPI was written down to its fair value of zero, resulting in a $15.7 million impairment charged directly to Trust corpus, which did not affect distributable income. The fair value of the NPI was developed using estimates for future oil and gas production attributable to the Trust, future crude oil and natural gas commodity prices published by third-party industry experts (adjusted for basis differentials), estimated taxes, development and operating expenses, and a risk-adjusted discount rate. Impairments recorded for book purposes will not result in a loss for tax purposes for the unitholders until the loss is recognized.

Net profits interests in oil and gas properties

The initial carrying value of the net profits interests of $247,066,951 represents XTO Energy’s historical net book value for the interests on December 1, 1998, the date of the transfer to the Trust. During the second quarter 2016, the carrying value of the NPInet profits interests was written down to its fair value of $28,801,000, resulting in an impairment of $57,306,527 charged directly to trust corpus. During the third quarter 2019, the carrying value of the NPInet profits interests was written down to its fair value of zero, resulting in an impairment of $15,681,533 charged directly to trust corpus. Amortization of the net profits interests is calculated on aunit-of-production basis and charged directly to trust corpus. Accumulated amortization was $174,078,891 as of March 31, 2020 and $174,078,891 asSeptember 30, 2019, when the net profits interests was written down to its fair value of December 31, 2019.zero.

Liquidity and Going Concern

The accompanying condensed financial statements have been prepared assuming that the Trust will continue as a going concern. Financial statements prepared on a going concern basis assume the realization of assets and the settlement of liabilities in the normal course of business. Increases in excess costs for the Kansas, Oklahoma and Wyoming conveyances have resulted in insufficient net proceeds to the Trust and a reduction in the Trust’s expense reserve. In March through May of 2019, the Trust received net profits income from the Wyoming conveyance in an amount that covered all of the Trust’s administrative expenses and allowed for a partial replenishment of the expense reserve but there were no funds to distribute to unitholders. The net profits income in these months are not necessarily indicative of future cash inflows for the next 12 months.zero. These conditions raise substantial doubt about the Trust’s ability to continue as a going concern as the Trust may not have, based on the

On July 9, 2020, the Trustee notified XTO Energy of the Trustee’s claim to indemnification to the Trust Estate for all liability, expense, claims, damages or loss incurred by the Trustee in connection with the administration of the Trust. The Trustee stated it anticipates seeking reimbursement from XTO Energy upon depletion of the Trust’s cash reserve. XTO Energy has responded that any indemnity claim to XTO Energy is premature before the Trust Estate is exhausted.

The following summarizes actual development costs, budgeted development costs deducted in the calculation of net profits income, and the cumulative actual costs compared to the amount deducted for the underlying properties:

The monthly deduction is based on the current level of development expenditures, budgeted future development costs and the cumulative actual costs under (over) previous deductions. XTO Energy has advised the Trustee that actual development costs for properties underlying the Kansas and Wyoming net profits interests were charged to the Trust as incurred. XTO has advised the Trustee that actual development costs for the properties underlying the Oklahoma net profits interests were charged to the Trust as incurred once the accrual was fully depleted as of the July 2019 distribution. XTO Energy has advised the Trustee that drilling in Major County, Oklahoma is complete and resulted in cost overruns due to unforeseen expenditures that were charged to the Trust in the third quarter of 2019. XTO Energy has advised the Trustee that 20202021 budgeted development costs for the underlying properties are betweencould be up to $1 million and $3 million. The 20202021 budget year generally coincides with the Trust distribution months from April 20202021 through March 2021.2022. Changes in oil or natural gas prices could impact future development plans on the underlying properties. XTO Energy has advised the Trustee that this monthly deduction will continue to be evaluated and revised as necessary.

Each unitholder should consult his or hertheir own tax advisor regarding income tax requirements, if any, applicable to such person’s ownership of Trust units.

Unitholders should consult the Trust’s latest annual report on Form10-K for a more detailed discussion of federal and state tax matters.

Litigation

Royalty Class Action and Arbitration

As previously disclosed, XTO Energy advised the Trustee that it reached a settlement with the plaintiffs in theChieftain class action royalty case. On July 27, 2018 the final plan of allocation was approved by the court. Based on the final plan of allocation XTO Energy has advised the Trustee that it believes approximately $24.3 million in additional production costs should be allocated to the Trust. On May 2, 2018, the Trustee submitted a demand for arbitration seeking a declaratory judgment that theChieftain settlement is not a production cost and that XTO Energy is prohibited from charging the settlement as a production cost under the conveyance or otherwise reducing the Trust’s payments now or in the future as a result of theChieftain litigation. The Trust and XTO Energy conducted the interim hearing on the claims related to theChieftain settlement has been postponed due to a continuance granted byon October 12-13, 2020. In the arbitrators atarbitration, the request of XTO EnergyTrustee contended that the approximately $24.3 million allocation related to the coronavirus pandemic.

Other

Several states have enacted legislation requiring state income tax withholding from payments made to nonresident recipients of oil and gas proceeds. After consultation with its tax counsel, the Trustee believes that it is not required to withhold on payments made to the unitholders. However, regulations are subject to change by the various states, which could change this conclusion. Should amounts be withheld on payments made to the Trust or the unitholders, distributions to the unitholders would be reduced by the required amount, subject to the filing of a claim for refund by the Trust or unitholders for such amount.

Item 2. Trustee’s Discussion and Analysis.

The following discussion should be read in conjunction with the Trustee’s discussion and analysis contained in the Trust’s 20192020 Annual Report on Form10-K, as well as the condensed financial statements and notes thereto included in this Quarterly Report on Form10-Q. The Trust’s Annual Report on Form10-K, quarterly reports on Form10-Q, current reports on Form8-K and all amendments to those reports are available on the Trust’s web site atwww.hgt-hugoton.comwww.hgt-hugoton.com..

Distributable Income

For the quarter ended March 31, 2020,2021, net profits income was $0 as compared to $130,733$0 for first quarter 2019. This 100% decrease in net profits income is2020 primarily the result ofdue to increased gas prices ($1.5 million), net excess costs activity ($6.01.2 million), decreased gas prices ($3.1 million), increased overheadproduction expenses ($0.9 million), and increased production expensesdecreased overhead ($0.20.1 million), partially offset byand decreased development costs ($6.60.1 million), increasedoffset by decreased oil production ($1.8 million), decreased oil prices ($1.1 million), and decreased gas production ($3.3 million) and increased oil prices ($0.20.9 million). See “Net Profits Income” below.

After adding interest income of $2,248 and$0, deducting administration expense of $151,448,$260,936, and reducing theutilizing cash reserve $149,200funded by Simmons Bank of $260,936 for the payment of Trust expenses, distributable income for the quarter ended March 31, 20202021 was $0 or $0.000000 per unit of beneficial interest. Administration expense for the quarter decreased $140,244increased $109,488 from the prior year quarter. Changes in interest income are attributable to fluctuations in net profits income, cash reserve and interest rates. For the first quarter 2019,2020, distributable income was $0 or $0.000000 per unit.

Distributions to unitholders for the quarter ended March 31, 20202021 were:

Net Profits Income

Net profits income is recorded when received by the Trust, which is the month following receipt by XTO Energy, and generally two months after oil and gas production. Net profits income is generally affected by three major factors:

The following is a summary of the calculation of net profits income received by the Trust:

The following are explanations of significant variances on the underlying properties from first quarter 20192020 to first quarter 2020:2021:

Sales Volumes

Gas

Gas sales volumes increased 4%decreased 11% for the first quarter primarily because of lower gas sales from new wells in Major County, Oklahoma, partially offset by natural production decline, and timing of cash receipts.

Oil

Oil sales volumes increased 184%decreased 50% for the first quarter primarily because of lower oil sales from new wells in Major County, Oklahoma partially offset byand natural production decline and timing of cash receipts.decline.

The estimated rate of natural production decline on the underlying oil and gas properties is approximately 6% to 8% a year.

Sales Prices

Gas

The first quarter 2021 average gas price was $3.32 per Mcf, up 25% from the first quarter 2020 average gas price wasof $2.66 per Mcf, down 35% from the first quarter 2019 average gas price of $4.07 per Mcf. The first quarter 20202021 gas price is primarily related to production from November 20192020 through January 2020,2021, when the average NYMEX price was $2.41$2.79 per MMBtu.

Oil

The first quarter 2021 average oil price was $43.05 per Bbl, down 23% from the first quarter 2020 average oil price wasof $56.04 per Bbl, up 11% from the first quarter 2019 average oil price of $50.41 per Bbl. The first quarter 20202021 oil price is primarily related to production from November 20192020 through January 2020,2021, when the average NYMEX price was $58.30$46.80 per Bbl.

Beginning in March 2020 and continuing into the secondfirst quarter of 2020,2021, numerous events have continued to havehad a downward impact on sales prices of products produced from the underlying properties. TheCOVID-19 pandemic and the government responses to this pandemic have significantly decreased the demand for oil and gas. Itgas for that time period. Additionally, market factors, including abundant supplies, had also negatively impacted prices. Although it is not clear at the present time when or whether the pandemic restrictions will completely lift or when federal government policies may change. Additionally, market factors, including abundant supplies, have also negatively impacted prices.change, with many states reopening and working toward pre-pandemic levels of activity, the price of oil and gas has steadily increased since the early shut-downs of 2020. Even when demand returns, it could take time for these accumulated supplies to decrease and a new market equilibrium, which may be lower than the pre-pandemic equilibrium, to emerge.emerge, and prices may remain volatile during this recovery.

Costs

Taxes, Transportation and Other

Taxes, transportation and other were relatively flatdecreased 1% for the first quarter primarily because of increased gas deductions related to certain adjustments previously included in gas sales revenue are now recorded in this line item and higher gas volumes and increased production taxes due to higher oil revenues, partially offset by decreased production taxes due to lower revenues, partially offset by increased gas revenues.    deductions and property taxes.

Production Expense

Production expense increased 8%decreased 26% for the first quarter primarily because of higherdecreased labor and salt water disposal costs, due to timing of charges, partially offset by decreasedincreased plug and abandonment costs in Oklahoma and Wyoming, and increased repairs and maintenance due to absence of credits received for material transfers.

Development Costs

Development costs deducted are based on the current level of development expenditures, budgeted future development costs and the cumulative actual costs under (over) previous deductions. XTO Energy has advised the Trustee that actual development costs were charged to the Trust as incurred. These development costs decreased 99%87% from the first quarter 2019,2020, primarily due to thea decrease in the development budgettrailing costs for the drilling of four horizontal wells in Major County, Oklahoma, completed in 2019. The monthly development cost deduction will be reevaluated by XTO Energy and revised as necessary. For further information on development costs, see Note 2 to Condensed Financial Statements.

Overhead

Overhead increased 54%decreased 4% for the first quarter due to timing of charges.quarter. Overhead is charged by XTO Energy and other operators for administrative expenses incurred to support operations of the underlying properties. Overhead fluctuates based on changes in the active well count and drilling activity on the underlying properties, as well as an annual cost level adjustment based on an industry index.

Excess Costs

If monthly costs exceed revenues for any conveyance, these excess costs must be recovered, with accrued interest, from future net proceeds of that conveyance and cannot reduce net profits income from another conveyance. Underlying cumulative excess costs for the Kansas, Oklahoma and Wyoming conveyances remaining as of March 31, 20202021 totaled $28.1$32.2 million ($22.525.8 million NPI)net to Trust), including accrued interest of $1.4$2.4 million ($1.11.9 million NPI)net to Trust). For further information on excess costs, see Note 5 to Condensed Financial Statements.

Other Proceeds

The calculation of net profits income for the quarter ended March 31, 2021 included $2,809 ($2,247 net to the Trust) from XTO Energy due to interest received on past due payments.

Contingencies

For information on contingencies, see Note 4 to Condensed Financial Statements.

Forward-Looking Statements

Statements in this report relating to future plans, predictions, potential asset sales or termination of the Trust, continued funding of Trust expenses by Simmons Bank, production, excess costs, litigation, arbitration, liquidity, financing, regulatory or court decisions, economic activity and recovery, and the assumed public health necessary to carry out business activitiesimpact of one or more waves of the COVID-19 pandemic and the accompanying government response on trade, travel and energy demand and pricing are forward-looking statements. All statements other than statements of historical fact included in this Form10-Q, including, without limitation, statements regarding the net profits interests, underlying properties, development activities, annual and monthly development, production and other costs and expenses, estimated rates of natural production decline, monthly development cost deductions, oil and gas prices and differentials to NYMEX prices, supply levels, drilling, workover and restimulation plans, the outcome of litigation or settlement discussions and the impact on Trust proceeds,

distributions to unitholders, and industry and market conditions, are forward-looking statements that are subject to risks and uncertainties, including those detailed in Part I, Item 1A of the Trust’s Annual Report on Form10-K for the year ended December 31, 2019,2020, which is incorporated by this reference as though fully set forth herein. XTO Energy and the Trustee assume no duty to update these statements as of any future date.

PART II - II—OTHER INFORMATION

Item 1. Legal Proceedings.

Royalty Class Action and Arbitration

As previously disclosed, XTO Energy advised the Trustee that it reached a settlement with the plaintiffs in theChieftain class action royalty case. On July 27, 2018, the final plan of allocation was approved by the court. Based on the final plan of allocation, XTO Energy has advised the Trustee that it believes approximately $24.3 million in additional production costs should be allocated to the Trust. On May 2, 2018, the Trustee submitted a demand for arbitration seeking a declaratory judgment that theChieftain settlement is not a production cost and that XTO Energy is prohibited from charging the settlement as a production cost under the conveyance or otherwise reducing the Trust’s payments now or in the future as a result of theChieftain litigation. The Trust and XTO Energy conducted the interim hearing on the claims related to theChieftain settlement has been postponed due to a continuance granted byon October 12-13, 2020. In the arbitrators atarbitration, the request of XTO EnergyTrustee contended that the approximately $24.3 million allocation related to the coronavirus pandemic. The arbitrators deniedChieftain settlement was not a production cost and, therefore, there should not be a related adjustment to the Trustee’s request to holdTrust’s share of net proceeds. However, XTO Energy contended that the approximately $24.3 million was a production cost and should reduce the Trust’s share of net proceeds.

On January 20, 2021, the arbitration panel issued its Corrected Interim Final Award (i) “reject[ing] the Trust’s contention that XTO has no right under the Conveyance to charge the Trust with amounts XTO paid under section 1.18(a)(i) as royalty obligations to settle the Chieftain litigation” and (ii) stating “[t]he next phase will determine how much of the Chieftain settlement can be so charged, if any of it can be, in the exercise of the right found by the Panel.” The parties are continuing to review the Corrected Interim Final Award and on March 26, 2021, XTO Energy submitted its brief to the Panel regarding the amount of the Chieftain settlement, if any, that may be charged to the Trust. The Trustee submitted its response brief on April 23, 2021 and XTO Energy submitted its reply on May 7, 2021. A decision on the April 27, 2020 settingoutcome of this issue is expected by video conference. A new datethe end of the second quarter 2021.

The Oklahoma conveyance is already currently subject to excess costs that will need to be recovered prior to any distribution to unitholders. Therefore, if the arbitration panel determines that the approximately $24.3 million can be charged to the Trust (as XTO Energy contends), the reduction in the Trust’s share of net proceeds would result in additional excess costs under the Oklahoma conveyance that would likely result in no distributions under the Oklahoma conveyance for the hearing will be announced once it has been determined. several additional years while these additional excess costs are recovered.

Other Trustee claims related to disputed amounts on the computation of the Trust’s net proceeds for 2014 through 2016 were bifurcated from the issues regarding XTO’s right to charge theChieftain settlement as a production costinitial arbitration and will be heard at a later date, which is still to be determined.

If the approximately $24.3 million allocated portion of theChieftain settlement results in an adjustment to the Trust’s share of net proceeds, it would result in additional excess costs under the Oklahoma conveyance that would likely result in no distributions under the Oklahoma conveyance for several years, or more depending on the results of operations of the underlying properties, while these additional excess costs are recovered.

Other Lawsuits and Governmental Proceedings

Certain of the underlying properties are involved in various other lawsuits and governmental proceedings arising in the ordinary course of business. XTO Energy has advised the Trustee that, based on the information available at this stage of the various proceedings, it does not believe that the ultimate resolution of these claims will have a material effect on the financial position or liquidity of the Trust, but may have an effect on annual distributable income.

Item 1A. Risk Factors.

There may not be an active market for the Trust units.

The Trustee has received notice from the OTC Markets Group Inc. dated April 16, 2020, notifying the Trustee that the Trust is no longer in compliance with Section 3.2(a) of the Standards for Continued Qualification of the OTCQX Rules for U.S. Companies, in that as of December 31, 2019 the Trust had less than $2 million in net tangible assets, average revenue of less than $6 million over the past three years, and the Trust’s bid price is below $5 per share. The notice states that if the Trust is unable to cure the deficiency by May 18, 2020, then it will be moved from OTCQX to the OTC Pink market. The Trust anticipates a transition from the OTCQX to the OTCQB prior to such date, but no assurances can be made that such transition will take place, or how it may affect the liquidity of the units.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

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