UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended September 30, 20222023

OR

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

For the transition period from                     to                     .

Hugoton Royalty Trust

(Exact name of registrant as specified in its charter)

c/o The Corporate Trustee:

Simmons BankArgent Trust Company

2911 Turtle Creek Blvd,3838 Oak Lawn Ave, Suite 8501720

Dallas, Texas 7521975219-4518

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (855) 588-7839

(Former name, former address and former fiscal year, if change since last report) NONE

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) 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 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, 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:

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  ☑

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

Outstanding as of November 1, 20222023

40,000,000

HUGOTON ROYALTY TRUST

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20222023

TABLE OF CONTENTS

HUGOTON ROYALTY TRUST

GLOSSARY OF TERMS

The following are definitions of significant terms used in this Form 10-Q:

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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 U.S. 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 Form 10-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 September 30, 20222023, and the distributable income and changes in trust corpus for the three-month and nine-month periods ended September 30, 20222023 and 20212022, have been included. Distributable income for such interim periods is not necessarily indicative of the distributable income for the full year.

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HUGOTON ROYALTY TRUST

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

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

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HUGOTON ROYALTY TRUST

Condensed Statements of Distributable Income (Unaudited)

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

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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.

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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.

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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 net 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 net 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 a unit-of-production basis using proved reserves and is charged directly to trust corpus. Accumulated amortization was $174,078,891 as of September 30, 2019, when the net profits interests was written down to its fair value of 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. Between April 2018 and October 2020, accumulatedAccumulated excess costs for the Kansas, Oklahoma and Wyoming conveyances have resulted in insufficient net proceeds to the Trust versus its current and anticipated expenses and a reduction in the Trust’s expense reserve to zero. Following depletion of the expense reserve, ongoing expenses and accumulated excess costs continued to result in no net proceeds to the Trust through February 2022.reserve. These conditions raisedraise substantial doubt about the Trust’s ability to continue as a going concern as the Trust diddoes not have sufficient cash to meet its obligations during the one yearone-year period after the dates thatdate the financial statements wereare issued. Factors attributable to the cash shortage wereare primarily the previously disclosed development costs to drill four horizontalthree non-operated wells in Major County, Oklahoma, lower oil and natural gas prices during 2019 and 2020,2023, and excess cost positions on the Kansas, Oklahoma and Wyoming conveyances including accumulated interest, which have resulted in no unitholder distributions since March 2018. All conveyances have now received enough net profits income to recoup all of the excess costs in those conveyances plus the accrued interest. The net profits income received was also sufficient to reimburse Simmons Bank for the administrative expenses that it advanced after the expense reserve was depleted in October 2020 and fund the expense reserve. As of the July 2022 distribution announcement, the expense reserve has been replenished to $1,000,000. The Trustee does not currently anticipate any increase to the cash reserve in 2022. On2023. In addition, on May 18, 2021, the arbitration panel issued its second interim final award over the amount of XTO Energy’s settlement in the Chieftain class action lawsuit that can be charged to the Trust as a production cost which XTO Energy has estimated to be approximately $14.6 million net to the Trust after the arbitration panel has determined the remaining claims and issued its final award.Trust. This adjustment would likely result in the Oklahoma conveyance returning to anfurther increase excess cost position for a period of time. Excess costs on the Oklahoma conveyance would not affect net proceeds to the Trust from the Kansas or Wyoming conveyances.conveyance. The Trustee has prepared a preliminary budget estimating the administrative expenses for the year ending December 31, 2022 and the eleventwelve months ending NovemberSeptember 30, 20232024, which assumes no cash inflow from either net profits income or from other than the payments received from March 2022 through October 2022 totaling approximately $14,921,000. Based on the above assumptions, thesources. The Trustee believes thatintends to review options for the Trust would be able to meet its financial obligations for the one-year period after the financial statements are issued.

During the period of time in which the Trust received no net profits income, the Trustee reviewed the Trust’smay include alternatives to continuing as a going concern which included a potential saleor may include seeking financing to pay the Trust obligations during the one-year period after the date the financial statements are issued; however, there can be no assurance that financing will be available on acceptable terms or at all. If financing became available to the Trust, it would have to be repaid, together with interest, and the Trust’s expense reserve would have to be replenished prior to any distributions to unitholders.

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 assets and/or termination of the Trust. On July 2, 2021, the Trustee announced that it had entered into a purchase and sale agreement withcash reserve. XTO Energy pursuantresponded that any indemnity claim to which XTO Energy would acquire for $6,600,000 in cash the net overriding royalty interest created pursuant to the net profits interest conveyances held byis premature before the Trust and certain other assets constituting substantially allEstate is exhausted.

The Trust’s financial statements do not include any adjustments that might result from the outcome of the assets of the Trust.

All revenues from the Trust are from sources within Kansas, Oklahoma or Wyoming. Because it distributes all of its net income to unitholders, the Trust has not been taxed at the trust level in Kansas or Oklahoma. While the Trust has not owed tax, the Trustee is generally required to file Kansas and Oklahoma income tax returns reflecting the income and deductions of the Trust attributable to properties located in each state, along with a schedule that includes information regarding distributions to unitholders. However, the Trust did not file a Kansas return for the 2021 tax year because the Trust had no revenues, income or deductions in 2021 attributable to properties located in Kansas. The Trust did not file a Kansas income tax return for the 2020 and 2019 tax years for the same reason.

Wyoming does not impose a state income tax.

The Trust may be required to bear a portion of the settlement costs arising from the Chieftain royalty class action settlement. For information on contingencies, including the Chieftain class action, see Note 3 to Condensed Financial Statements. The Panel has determined the Trust is responsible for a portion of the costs. Pending finalization of all claims included in the arbitration, XTO Energy would have the right to deduct the costs in its calculation of the net profits income payable to the Trust from the applicable net profits interests. Thus, for unitholders, the portion of legal settlement costs for which the Trust is determined to be responsible will be reflected through a reduction in net profits income received from the Trust and thus in a reduction in the gross royalty income reported by and taxable to the unitholders. In the event that the Trustee objects to such claimed reductions, the Trustee may also incur legal fees in representing the Trust’s interests. For unitholders, such costs would be reflected through an increase in the Trust’s administrative expenses, which would be deductible by unitholders in determining the net royalty income from the Trust.

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.” Following briefing by both parties, on May 18, 2021, the Panel issued its second interim final award over the amount of XTO Energy’s settlement in the Chieftain class action lawsuit that can be charged to the Trust as a production cost. The Panel in its decision has ruled that out of the $80 million settlement, the “Trust is obligated to pay its share under the Conveyance of the $48 million that was received by the plaintiffs in the Chieftain lawsuit by virtue of the settlement of that litigation. The Trust is not obligated by the Conveyance to pay any share of the $32 million received by the lawyers for the plaintiffs in the Chieftain lawsuit by virtue of the settlement.” XTO Energy and the Trustee are in the process of determining the portion of the $48 million that is allocable to Trust properties to be charged as an excess cost to the Trust but estimate it to be approximately $14.6 million net to the Trust.

The reduction in the Trust’s share of net proceeds from the portion of the settlement amount the Panel has ruled may be charged against the Oklahoma conveyance would result in excess costs under the Oklahoma conveyance that would likely result in no distributions under the Oklahoma conveyance while these excess costs are recovered. This award completes the portion of the arbitration related to the Chieftain settlement. Excess costs on any individual conveyance would not affect net proceeds to the Trust on any of the other remaining conveyances.

If monthly costs exceed revenues for any of the three conveyances (one for each of the states of Kansas, Oklahoma and Wyoming), such excess costs must be recovered, with accrued interest, from future net proceeds of that conveyance and cannot reduce net proceeds from other conveyances.

Trustee Resignation

On October 21, 2022, the Trustee announced that it has entered into an agreement with Argent Trust Company, a Tennessee chartered trust company (“Argent”), pursuant to which the Trustee will be resigning as trustee of the Trust and will nominate Argent as successor trustee of the Trust. The Trustee’s resignation as trustee, and Argent’s appointment as successor trustee, are subject to certain conditions set forth in the agreement, including approval by the unitholders of the Trust (or a court) of (i) Argent’s appointment as successor trustee and (ii) any amendments to the indenture of the Trust necessary to permit Argent to serve as successor trustee.

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 20212022 Annual Report on Form 10-K, as well as the condensed financial statements and notes thereto included in this Quarterly Report on Form 10-Q. The Trust’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are available on the Trust’s website at www.hgt-hugoton.comwww.hgt-hugoton.com..

Distributable Income

Quarter

For the quarter ended September 30, 2022,2023, net profits income was $9,440,853$0 as compared to $0$9,440,853 for third quarter 20212022 primarily due to higherlower gas and oil and gas prices ($11.411.0 million), increased development costs ($5.1 million), decreased gas and oil production ($0.6 million), and increased overhead ($0.2 million), partially offset by net excess costs activity ($4.45.9 million), partially offset by decreased oil and gas production ($4.4 million), increased production expenses ($1.0 million), increased taxes, transportation and other costs ($0.7 million), increased development costs ($0.21.2 million), and increased overheaddecreased production expenses ($0.10.4 million). See “Net Profits Income” below.

After adding interest income of $3,364, increasing the expense reserve $347,549,$12,810, and deducting administration expense of $132,309,$374,347, and utilizing $361,537 of the expense reserve to pay Trust expenses, distributable income for the quarter ended September 30, 20222023, was $8,964,359,$0, or $0.224109$0.000000 per unit of beneficial interest. Administration expense for the quarter decreased $111,815increased $242,038 as compared to the prior year quarter, primarily related to the timing of receipt and payment of Trust expenses and terms of professional services. Changes in interest income are attributable to fluctuations in net profits income, cash reserve and interest rates. For third quarter 2021,2022, distributable income was $0,$8,964,359, or $0.000000$0.224109 per unit.

Distributions to unitholders for the quarter ended September 30, 20222023, 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:

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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 third quarter 20212022 to third quarter 20222023 and from the first nine months of 20212022 to the comparable period in 2022:2023:

Sales Volumes

Gas

Gas sales volumes decreased 11%6 percent for third quarter and 5 percent for the nine-month period as compared with the same 2022 periods primarily because of natural production decline and timing of cash receipts. Gas

Oil

Oil sales volumes decreased 5%10 percent for third quarter and 39 percent for the nine-month period as compared with the same 2021 periods primarily because of natural production decline, partially offset by timing of cash receipts, and decreased downtime.

Oil

Oil sales volumes decreased 37% for third quarter primarily because of timing of cash receipts, and natural production decline. Oil sales volumes increased 12% for the nine-month period as compared with the same 20212022 periods primarily because of timing of cash receipts and decreased downtime, partially offset by natural production decline.

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

Sales Prices

Gas

The third quarter 2023 average gas price was $2.80 per Mcf, a 64 percent decrease from the third quarter 2022 average gas price wasof $7.73 per Mcf, up 102% from the third quarter 2021 average gas price of $3.82 per Mcf. For the nine-month period, the average gas price increased 92%decreased 16 percent to $5.82 per Mcf in 2023 from $6.93 per Mcf in 2022 from $3.61 per Mcf in 2021.2022.

Oil

The third quarter 2023 average oil price was $72.10 per Bbl, a 31 percent decrease from the third quarter 2022 average oil price wasof $104.54 per Bbl, up 68% from the third quarter 2021Bbl. The year-to-date average oil price of $62.18decreased 10 percent to $74.86 per Bbl. For the nine-month period, the average oil price increased 49% toBbl in 2023 from $83.09 per Bbl in 2022 from $55.61 per Bbl in 2021.2022.

Costs

Taxes, Transportation and Other

Taxes, transportation and other costs increased 33%decreased 43 percent for the third quarter primarily because of decreased production and 22%gas deductions due to lower revenues. Taxes, transportation and other costs increased 3 percent for the nine-month period primarily because of increased gas production and property taxes and gas deductions, partially offset by receiptdue to the absence of Oklahoma production tax refunds.

Production Expense

Production expense increased 37%decreased 9 percent for the third quarter primarily because of decreased plug and 27%abandonment expense, repairs and maintenance, and measurement costs, partially offset by increased pipeline costs. Production expense increased 14 percent for the nine-month period primarily because of increased repairs and maintenance, labor, and plug and abandonment expense,pipeline costs, partially offset by decreased labor costs,power and timing of the annual Oklahoma Senate Bill 168 fee.fuel costs.

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Development Costs

Development costs increased 503%$6.5 million for the third quarter primarily due to equipment purchases in Wyoming. Development costs decreased 48%and $7.8 million for the nine-month period primarily because of timing ofincreased drilling costs related to non-operated wells. Changes in oil or natural gas prices could impact future development plans on the underlying properties.

As previously disclosed, XTO Energy has advised the Trustee that it has elected to participate in the development of athree non-operated wellwells in Major County, Oklahoma. TheTwo of the wells were completed in second quarter of 2023 and one well was proposed by Comanche Exploration Co. LLC under a joint operating agreement. XTO Energy has advised the Trustee that development costs for the well are anticipated to be approximately $5 million underlying ($4 million net to the Trust), and that drilling has begun and is expected to be completed in the firstfourth quarter of 2023. XTO Energy advised the Trustee that the total development costs for the three non-operated wells was anticipated to be approximately $9 million underlying ($7 million net to the Trust). No assurances can be made as to the estimated costs orof the non-operated wells, timing to complete the well.third well, or timing of receipt of costs for drilling the wells.

Overhead

Overhead increased 3%7 percent for the third quarter and 5%2 percent for the nine-month period. 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. There are noUnderlying cumulative excess costs balancesfor the Kansas, Oklahoma and Wyoming conveyances remaining for any conveyance as of September 30, 2022.2023, totaled $8.1 million ($6.5 million net to Trust), including accrued interest of $0.1 million ($0.1 million net to Trust). For further information on excess costs, see Note 4 to Condensed Financial Statements.

Contingencies

For information on contingencies, see Note 3 to Condensed Financial Statements.

Forward-Looking Statements

Certain information included in this quarterly report and other materials filed, or to be filed, by the Trust with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by XTO Energy or the Trustee) contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, relating to the Trust, operations of the underlying properties and the oil and gas industry. Such forward-looking statements may concern, among other things, potential asset sales or terminationexcess costs, continuation of the Trust excess costs,as a going-concern, or alternatives to a going-concern, reserve-to-production ratios, future production, development activities and associated operating expenses, future development plans by area, increased density drilling, maintenance projects, development, production, regulatory and other costs, oil and gas prices and expectations for future demand, the impact of inflation and economic downturns on economic activity, government policy and its impact on oil and gas prices and future demand, the development and competitiveness of alternative energy sources, pricing differentials, proved reserves, future net cash flows, production levels, expense reserve budgets, availability of financing, arbitration, litigation, liquidity, financing, political and regulatory matters, such as tax and environmental policy, climate policy, trade barriers, sanctions, competition, war and other political or security disturbances. Such forward-looking statements are based on XTO Energy’s and the Trustee’s current plans, expectations, assumptions, projections and estimates and are identified by words such as “may,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “should,” “could,” “would,” and similar words that convey the uncertainty of future events. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, including those detailed in Part I, Item 1A of the Trust’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, which is incorporated by this reference as though fully set forth herein. Therefore, actual financial and operational results may differ materially from expectations, estimates or assumptions expressed in, implied in, or forecasted in such forward-looking statements. XTO Energy and the Trustee assume no duty to update these statements as of any future date.

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Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk

Not applicable. Upon qualifying as a smaller reporting company, this information is no longer required.

Item 4. Controls and Procedures

As of the end of the period covered by this report, the Trustee carried out an evaluation of the effectiveness of the Trust’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Trustee concluded that the Trust’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934 and are effective in ensuring that information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Trustee to allow timely decisions regarding required disclosure. In its evaluation of disclosure controls and procedures, the Trustee has relied, to the extent considered reasonable, on information provided by XTO Energy. There has not been any change in the Trust’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.

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PART 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 the Chieftain 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 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 the Chieftain 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 the Chieftain litigation. The Trust and XTO Energy conducted the interim hearing on the claims related to the Chieftain settlement on October 12-13, 2020. In the arbitration, the Trustee contended that the approximately $24.3 million allocation related to the Chieftain settlement was not a production cost and, therefore, there should not be a related adjustment to the Trust’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.” Following briefing by both parties, on May 18, 2021, the Panel issued its second interim final award over the amount of XTO Energy’s settlement in the Chieftain class action lawsuit that can be charged to the Trust as a production cost. The Panel in its decision has ruled that out of the $80 million settlement, the “Trust is obligated to pay its share under the Conveyance of the $48 million that was received by the plaintiffs in the Chieftain lawsuit by virtue of the settlement of that litigation. The Trust is not obligated by the Conveyance to pay any share of the $32 million received by the lawyers for the plaintiffs in the Chieftain lawsuit by virtue of the settlement.” XTO Energy and the Trustee are in the process of determining the portion of the $48 million that is allocable to Trust properties to be charged as an excess cost to the Trust but estimate it to be approximately $14.6 million net to the Trust.

Item 1A. Risk Factors

ThereExcept as set forth below, there have been no material changes in the risk factors disclosed under Part I, Item 1A of the Trust’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.

The Trust may not have sufficient cash to meet its obligations during the one-year period after the date that the financial statements are issued and may choose or be required to take other actions to satisfy its obligations by seeking additional financing, which may not be successful.

All three of the Trust’s conveyances are in excess costs resulting in no net proceeds to the Trust and a reduction of the Trust’s expense reserve, which have resulted in no unitholder distributions since July 2023. These conditions raise substantial doubt about the Trust’s ability to continue as a going concern as the Trust does not have sufficient cash to meet its obligations during the one-year period after the date the financial statements are issued. The Trust’s financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances that the Trust will receive net profits income sufficient to pay its obligations during the one-year period after the date the financial statements are issued, and as a result, may choose or be required to seek additional financing or alternatives to the Trust continuing as a going concern. If the Trust is unable to continue as a going concern, unitholders could incur significant losses on their investment in the Trust or lose their entire investment in the Trust altogether. For further information see Notes to Condensed Financial Statements – 1. Basis of Accounting – Liquidity and Going Concern.

Item 5. Other Information

The Trust does not have any directors or officers, and as a result, no such persons adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits

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SIGNATURES

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

(The Trust has no directors or executive officers.)

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