Hugoton Royalty Trust Declares No January Cash Distribution And Interim Final Award From Arbitration Panel

DALLAS

,

Jan. 19, 2021

/PRNewswire/ — Simmons Bank, as Trustee of the Hugoton Royalty Trust (OTCQB: HGTXU) (the “Trust”), today declared there would not be a cash distribution to the holders of its units of beneficial interest for

January 2021

due to the excess cost positions on all three of the Trust’s conveyances of net profits interests. The following table shows underlying gas sales and average prices attributable to the net overriding royalty for both the current month and prior month. Underlying gas sales volumes attributable to the current month were primarily produced in November.

XTO Energy has advised the Trustee that it has included oil sales volumes of approximately 9,000 barrels from the new horizontal wells drilled in

Major County, Oklahoma

and has deducted development costs of

$1,000

, production expense of

$1,061,000

and overhead of

$955,000

in determining the royalty calculation for the Trust for the current month.

Expense Reserve


The expense reserve used to pay administrative expenses in the absence of current month distributions was depleted in

October 2020

. As a result,

Simmons Bank

, as Trustee of Hugoton Royalty Trust, is currently paying the expenses for the Trust, subject to its rights to be indemnified and reimbursed pursuant to the terms of the Trust indenture. This includes reimbursement from proceeds received from a sale of the Trust’s assets, if any. The Trustee has engaged a third party to market the Trust’s assets; however, there can be no assurance that a buyer can be found for such assets. Any material sale of assets and/or termination of the Trust requires at least 80% unitholder approval.

Excess Costs


XTO Energy has advised the Trustee that excess costs were

$81,000

on properties underlying the

Kansas

net profits interests. Underlying cumulative excess costs remaining on the

Kansas

net profits interests total

$3,421,000

, including accrued interest of

$336,000

.

XTO Energy has advised the Trustee that

$367,000

of excess costs were recovered on properties underlying the

Oklahoma

net profits interests. However, after the partial recovery, there were no remaining proceeds from the properties underlying the

Oklahoma

net profits interests to be included in the current month’s distribution. Underlying cumulative excess costs remaining on the

Oklahoma

net profits interests total

$25,291,000

, including accrued interest of

$1,724,000

.

XTO Energy has advised the Trustee that

$102,000

of excess costs were recovered on properties underlying the

Wyoming

net profits interests. However, after the partial recovery, there were no remaining proceeds from the properties underlying the

Wyoming

net profits interests to be included in the current month’s distribution. Underlying cumulative excess costs remaining on the

Wyoming

net profits interests total

$4,990,000

, including accrued interest of

$178,000

.

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 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 15, 2021

, the arbitration panel issued its 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 Interim Final Award and its effect.

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 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 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 initial arbitration and will be heard at a later date, which is still to be determined.

For more information on the Trust, please visit our web site at

www.hgt-hugoton.com

.

Statements made in this press release regarding future events or conditions are forward looking statements.  Actual future results, including development costs and future net profits, could differ materially due to changes in natural gas prices and other economic conditions affecting the gas industry and other factors described in Part I, Item 1A of the Trust’s Annual Report on Form 10-K for the year ended

December 31, 2019

and subsequent


Forms 10-Q for the quarters ended

March 31, 2020

,

June 30, 2020

, and

September 30, 2020

.

View original content:

http://www.prnewswire.com/news-releases/hugoton-royalty-trust-declares-no-january-cash-distribution-and-interim-final-award-from-arbitration-panel-301210995.html

SOURCE Hugoton Royalty Trust