San Juan Basin Royalty Trust

What they do

The Trust holds a net overriding royalty interest in producing oil and gas properties (the "Subject Interests") located in the San Juan Basin in New Mexico. Hilcorp San Juan L.P. owns and operates the Subject Interests and provides the Trust with production, revenue, cost, and reserve information. The Trust does not conduct operations; it receives royalty income, pays administrative expenses, and distributes available cash to Unit Holders. Argent Trust Company serves as Trustee.

Revenue drivers

• Natural gas revenues — For the production month of June 2026, Hilcorp reported $2,843,843 of gas revenues from the Subject Interests, the largest component of total revenue of $3,181,295.
• Oil revenues — For the production month of June 2026, Hilcorp reported $337,452 of oil revenues from the Subject Interests, smaller than gas revenues.
• Interest income — The Trust reported interest income in the amount of $17 in the August 2026 distribution release, used toward Trust administrative expenses.

Recent performance

The Trust declared no monthly cash distribution for August 2026 due to excess production costs and continued low natural gas pricing. Cumulative excess production costs were approximately $11,430,832 gross, or $8,573,124 net to the Trust, an increase of $1,803,903 gross ($1,352,927 net) from last month. Hilcorp reported $3,181,295 of total revenue from the Subject Interests for June 2026, consisting of $2,843,843 of gas revenues and $337,452 of oil revenues, against $4,974,373 of production costs. Gas volumes were 1,950,221 Mcf (2,166,912 MMBtu) for June 2026, down from 2,083,334 Mcf (2,314,816 MMBtu) for May 2026, while the average gas price rose to $1.46 per Mcf ($1.31 per MMBtu).

Strategy

The Trustee continues to engage with Hilcorp regarding its ongoing accounting and reporting to the Trust. Third-party compliance auditors continue to audit payments made by Hilcorp, including sales revenues, production costs, capital expenditures, adjustments, actualizations, and recoupments. Hilcorp removed five of the nine vertical wells from its 2026 development plan, representing approximately $450,000 of total capital expenditures from the initial budget. Of the remaining four wells, one is in progress, two have been completed, and one is awaiting third-party connection and flow. No cash distributions will resume until future net proceeds repay excess production costs, replenish a $2,000,000 reserve, and repay the line of credit.

Risks

• Suspended distributions — The Trust will not pay cash distributions until future net proceeds repay the $8,573,124 net excess production cost balance, replenish a $2,000,000 reserve, and repay the line of credit.
• Low natural gas prices — Continued low natural gas pricing contributed to the Trust declaring no distribution for August 2026, with realized gas prices of $1.46 per Mcf for June 2026.
• Line of credit balance — The Trust drew $31,986 from its line of credit at Texas Bank to pay August administrative expenses, bringing the outstanding principal balance to $1,030,794.
• Reduced development plan — Hilcorp removed five of nine vertical wells from its 2026 development plan, approximately $450,000 of capital expenditures, due to drilling schedule changes.

Outlook

The Trust states that no cash distributions will be made until future net proceeds are sufficient to repay the balance of excess production costs, replenish a $2,000,000 reserve, and repay principal and interest on the line of credit. Hilcorp will continue to charge the balance of excess production costs to the Trust's net proceeds each month. Of the four remaining 2026 plan wells, one is in progress, two are completed, and one is awaiting third-party connection and flow. The Trust continues to monitor Hilcorp's accounting and reporting and continues third-party audits of Hilcorp payments.