Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read together with (i) the factors discussed in Item 1A “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2015, (ii) the factors discussed in Part II, Item 1A “Risk Factors,” if any, of this Quarterly Report on Form 10-Q and (iii) the Financial Statements, including the Notes thereto, and the other financial information appearing elsewhere in this Report. Period-to-period comparisons of financial data are not necessarily indicative, and therefore should not be relied upon as indicators, of the Trust’s future performance. Words or phrases such as “does not believe” and “believes”, or similar expressions, when used in this Form 10-Q or other filings with the Securities and Exchange Commission, are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Results of Operations for the Quarter Ended March 31, 2016 Compared to the Quarter Ended March 31, 2015
Earnings per Sub-share certificate were $.90 for the first quarter of 2016, compared to $2.67 for the first quarter of 2015. Total operating and investing revenues were $11,898,103 for the first quarter of 2016 compared to $34,739,353 for the first quarter of 2015, a decrease of 65.8%. This decrease in revenue and earnings was due primarily to decreases in land sales and, to a lesser extent, easements and sundry income and oil and gas royalty revenue.
Oil and gas royalty revenue was $5,610,751 for the first quarter of 2016, compared to $6,525,265 for the first quarter of 2015, a decrease of 14.0%. Oil royalty revenue was $3,942,194 for the first quarter of 2016, a decrease of 24.7% from the first quarter of 2015 when oil royalty revenue was $5,233,585. Crude oil production subject to the Trust’s royalty interest increased 30.9% in the first quarter of 2016 compared to the first quarter of 2015. This increase in production was offset by a 42.5% decrease in the average price per royalty barrel of crude oil during the first quarter of 2016 compared to the first quarter of 2015. Gas royalty revenue was $1,668,557 for the first quarter of 2016, an increase of 29.2% from the first quarter of 2015 when gas royalty revenue was $1,291,680. This increase in gas royalty revenue resulted from a volume increase of 58.0% in the first quarter of 2016 compared to the first quarter of 2015, which more than offset a price decrease of 18.3%.
In the first quarter of 2016, the Trust sold approximately 8.56 acres of land for a total of $86,000, or approximately $10,047 per acre. In the first quarter of 2015 the Trust sold approximately 20,312 acres of land for a total of $20,268,000, or approximately $998 per acre. The first quarter of 2015 totals include the sale of 19,607 acres of land in Upton/Crane counties for aggregate consideration of $19,840,000. This category of income is unpredictable and may vary significantly from quarter to quarter.
Easements and sundry income was $6,070,973 for the first quarter of 2016, a decrease of 22.2% compared to the first quarter of 2015 when easements and sundry income was $7,802,995. This decrease resulted primarily from a decrease in pipeline easement income. This category of income is unpredictable and may vary significantly from quarter to quarter.
Other income, including interest on investments, was $130,379 for the first quarter of 2016 compared to $143,093 for the first quarter of 2015, a decrease of 8.9%. Grazing lease income was $122,075 for the first quarter of 2016, compared to $119,974 for the first quarter of 2015, an increase of 1.8%. Interest on notes receivable for the first quarter of 2016 was $2,362, a decrease of 85.6% compared to the first quarter of 2015 when interest on notes receivable was $16,426. This decrease is primarily due to principal prepayments received on notes due to the Trust. As of March 31, 2016, notes receivable for land sales were $134,868 compared to $904,233 at March 31, 2015, a decrease of 85.1%. Interest income earned from investments was $5,942 for the first quarter of 2016, compared to $6,693 for the first quarter of 2015, a decrease of 11.2%. Interest on investments is affected by such variables as cash on hand for investment and the rate of interest on short-term investments.
Taxes, other than income taxes, were $346,584 for the first quarter of 2016 compared to $376,278 for the first quarter of 2015, a decrease of 7.9%. This decrease is primarily attributable to a decrease in oil production tax which resulted from the decrease in oil royalty revenue discussed above.
General and administrative expenses were $749,105 for the first quarter of 2016 compared to $607,464 for the first quarter of 2015, an increase of 23.3%. This increase was primarily due to an ongoing project to enhance the information systems of the Trust and, to a lesser extent, an increase in non-recurring legal fees.
Liquidity and Capital Resources
The Trust’s principal sources of liquidity are revenues from oil and gas royalties, easements and sundry income, and land sales. In the past, those sources have generated more than adequate amounts of cash to meet the Trust’s needs and, in the opinion of management, should continue to do so in the foreseeable future.