|
Item 1.
|
Financial Statements.
|
VOC ENERGY TRUST
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Income from net profits interest
|
|
$
|
555,693
|
|
|
$
|
2,073,260
|
|
Cash on hand used for Trust expenses
|
|
|
350,706
|
|
|
|
87,198
|
|
General and administrative expenses (1)
|
|
|
(396,399
|
)
|
|
|
(290,458
|
)
|
Distributable income
|
|
$
|
510,000
|
|
|
$
|
1,870,000
|
|
Distributions
per Trust unit (17,000,000 Trust units issued and outstanding at March 31, 2021 and 2020)
|
|
$
|
0.030
|
|
|
$
|
0.110
|
|
(1)
|
Includes $26,685 and $51,320 paid to VOC Brazos Energy Partners, LP (“VOC Brazos”) during the three months ended March 31, 2021 and 2020, respectively, and $37,500 paid to The Bank of New York Mellon Trust Company, N.A. during each of the three months ended March 31, 2021 and 2020.
|
CONDENSED STATEMENTS OF ASSETS AND TRUST CORPUS
(Unaudited)
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
252,298
|
|
|
$
|
603,004
|
|
Investment in net profits interest
|
|
|
140,591,606
|
|
|
|
140,591,606
|
|
Accumulated amortization and impairment
|
|
|
(122,951,839
|
)
|
|
|
(122,182,408
|
)
|
Total assets
|
|
$
|
17,892,065
|
|
|
$
|
19,012,202
|
|
|
|
|
|
|
|
|
|
|
TRUST CORPUS
|
|
|
|
|
|
|
|
|
Trust corpus, 17,000,000 Trust units issued and outstanding at March 31, 2021and December 31, 2020
|
|
$
|
17,892,065
|
|
|
$
|
19,012,202
|
|
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS
(Unaudited)
|
|
Three months ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Trust corpus, beginning of period
|
|
$
|
19,012,202
|
|
|
$
|
63,345,900
|
|
Income from net profits interest
|
|
|
555,693
|
|
|
|
2,073,260
|
|
Cash distribution
|
|
|
(510,000
|
)
|
|
|
(1,870,000
|
)
|
Trust expenses
|
|
|
(396,399
|
)
|
|
|
(290,458
|
)
|
Amortization of net profits interest (includes impairment expense of $41,261,354 in 2020)
|
|
|
(769,431
|
)
|
|
|
(42,729,084
|
)
|
Trust corpus, end of period
|
|
$
|
17,892,065
|
|
|
$
|
20,529,618
|
|
The accompanying notes are an integral part of
these condensed financial statements.
VOC ENERGY TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1.
|
Organization of the Trust
|
VOC Energy Trust (the “Trust”) is
a statutory trust formed on November 3, 2010 (capitalized on December 17, 2010), under the Delaware Statutory Trust Act pursuant
to a Trust Agreement dated November 3, 2010 (as amended and restated on May 10, 2011, the “Trust Agreement”) among
VOC Brazos Energy Partners, L.P., a Texas limited partnership (“VOC Brazos”), as trustor, The Bank of New York Mellon Trust
Company, N.A., as Trustee (the “Trustee”), and Wilmington Trust Company, as Delaware Trustee (the “Delaware Trustee”).
The Trust was created to acquire and hold a term net profits interest for the benefit of the Trust unitholders.
VOC Brazos is a privately held limited partnership
engaged in the production and development of oil and natural gas from properties located in Texas. VOC Kansas Energy Partners, L.L.C.,
a Kansas limited liability company (“VOC Kansas”), is a privately held limited liability company engaged in the production
and development of oil and natural gas from properties primarily located in Kansas along with a limited number of Texas properties. In
connection with the closing of the initial public offering of units of beneficial interest in the Trust (“Trust Units”) in
May 2011, VOC Brazos acquired all of the membership interests in VOC Kansas in exchange for newly issued limited partner interests
in VOC Brazos pursuant to a Contribution and Exchange Agreement, dated August 30, 2010, as amended, by and between VOC Brazos and
VOC Kansas. This resulted in VOC Kansas becoming a wholly-owned subsidiary of VOC Brazos.
In connection with the May 2011 closing of
the initial public offering and in exchange for 17,000,000 Trust Units, VOC Brazos and VOC Kansas conveyed a term net profits interest
representing the right to receive 80% of the net proceeds (calculated as described below in Note 6) from production from the underlying
properties (as defined below) (the “net profits interest”). The net profits interest consists of net interests in all of the
oil and natural gas properties held by VOC Brazos and VOC Kansas in the states of Kansas and Texas as of the date of the conveyance of
the net profits interest to the Trust. We refer to the properties in which the Trust holds the net profits interest as the “underlying
properties.”
The net profits interest is passive in nature,
and the Trustee has no management control over and no responsibility relating to the operation of the underlying properties. The net profits
interest entitles the Trust to receive 80% of the net proceeds attributable to VOC Brazos’ interest from the sale of production
from the underlying properties during the term of the Trust. The net profits interest will terminate on the later to occur of (1) December 31,
2030 or (2) the time when 10.6 million barrels of oil equivalent (“MMBoe”) (which is the equivalent of 8.5 MMBoe in respect
of the net profits interest) have been produced from the underlying properties and sold, and the Trust will soon thereafter wind up its
affairs and terminate.
The Trustee can authorize the Trust to borrow
money to pay administrative or incidental expenses of the Trust that exceed cash held by the Trust. The Trustee may authorize the Trust
to borrow from the Trustee or the Delaware Trustee as a lender provided the terms of the loan are similar to the terms it would grant
to a similarly situated commercial customer with whom it did not have a fiduciary relationship. The Trustee may also deposit funds awaiting
distribution in an account with itself and make other short-term investments with the funds distributed to the Trust.
Note 2.
|
Basis of Presentation
|
The accompanying Condensed Statements of Assets
and Trust Corpus as of December 31, 2020, which has been derived from audited financial statements, and the unaudited interim condensed
financial statements as of March 31, 2021 and for the three-month periods ended March 31, 2021 and 2020, have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information
and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and
regulations.
The preparation of financial statements requires
the Trust to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The Trustee believes such information includes all the disclosures necessary to make
the information presented not misleading. The information furnished reflects all adjustments that are, in the opinion of the Trustee,
necessary for a fair presentation of the results of the interim period presented. The financial information should be read in conjunction
with the financial statements and notes thereto included in the Trust’s Annual Report on Form 10-K for the year ended December 31,
2020.
Note 3.
|
Trust Accounting Policies
|
The Trust uses the modified cash basis of accounting
to report receipts of the term net profits interest and payments of expenses incurred. The term net profits interest represents the right
to receive revenues (oil and natural gas sales), less direct operating expenses (lease operating expenses, lease maintenance, lease overhead,
and production and property taxes) and an adjustment for lease equipment costs and lease development expenses (which are capitalized in
financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”)) of the underlying properties, times 80%. Actual cash receipts may vary due to timing delays of actual cash receipts from
the property operators or purchasers and due to wellhead and pipeline volume balancing agreements or practices. The actual cash distributions
of the Trust will be made based on the terms of the conveyance creating the Trust’s net profits interest. Expenses of the Trust,
which include accounting, engineering, legal and other professional fees, Trustee fees, an administrative fee paid to VOC Brazos and out-of-pocket
expenses, are recognized when paid. Under U.S. GAAP, revenues and expenses would be recognized on an accrual basis. Amortization of the
investment in net profits interest is recorded on a unit-of-production method in the period in which the cash is received with respect
to such production. Such amortization does not reduce distributable income, rather it is charged directly to Trust corpus.
This comprehensive basis of accounting other than
U.S. GAAP corresponds to the accounting permitted for royalty trusts by the SEC as specified by Staff Accounting Bulletin Topic 12:E,
Financial Statements of Royalty Trusts.
Investment in the net profits interest was recorded
initially at the historical cost of VOC Brazos and is periodically assessed to determine whether its aggregate value has been impaired
below its total capitalized cost based on the underlying properties. The Trust will provide a write-down to its investment in the net
profits interest if and when total capitalized costs, less accumulated amortization, exceeds undiscounted future net revenues attributable
to the proved oil and gas reserves of the underlying properties. Based on the substantial decline of the oil future markets at March 31,
2020, the Trust determined that its aggregate value of the underlying properties was impaired, which resulted in an impairment expense
of $41,261,354 during the quarter ended March 31, 2020. The impairment was charged directly to Trust corpus and did not affect distributable
income. There was no impairment of the investment in the net profits interest during the quarter ended March 31, 2021.
No new accounting pronouncements have been adopted
or issued during the quarter ended March 31, 2021 that would impact the financial statements of the Trust.
Note 4.
|
Investment in Net Profits Interest
|
The net profits interest was recorded at the historical
cost of VOC Brazos on May 10, 2011, the date of the conveyance of the net profits interest to the Trust, and was calculated as follows:
Oil and gas properties
|
|
$
|
197,270,173
|
|
Accumulated depreciation and depletion
|
|
|
(17,681,155
|
)
|
Hedge liability
|
|
|
(1,717,713
|
)
|
20-year asset retirement liability
|
|
|
(2,131,797
|
)
|
Net property to be conveyed
|
|
|
175,739,508
|
|
Times 80% net profits interest to Trust
|
|
$
|
140,591,606
|
|
Note 5.
|
Income from Net Profits Interest
|
|
|
Three months ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Excess of revenues over direct operating expenses and lease equipment and development costs(1)
|
|
$
|
694,616
|
|
|
$
|
2,591,575
|
|
Times 80% net profits interest to Trust
|
|
|
80
|
%
|
|
|
80
|
%
|
Income from net profits interest before reserve adjustments
|
|
|
555,693
|
|
|
|
2,073,260
|
|
VOC Brazos reserve for future development, maintenance or operating expenditures(2)
|
|
|
–
|
|
|
|
–
|
|
Income from net profits interest(3)
|
|
$
|
555,693
|
|
|
$
|
2,073,260
|
|
|
(1)
|
Excess of revenues over direct operating expenses and lease equipment and development costs reflect expenses and costs incurred by VOC Brazos during the September through November production period. Pursuant to the terms of the conveyance of the net profits interest, lease equipment and development costs are to be deducted when calculating the distributable income to the Trust.
|
|
(2)
|
Pursuant to the terms of the conveyance of the net profits interest, VOC Brazos can reserve up to $1.0 million for future development, maintenance or operating expenditures at any time. During the three months ended March 31, 2021 and 2020, VOC Brazos did not withhold or release any dollar amounts due to the Trust from the reserve. The reserve balance was $1,000,000 at March 31, 2021 and 2020, respectively.
|
|
(3)
|
The income from net profits interest is based upon the cash receipts from VOC Brazos for the oil and gas production. The revenues from oil production are typically received by VOC Brazos one month after production; thus, the cash received by the Trust during the three months ended March 31, 2021 substantially represents production by VOC Brazos from September 2020 through November 2020. The cash received by the Trust during the three months ended March 31, 2020 substantially represents production by VOC Brazos from September 2019 through November 2019.
|
For the three months ended March 31, 2021
and 2020, MV Purchasing, LLC, an affiliate of VOC Brazos, purchased a significant portion of the production of the underlying properties.
Sales to MV Purchasing, LLC are under short-term arrangements, ranging from one to six months, using market sensitive pricing.
The Trust is a Delaware statutory trust and is
not required to pay federal or state income taxes. Accordingly, no provision for federal or state income taxes has been made.
Note 7.
|
Distributions to Unitholders
|
VOC Brazos makes quarterly payments of the net
profits interest to the Trust. The Trustee determines for each quarter the amount available for distribution to the Trust unitholders.
This distribution is expected to be made on or before the 45th day following the end of each quarter to the Trust unitholders of record
on the 30th day of the month following the end of each quarter (or the next succeeding business day). Such amounts will be equal to the
excess, if any, of the cash received by the Trust relating to the preceding quarter, over the expenses of the Trust paid for such quarter,
subject to adjustments for changes made by the Trustee during such quarter in any cash reserves established for future expenses of the
Trust.
The first quarterly distribution during 2021 was
$510,000, or $0.03 per Trust Unit, and was made on February 12, 2021 to Trust unitholders owning Trust Units as of February 1,
2021. Such distribution included the net proceeds of production collected by VOC Brazos from October 1, 2020 through December 31,
2020.
The first quarterly distribution during 2020 was
$1,870,000, or $0.11 per Trust Unit, and was made on February 14, 2020 to Trust unitholders owning Trust Units as of January 30,
2020. Such distribution included the net proceeds of production collected by VOC Brazos from October 1, 2019 through December 31,
2019.
Note 8.
|
Advance for Trust Expenses
|
Under the terms of the Trust Agreement, the Trustee
is allowed to borrow money to pay Trust expenses. During the three months ended March 31, 2021 and 2020, there were no borrowings
or amounts owed for money borrowed in previous quarters. Under the terms of the Trust Agreement, VOC Brazos has provided a letter of credit
in the amount of $1,700,000 to the Trustee to protect the Trust against the risk that it does not have sufficient cash to pay future expenses.
Note 9.
|
Subsequent Events
|
On April 20, 2021, the Trust announced a
Trust distribution of net profits for the first quarterly payment period ended March 31, 2021. Unitholders of record on April 30,
2021 will receive a distribution amounting to $2,040,000, or $0.12 per Trust Unit, which will be paid on May 14, 2021.
Item 2.
|
Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.
|
The following discussion of the Trust’s
financial condition and results of operations should be read in conjunction with the financial statements and notes thereto. The Trust’s
purpose is, in general, to hold the net profits interest, to distribute to the Trust unitholders cash that the Trust receives in respect
of the net profits interest and to perform certain administrative functions in respect of the net profits interest and the Trust Units.
The Trust derives substantially all of its income and cash flows from the net profits interest. All information regarding operations has
been provided to the Trustee by VOC Brazos.
Overview
Impact
of COVID-19. The 2020 outbreak of the novel form of coronavirus known as COVID-19 and its development into a global pandemic
negatively impacted worldwide economic and commercial activity and financial markets, as well as global demand for crude oil and natural
gas. The West Texas Intermediate (“WTI”) spot price of crude oil dropped sharply in the beginning of 2020, from $61.18 per
barrel on January 2, 2020 to $12.34 per barrel on April 28, 2020, primarily attributable to the economic effects of the COVID-19
pandemic and the dispute over production levels between Russia and the members of the Organization of Petroleum Exporting Countries (“OPEC”)
which resulted in an oversupply of crude oil and exacerbated the decline in crude oil prices. The responses by federal, state and local
governmental authorities to the pandemic have also resulted in significant business and operational disruptions, including business closures,
supply chain disruptions, travel restrictions, stay-at-home orders and limitations on the availability of workforces. After April 28,
2020, the WTI price started increasing slowly and averaged $40.18 for the months of September 2020 through November 2020,
which is the production period represented in the cash received by the Trust for the quarter ended March 31, 2021. As of April 2021,
the WTI price has increased to pre-COVID levels. Nevertheless, prices could decline again, and the Trust’s
quarterly cash distibutions could similarly decline, depending on future actions by OPEC or the future course of the ongoing COVID-19
pandemic.
Impairment
of Net Profits Interest. Based on the substantial decline of the oil future markets at March 31, 2020, the Trust determined
that its aggregate value of the underlying properties was impaired, which resulted in an impairment expense of $41,261,354 during the
quarter ended March 31, 2020. The impairment was charged directly to Trust corpus and did not affect distributable income. There
was no impairment of the investment in the net profits interest during the quarter ended March 31, 2021.
Results of Operations
Results of Operations for the Quarters Ended
March 31, 2021 and 2020
The following is a summary of income from net
profits interest received by the Trust for the three months ended March 31, 2021 and 2020 consisting of the January distribution
for each respective year:
|
|
Three months ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Sales volumes:
|
|
|
|
|
|
|
|
|
Oil (Bbl)
|
|
|
136,583
|
|
|
|
153,775
|
|
Natural gas (Mcf)
|
|
|
95,986
|
|
|
|
90,485
|
|
Total (BOE)
|
|
|
152,581
|
|
|
|
168,856
|
|
Average sales prices:
|
|
|
|
|
|
|
|
|
Oil (per Bbl)
|
|
$
|
36.26
|
|
|
$
|
53.22
|
|
Natural gas (per Mcf)
|
|
$
|
2.07
|
|
|
$
|
2.07
|
|
Gross proceeds:
|
|
|
|
|
|
|
|
|
Oil sales
|
|
$
|
4,952,685
|
|
|
$
|
8,183,261
|
|
Natural gas sales
|
|
|
199,136
|
|
|
|
186,996
|
|
Total gross proceeds
|
|
|
5,151,821
|
|
|
|
8,370,257
|
|
Costs:
|
|
|
|
|
|
|
|
|
Production and development costs:
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
|
2,691,487
|
|
|
|
3,497,526
|
|
Production and property taxes
|
|
|
751,557
|
|
|
|
894,451
|
|
Development expenses
|
|
|
1,014,161
|
|
|
|
1,386,705
|
|
Total costs
|
|
|
4,457,205
|
|
|
|
5,778,682
|
|
|
|
|
|
|
|
|
|
|
Excess of revenues over direct operating expenses and lease equipment and development costs
|
|
|
694,616
|
|
|
|
2,591,575
|
|
Times net profits interest over the term of the Trust
|
|
|
80
|
%
|
|
|
80
|
%
|
Income from net profits interest before reserve adjustments
|
|
|
555,693
|
|
|
|
2,073,260
|
|
VOC Brazos reserve for future development, maintenance or operating expenditures
|
|
|
–
|
|
|
|
–
|
|
Income from net profits interest
|
|
$
|
555.693
|
|
|
$
|
2,073,260
|
|
The cash received by the Trust from VOC Brazos
during the quarter ended March 31, 2021 substantially represents the production by VOC Brazos from September 2020 through November 2020.
The cash received by the Trust from VOC Brazos during the quarter ended March 31, 2020 substantially represents the production by
VOC Brazos from September 2019 through November 2019.The revenues from oil production are typically received by VOC Brazos one
month after production.
Gross
proceeds. Oil and natural gas sales were $5,151,821 for the three months ended March 31, 2021, a decrease of $3,218,436
or 38.5% from $8,370,257 for the three months ended March 31, 2020. Revenues are a function of oil and natural gas sales prices and
volumes sold. The decrease in gross proceeds was due to a decrease in oil sales volumes, partially offset by an increase in natural gas
sales volumes during the first quarter of 2021, compounded by a decrease in market prices for oil during the first quarter of 2021. During
the three months ended March 31, 2021, oil sales volumes were 136,583 Bbls for the three months ended March 31, 2021, a decrease
of 17,192 Bbls or 11.2% from 153,775 Bbls for the three months ended March 31, 2020, while natural gas sales volumes were 95,986
Mcf, an increase of 5,501 Mcf or 6.1% from 90,485 Mcf for the same period in 2020. During the three months ended March 31, 2021,
the average price for oil decreased 31.9% to $36.26 per Bbl and the average price for natural gas remained the same at $2.07 per Mcf.
Costs.
Lease operating expenses were $2,691,487 for the three months ended March 31, 2021, a decrease of $806,039 or 23.0% from $3,497,526
for the three months ended March 31, 2020. Production and property taxes were $751,557 for the three months ended March 31,
2021, a decrease of $142,894 or 16.0% from $894,451 for the same period in 2020. Such decrease is primarily due to a $98,007 or 40.7%
decrease in production taxes due to lower sales volumes and sales prices and a decrease in property taxes of $44,887 or 6.9%. Development
expenses were $1,014,161 for the three months ended March 31, 2021, a decrease of $372,544 or 26.9% from $1,386,705 for the same
period in 2020. Such decrease was primarily due to decreased development expenses during the three months ended March 31, 2021, compared
to the three months ended March 31, 2020.
Excess
of revenues over direct operating expenses and lease equipment and development costs. The excess of revenues over direct operating
expenses and lease equipment and development costs from the underlying properties was $694,616 for the three months ended March 31,
2021, a decrease of $1,896,959 or 73.2% from $2,591,575 for the three months ended March 31, 2020. The Trust’s 80% net profits
interest of these totals were $555,693 and $2,073,260, respectively. During the three months ended March 31, 2021 and 2020, VOC Brazos
did not withhold or release any dollar amounts due to the Trust from the previously established cash reserve for future development, maintenance
or operating expenditures, which resulted in income from the net profits interest of $555,693 and $2,073,260 for such periods, respectively.
These amounts were reduced by a Trust holdback for future expenses of $45,693 and $203,260 for the three months ended March 31, 2021
and 2020, respectively. The Trustee paid general and administrative expenses of $396,399 for the three months ended March 31, 2021,
an increase of $105,941 from $290,458 for the three months ended March 31, 2020. This increase was primarily due to the differences
in timing of receipt and payment of recurring general and administrative expenses. These factors resulted in distributable income for
the three months ended March 31, 2021 of $510,000, a decrease of $1,360,000 from $1,870,000 for the three months ended March 31,
2020.
Liquidity and Capital Resources
Other than Trust administrative expenses, including
any reserves established by the Trustee for future liabilities, the Trust’s only use of cash is for distributions to Trust unitholders.
Administrative expenses include payments to the Trustee as well as a quarterly administrative fee to VOC Brazos pursuant to an administrative
services agreement. Each quarter, the Trustee determines the amount of funds available for distribution. Available funds are the
excess cash, if any, received by the Trust from the net profits interest and other sources (such as interest earned on any amounts reserved
by the Trustee) in that quarter, over the Trust’s expenses paid for that quarter. Available funds are reduced by any cash
that the Trustee decides to reserve for future development, maintenance or operating expenses. As of March 31, 2021, $252,298 was
held by the Trustee as such a reserve.
The Trustee may cause the Trust to borrow funds
required to pay expenses if the Trustee determines that the cash on hand and the cash to be received are insufficient to cover the Trust’s
expenses. If the Trust borrows funds, the Trust unitholders will not receive distributions until the borrowed funds are repaid.
During the three months ended March 31, 2021 and 2020, there were no such borrowings. VOC Brazos has provided a letter of credit
in the amount of $1,700,000 to the Trustee to protect the Trust against the risk that it does not have sufficient cash to pay future expenses.
Income to the Trust from the net profits interest
is based on the calculation and definitions of “gross proceeds” and “net proceeds” contained in the conveyance.
As substantially all of the underlying properties
are located in mature fields, VOC Brazos does not expect future costs for the underlying properties to change significantly compared to
recent historical costs other than changes due to fluctuations in the general cost of oilfield services. VOC Brazos may establish
a cash reserve of up to $1.0 million in the aggregate at any given time from the dollar amount otherwise distributable to the Trust to
reduce the impact on distributions of uneven capital expenditure timing. The cash reserve balance was $1,000,000 at March 31, 2021
and 2020, respectively.
In
2018, VOC Brazos entered into a joint venture agreement with Hawkwood Energy East Texas, LLC (“Hawkwood”). Under the terms
of the joint venture agreement, Hawkwood carried VOC Brazos for its share of drilling and completion costs for four wells in the Lower
Woodbine Organic Shale (the “Hawkwood Earning Wells”). In exchange, Hawkwood earned a working interest representing 50% of
VOC Brazos’ interest in each Hawkwood Earning Well and up to a 50% interest in VOC Brazos’ acreage in the south half of the
Kurten Woodbine Unit. After the Hawkwood Earning Wells were completed, Hawkwood had the right to propose and drill up to eight wells in
the Lower Woodbine Organic Shale (“LWOS”) in 2019 and twelve LWOS wells in 2020, with no contractual limitation of the number
of wells per year to propose and drill after 2020 (collectively, the “Hawkwood Development Wells”). In 2019, Hawkwood drilled
and completed four Hawkwood Development Wells. VOC Brazos is paying Vess Oil, as the operator, for its share of costs and related interest
in the Hawkwood Development Wells, as net revenue from each of the wells is received, thereby having no current effect on Trust distributions.
The remaining balance was paid in full on December 31, 2020. No new Hawkwood Development Wells were drilled in 2020 or through
the date of this Form 10-Q.
Note Regarding Forward-Looking Statements
This Form 10-Q includes “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact included in
this Form 10-Q, including without limitation the statements under “Trustee’s Discussion and Analysis of Financial Condition
and Results of Operations” are forward-looking statements. Although VOC Brazos advised the Trust that it believes that the expectations
reflected in the forward-looking statements contained herein are reasonable, no assurance can be given that such expectations will prove
to have been correct. Important factors that could cause actual results to differ materially from expectations (“Cautionary Statements”)
are disclosed in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”),
including under the section “Item 1A. Risk Factors”. All subsequent written and oral forward-looking statements attributable
to the Trust or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements.