Subsequent to December 31, 2020, the price of both oil and gas
continued to fluctuate, giving rise to a correlating adjustment of
the respective standardized measure of discounted future net cash
flows. As of March 10, 2021, NYMEX posted oil prices were
approximately $64.75 per barrel, which compared to the posted price
of $39.57 per barrel, used to calculate the worth of future net
revenue of the Trust’s proved developed reserves, would result in a
smaller standardized measure of discounted future net cash flows
for oil. As of March 10, 2021, NYMEX posted gas prices were
$2.69 per million British thermal units. The use of such price, as
compared to the posted price of $2.00 per million British thermal
units, used to calculate the future net revenue of the Trust’s
proved developed reserves would result in a smaller standardized
measure of discounted future net cash flows for gas.
Since the oil and gas sales attributable to the Royalties are based
on an allocation formula that is dependent on such factors as price
and cost (including capital expenditures), production amounts do
not necessarily provide a meaningful comparison. For the underlying
properties total oil production decreased by approximately 5% from
2019 to 2020 primarily due to the natural decline of production.
For the underlying properties total gas production increased
approximately 5% from 2019 to 2020 primarily due to additional
production on Waddell due to new drilling.
Total capital expenditures in 2020 used in the net overriding
royalty calculation were approximately $10.3 million (gross)
compared to $3.3 million (gross) in 2019 and $730,000 (gross)
in 2018. The operator of the Waddell Ranch properties has informed
the Trustee that, in order to halt the production decline curve and
to exploit the remaining potential of the Trust’s assets more
fully, a more aggressive, robust capital expenditure budget will be
necessary in the future and is being pursued.
In 2019, there were 0 recompletion wells completed and 0 wells
permanently plugged on the Waddell Ranch properties. Actual costs
for this program in 2019 approximated $3.3 million (gross).
This cost is for the development program and base facilities. In
2020, there were 16 new drill wells and 3 recompletion.
Texas law requires all temporarily abandoned wells to be either
worked over and recompleted to functional status or permanently
plugged and abandoned within a five year time frame. The Waddell
Ranch properties contain over 700 such temporarily abandoned wells.
In 2020, there were 3 recompletion wells completed and 21 wells
permanently plugged on the Waddell Ranch properties.
There were 20 gross (10 net) drill wells completed on the Waddell
Ranch properties during 2020. At December 31, 2019, there was
2 drill wells and 0 workover in progress on the Waddell Ranch
Blackbeard has advised the Trustee that the proposed budget for
2021 will be $86.7 million (gross) and $32.5 (net). The 2021
budget will not include amounts to be spent on vertical wells, or
wells to be worked over and completed, but will be spent on
additional facilities and infrastructure improvements and the
completion of projects begun in 2020.
In 2020, lease operating expense and property taxes on the Waddell
Ranch properties amounted to approximately $19.6 million. In
2019, lease operating expense and property taxes on the Waddell
Ranch properties amounted to approximately $23.4 million. In
2018, lease operating expense and property taxes on the Waddell
Ranch properties amounted to approximately $23.1 million.
The Trustee has been advised by the operator that since June 2006,
the oil from the Waddell Ranch has been marketed by the operator by
soliciting bids from third parties on an outright sale basis of
production listed in bid packages.
During 2020, the monthly royalty receipts were invested by the
Trustee in cash and cash equivalents until the monthly distribution
date, and earned interest totaled $9,603. Interest income for 2019
and 2018 was $23,000 and $26,006, respectively.
General and administrative expenses in 2020 were $1,041,303
compared to $1,089,302 in 2019 and $1,324,828 in 2018, decrease due
primarily to audit of properties and other professional services in
the prior years. The reserve for