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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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For The Fiscal Year Ended December 31, 2020

OR

For the transition period from _______ to _______

Commission File Number 001-35459

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References to the “Trust” in this document refer to Whiting USA Trust II. References to “Whiting” in this document refer to Whiting Petroleum Corporation and its subsidiaries. References to “Whiting Oil and Gas” in this document refer to Whiting Oil and Gas Corporation, a wholly-owned subsidiary of Whiting Petroleum Corporation.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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 facts included in this Form 10-K, including without limitation the statements under “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements. No assurance can be given that such expectations will prove to have been correct. When used in this document, the words “believes,” “expects,” “anticipates,” “intends” or similar expressions are intended to identify such forward-looking statements. The following important factors, in addition to those discussed elsewhere in this Form 10-K, could affect the future results of the energy industry in general, Whiting and the Trust in particular, and could cause actual results to differ materially from those expressed in such forward-looking statements:

This Form 10-K describes other important factors that could cause actual results to differ materially from expectations of Whiting and the Trust, including under the caption “Risk Factors.” All subsequent written and oral forward-looking statements attributable to Whiting or the Trust or persons acting on behalf of Whiting or the Trust are expressly qualified in their entirety by such factors. The Trust assumes no obligation, and disclaims any duty, to update these forward-looking statements.

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GLOSSARY OF CERTAIN DEFINITIONS

In this Form 10-K the following terms have the meanings specified below:

“ASC” Accounting Standards Codification.

“August 2018 distribution” The cash distribution to Trust unitholders of record on August 19, 2018 (which resulted in an effective record date of August 17, 2018 due to the 19^th day of August falling on a non-trading day) that was paid on August 29, 2018.

“August 2019 distribution” The cash distribution to Trust unitholders of record on August 19, 2019 that was paid on August 29, 2019.

“August 2020 net loss” The net loss generated by the NPI during the second quarterly payment period of 2020, which resulted in no distribution to Trust unitholders of record on August 19, 2020.

“average annual capital expenditure amount” The quotient of (a) the sum of (i) the capital expenditures and (ii) the amounts reserved for approved capital expenditure projects, in each case attributable to the three years ended December 31, 2017, divided by (b) three. Such amount will be increased annually by 2.5% which began on December 31, 2017.

“Bbl” One stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to oil, NGLs and other liquid hydrocarbons.

“BOE” One stock tank barrel of oil equivalent, computed on an approximate energy equivalent basis that one Bbl of crude oil equals six Mcf of natural gas and one Bbl of crude oil equals one Bbl of natural gas liquids.

“BOE/d” One BOE per day.

“Btu” or “British thermal unit” The quantity of heat required to raise the temperature of one pound of water one degree Fahrenheit.

“CO₂” Carbon dioxide.

“completion” The process of preparing an oil and gas wellbore for production through the installation of permanent production equipment, as well as perforation or fracture stimulation to optimize production.

“COPAS” The Council of Petroleum Accountants Societies, Inc.

“costless collar” An option position where the proceeds from the sale of a call option at its inception fund the purchase of a put option at its inception.

“deterministic method” The method of estimating reserves or resources using a single value for each parameter (from the geoscience, engineering or economic data) in the reserves calculation.

“development well” A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

“differential” The difference between a benchmark price of oil and natural gas, such as the NYMEX crude oil spot price, and the wellhead price received.

“dry hole” or “dry well” A well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well.

“exploratory well” A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir. Generally, an exploratory well is any well that is not a development well, an extension well, a service well or a stratigraphic test well.

“extension well” A well drilled to extend the limits of a known reservoir.

“farm-in or farm-out agreement” An agreement under which the owner of a working interest in an oil or natural gas lease typically assigns the working interest or a portion of the working interest to another party who desires to drill on the leased acreage. Generally, the assignee is required to drill one or more wells in order to earn its interest in the acreage. The assignor usually retains a royalty or

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reversionary interest in the lease. The interest received by an assignee is a “farm-in” while the interest transferred by the assignor is a “farm-out.”

“FASB” Financial Accounting Standards Board.

“February 2018 distribution” The cash distribution to Trust unitholders of record on February 19, 2018 that was paid on March 1, 2018.

“February 2019 distribution” The cash distribution to Trust unitholders of record on February 19, 2019 that was paid on March 1, 2019.

“February 2020 distribution” The cash distribution to Trust unitholders of record on February 19, 2020 that was paid on February 28, 2020.

“February 2021 net loss” The net loss generated by the NPI during the fourth quarterly payment period of 2020, which resulted in no distribution to Trust unitholders of record on February 19, 2021.

“field” An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. There may be two or more reservoirs in a field that are separated vertically by intervening impervious strata, or laterally by local geologic barriers, or both. Reservoirs that are associated by being in overlapping or adjacent fields may be treated as a single or common operational field. The geological terms “structural feature” and “stratigraphic condition” are intended to identify localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas of interest, etc.

“GAAP” Generally accepted accounting principles in the United States of America.

“gross acres” or “gross wells” The total acres or wells, as the case may be, in which a working interest is owned.

“IRS” The Internal Revenue Service of the United States federal government.

“lease operating expense” or “LOE” The expenses of lifting oil or gas from a producing formation to the surface, constituting part of the current operating expenses of a working interest, and also including labor, superintendence, supplies, repairs, short-lived assets, maintenance, allocated overhead costs and other expenses incidental to production, but not including lease acquisition or drilling or completion expenses.

“May 2018 distribution” The cash distribution to Trust unitholders of record on May 20, 2018 (which results in an effective record date of May 18, 2018 due to the 20^th of May falling on a non-trading day) that was paid on May 30, 2018.

“May 2019 distribution” The cash distribution to Trust unitholders of record on May 20, 2019 that was paid on May 30, 2019.

“May 2020 distribution” The net profits generated by the NPI during the first quarterly payment period of 2020, which net profits were inclusive of a reserve for certain future expenses established by Whiting, and when combined with the payment period’s increased provision for estimated Trust expenses, resulted in no cash available for distribution to Trust unitholders of record on May 20, 2020.

“MBbl” One thousand barrels of oil, NGLs or other liquid hydrocarbons.

“MBOE” One thousand BOE.

“MBOE/d” One MBOE per day.

“Mcf” One thousand cubic feet, used in reference to natural gas.

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“Money market rate” The lesser of (a) the rate of interest per annum publicly announced from time to time in the Midwest edition of the Wall Street Journal as the “money market” interest rate on an annual yield basis, but if such rate is not available, then such similar rate as reported by a nationally recognized financial news source or (b) the maximum rate of interest permitted under applicable law.

“net acres” or “net wells” The sum of the fractional working interests owned in gross acres or wells, as the case may be.

“net production” The total production attributable to the fractional working interest owned.

“net profits interest” or “NPI” The nonoperating interest that creates a share in gross production from an operating or working interest in the underlying properties until terminated pursuant to its terms. The share is measured by net profits from the sale of production after deducting costs associated with that production.

“net revenue interest” An interest in all oil, natural gas and natural gas liquids produced and saved from, or attributable to, a particular property, net of all royalties, overriding royalties, net profits interests, carried interests, reversionary interests and any other burdens to which the person’s interest is subject.

“NGL” Natural gas liquid.

“November 2018 distribution” The cash distribution to Trust unitholders of record on November 19, 2018 that was paid on November 29, 2018.

“November 2019 distribution” The cash distribution to Trust unitholders of record on November 19, 2019 that was paid on November 29, 2019.

“November 2020 net loss” The lack of a cash distribution to Trust unitholders of record on November 19, 2020.

“NYMEX” The New York Mercantile Exchange.

“payment period” A calendar quarter, which is the period of time over which the computation of net proceeds (or net losses) generated by the NPI is determined for the respective quarter.

“plugging and abandonment” Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface. Regulations of most states legally require plugging of abandoned wells.

“pre-tax PV10%” The present value of estimated future revenues to be generated from the production of proved reserves calculated in accordance with the guidelines of the SEC, net of estimated lease operating expense, transportation, gathering, compression and other expense, production taxes and future development costs, using costs as of the date of estimation without future escalation and using an average of the first-day-of-the-month price for each of the 12 months within the fiscal year, without giving effect to non-property related expenses such as general and administrative expenses, debt service and depreciation, depletion and amortization, or federal income taxes and discounted using an annual discount rate of 10%. Pre-tax PV10% may be considered a non-GAAP financial measure as defined by the SEC.

“probabilistic method” The method of estimating reserves using the full range of values that could reasonably occur for each unknown parameter (from the geoscience and engineering data) to generate a full range of possible outcomes and their associated probabilities of occurrence.

“prospect” A property on which indication of oil or gas have been identified based on available seismic and geological information.

“proved developed reserves” Proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well.

“proved reserves” Those reserves which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs and under existing economic conditions, operating methods and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced, or the operator must be reasonably certain that it will commence the project, within a reasonable time.

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The area of the reservoir considered as proved includes all of the following:

Reserves that can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when both of the following occur:

Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period before the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

“proved undeveloped reserves” or “PUDs” Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances. Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless specific circumstances justify a longer time. Under no circumstances shall estimates of proved undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.

“reasonable certainty” If deterministic methods are used, reasonable certainty means a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical and geochemical), engineering, and economic data are made to estimated ultimate recovery with time, reasonably certain estimated ultimate recovery is much more likely to increase or remain constant than to decrease.

“recompletion” An operation whereby a completion in one zone is abandoned in order to attempt a completion in a different zone within the existing wellbore.

“reserves” Estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

“reservoir” A porous and permeable underground formation containing a natural accumulation of producible crude oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

“resource play” An expansive contiguous geographical area with known accumulations of crude oil or natural gas reserves that has the potential to be developed uniformly with repeatable commercial success due to advancements in horizontal drilling and completion technologies.

“royalty” The amount or fee paid to the owner of mineral rights, expressed as a percentage or fraction of gross income from crude oil or natural gas produced and sold, unencumbered by expenses relating to the drilling, completing or operating of the affected well.

“royalty interest” An interest in an oil or natural gas property entitling the owner to shares of the crude oil or natural gas production free of costs of exploration, development and production operations.

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“SEC” The United States Securities and Exchange Commission.

“service well” A service well is a well drilled or completed for the purpose of supporting production in an existing field. Wells in this class are drilled for the following specific purposes: gas injection (natural gas, propane, butane or flue gas), water injection, steam injection, air injection, salt-water disposal, water supply for injection, observation or injection for in-situ combustion.

“standardized measure of discounted future net cash flows” or “standardized measure” The discounted future net cash flows relating to proved reserves based on the average price during the 12-month period before the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period (unless prices are defined by contractual arrangements, excluding escalations based upon future conditions); current costs and statutory tax rates (to the extent applicable); and a 10% annual discount rate.

“working interest” The interest in a crude oil and natural gas property (normally a leasehold interest) that gives the owner the right to drill, produce and conduct operations on the property and to a share of production, subject to all royalties, overriding royalties and other burdens and all costs of exploration, development and operations and all associated risks.

“workover” Operations on a producing well to restore or increase production.

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The Trust makes quarterly cash distributions of substantially all of its quarterly cash receipts, if any, after the deduction of actual or anticipated fees and expenses for the administration of the Trust, to holders of its Trust units. Because payments to the Trust are generated by depleting assets and the Trust has a finite life due to the production from the underlying properties diminishing over time, a portion of each distribution represents a return of the original investment in the Trust units, with the remainder being considered as a return on investment. As a result, the market price of the Trust units will decline to zero at the termination of the Trust.

The Trustee can authorize the Trust to borrow money to pay Trust administrative or incidental expenses that exceed cash held by the Trust. The Trustee may authorize the Trust to borrow from the Trustee, Whiting 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, which may be a non-interest bearing account, and make other short-term investments with the funds distributed to the Trust.

The Trust was created to acquire and hold the NPI for the benefit of the Trust unitholders pursuant to the conveyance to the Trust from Whiting Oil and Gas. The NPI is the only asset of the Trust, other than cash reserves held for future Trust expenses. The NPI is passive in nature, and the Trustee has no management control over and no responsibility relating to the operation of the underlying properties. The business and affairs of the Trust are administered by the Trustee. Whiting and its affiliates have no ability to manage or influence the operations of the Trust. The oil and gas properties comprising the underlying properties for which Whiting is designated the operator are currently operated by Whiting and its subsidiaries on a contract operator basis. Whiting, as a matter of course, does not make public projections as to future sales, earnings or other results relating to the underlying properties.

Marketing

Pursuant to the terms of the conveyance creating the NPI, Whiting has the responsibility to market, or cause to be marketed, the oil, natural gas and natural gas liquid production attributable to the underlying properties. The terms of the conveyance creating the NPI do not permit Whiting to charge any marketing fee, other than fees for marketing paid to non-affiliates, when determining the net proceeds upon which the NPI is calculated. As a result, the net proceeds to the Trust from the sales of oil, natural gas and natural gas liquid production from the underlying properties are determined based on the same price that Whiting receives for oil, natural gas and natural gas liquid production attributable to Whiting’s remaining interest in the underlying properties.

Whiting principally sells its oil and natural gas production to end users, marketers and other purchasers that have access to nearby pipeline facilities. In areas where there is no practical access to pipelines, oil is trucked to storage facilities and sales points. Whiting’s marketing of oil and natural gas can be affected by factors beyond its control, the effects of which cannot be accurately predicted.

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Whiting does not believe that the potential loss of any purchaser presents a material risk because there is significant competition among purchasers of crude oil and natural gas in the areas of the underlying properties, and if the underlying properties were to lose any of their largest purchasers, several entities could reasonably be expected to purchase crude oil and natural gas produced from the underlying properties with little or no interruption to their sales.

Competition and Markets

The oil and natural gas industry is highly competitive. Whiting competes with major oil and gas companies and independent oil and gas companies for oil and natural gas, equipment, personnel and markets for the sale of oil and natural gas. Many of these competitors are financially stronger than Whiting, but even financially troubled competitors can affect the market because of their need to sell oil and natural gas at any price to attempt to maintain cash flow. The Trust is subject to the same competitive conditions as Whiting and other companies in the oil and natural gas industry.

Oil and natural gas compete with other forms of energy available to customers. These alternate forms of energy include electricity, coal, wind, solar, nuclear and fuel oils. Changes in the availability or price of oil, natural gas or other forms of energy, as well as business conditions, impact of climate change activism, conservation, legislation, regulations and the ability to convert to alternate fuels and other forms of energy may affect the demand for oil and natural gas. Future price fluctuations for oil, natural gas and natural gas liquids will directly impact Trust distributions, estimates of reserves attributable to the NPI and estimated and actual future net revenues to the Trust. In light of the many uncertainties that affect the supply and demand for oil and natural gas, neither the Trust nor Whiting can make reliable predictions of future oil and natural gas supply and demand, future product prices or the effect of future product prices on the Trust.

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Human Capital

The business and affairs of the Trust are managed by the Trustee. As such, the Trust does not have any executive officers, directors or employees.

Description of Trust Units

Each Trust unit is a unit of beneficial interest in the Trust and is entitled to receive cash distributions from the Trust on a pro rata basis. Each Trust unitholder has the same rights regarding each of his or her Trust units as every other Trust unitholder has regarding his or her units. The Trust units are in book-entry form only and are not represented by certificates.

Periodic Reports

The Trustee files all required Trust federal and state income tax and information returns. The Trustee prepares and makes available to Trust unitholders annual reports that Trust unitholders need to correctly report their share of the Trust’s income and deductions. The Trustee also causes to be prepared and filed reports required under the Exchange Act and by the rules of any securities exchange or quotation system on which the Trust units are listed or admitted to trading, and is responsible for causing the Trust to comply with all of the provisions of the Sarbanes-Oxley Act of 2002, including but not limited to, establishing, evaluating and maintaining a system of internal controls over financial reporting in compliance with the requirements of Section 404 thereof. Each Trust unitholder and his or her representatives may examine, for any proper purpose, during reasonable business hours, the records of the Trust and the Trustee.

Liability of Trust Unitholders

Under the Delaware Statutory Trust Act, Trust unitholders are entitled to the same limitation of personal liability extended to stockholders of private corporations for profit under the General Corporation Law of the State of Delaware. No assurance can be given, however, that the courts in jurisdictions outside of Delaware would give effect to such limitation.

Voting Rights of Trust Unitholders

The Trustee or Trust unitholders owning at least 10% of the outstanding Trust units may call meetings of Trust unitholders. The Trust is responsible for all costs associated with calling a meeting of Trust unitholders, unless such meeting is called by the Trust unitholders, in which case the Trust unitholders are responsible for all costs associated with calling such meeting. Meetings must be held in such location as is designated by the Trustee in the notice of such meeting. The Trustee must send written notice of the time and place of the meeting and the matters to be acted upon to all of the Trust unitholders at least 20 days and not more than 60 days before the meeting. Trust unitholders representing a majority of Trust units outstanding must be present or represented to have a quorum. Each Trust unitholder is entitled to one vote for each Trust unit owned.

Unless otherwise required by the Trust agreement, a matter may be approved or disapproved by the vote of a majority of the Trust units held by the Trust unitholders at a meeting where there is a quorum. This is true, even if a majority of the total Trust units did not approve it. The affirmative vote of the holders of a majority of the outstanding Trust units is required to:

In addition, certain amendments to the Trust agreement, conveyance and administrative services agreement may be made by the Trustee without approval of the Trust unitholders.

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Termination of the Trust; Sale of the Net Profits Interest

As described above in “—General,” the Trust will wind up its affairs and terminate shortly after the NPI termination date, December 31, 2021. After the termination of the Trust, it will pay no further distributions and the market price of Trust units will have declined to zero.

The Trust will dissolve prior to the termination of the NPI if:

The Trustee would then sell all of the Trust’s assets, either by private sale or public auction, and distribute the net proceeds of the sale to the Trust unitholders.

Computation of Net Proceeds

The provisions of the conveyance governing the computation of net proceeds are detailed and extensive. The following information summarizes the material information contained in the conveyance related to the computation of net proceeds. For more detailed provisions concerning the NPI, we make reference to the conveyance agreement, which is filed as an exhibit to this Annual Report on Form 10-K.

Net Profits Interest

The NPI was conveyed to the Trust by Whiting Oil and Gas on March 28, 2012 by means of a conveyance instrument that has been recorded in the appropriate real property records in each county where the underlying properties are located. The NPI burdens the interests owned by Whiting in the underlying properties.

The conveyance creating the NPI provides that the Trust is entitled to receive an amount of cash for each quarter equal to 90% of the net proceeds (calculated as described below) from the sale of oil, natural gas and natural gas liquid production attributable to the underlying properties.

The amounts paid to the Trust for the NPI are based on the definitions of “gross proceeds” and “net proceeds” contained in the conveyance and described below. Under the conveyance, net proceeds are computed quarterly, and 90% of the aggregate net proceeds, if any, attributable to a computation period are paid to the Trust no later than 60 days following the end of the computation period (or the next succeeding business day). Whiting does not pay to the Trust any interest on the net proceeds held by Whiting prior to payment to the Trust. The Trustee makes distributions to Trust unitholders quarterly if the NPI generates distributable income and such distributable income is in excess of actual or anticipated fees and expenses for the administration of the Trust and any prior period net losses that have not been repaid.

“Gross proceeds” means the aggregate amount received by Whiting from sales of oil, natural gas and natural gas liquids produced from the underlying properties (other than amounts received for certain future non-consent operations). Gross proceeds does not include any amount for oil, natural gas or natural gas liquids lost in production or marketing or used by Whiting in drilling, production and plant operations. Gross proceeds includes “take-or-pay” or “ratable take” payments for future production in the event that they are not subject to repayment due to insufficient subsequent production or purchases.

“Net proceeds” means gross proceeds less Whiting’s share of the following:

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All of the hedge payments received by Whiting from the counterparty upon settlements of hedge contracts and certain other non-production revenues, as detailed in the conveyance, offset the production and development costs outlined above (such production and development costs excluding the last bullet point above) in calculating the net proceeds. Plugging and abandonment liabilities relating to the underlying properties will not be deducted from the gross proceeds in determining net proceeds. If certain other non-production revenues exceed the operating expenses during a quarterly period, the use of such excess amounts to offset operating expenses may be deferred, with interest accruing on such amounts at the prevailing money market rate, until the next quarterly period when such amounts, together with other offsets to costs for the applicable quarter, are less than such expenses. If any excess amounts have not been used to offset costs at the time when the NPI terminates or is sold, then unitholders will not be entitled to receive the benefit of such excess amounts.

The capital expenditures included in the net proceeds attributable to the underlying properties are subject to an annual limitation that became effective January 1, 2018. As a result, the sum of the capital expenditures and amounts reserved for approved capital expenditure projects for each year beginning in 2018 may not exceed the average annual capital expenditure amount. The “average annual capital expenditure amount” means the quotient of (x) the sum of the capital expenditures and amounts reserved for approved capital expenditure projects with respect to the three years ended December 31, 2017, divided by (y) three, which amount equals $3.9 million and will be increased annually by 2.5% to account for expected increased costs due to inflation. The capital expenditures incurred during 2020 and 2019 did not exceed the annual limitation, and capital expenditures included in the net proceeds attributable to the underlying properties cannot exceed $4.3 million during the year ending December 31, 2021.

Pursuant to the terms of its applicable joint operating agreements, Whiting deducts from gross proceeds an overhead fee to operate those underlying properties for which Whiting has been designated as the operator. Additionally, with respect to those underlying properties for which Whiting is the operator but where there is no operating agreement in place, Whiting deducts from the gross proceeds an overhead fee calculated in the same manner that Whiting allocates overhead to other similarly owned properties, as is customary in the oil and gas industry. Operating overhead activities include various engineering, legal and administrative functions. The Trust’s portion of the monthly charge averaged $365 per month per active operated well, which totaled $1.3 million for the four distribution periods during the year ended December 31, 2020. The fee is adjusted annually and may increase or decrease pursuant to COPAS guidelines.

In the event that the net proceeds for any computation period is a negative amount, the Trust will receive no payment for that period, and any such negative amount attributable to the Trust’s interest in the NPI, plus accrued interest at the prevailing money market rate, will be deducted from gross proceeds in the subsequent payment periods until all such negative amounts have been repaid.

Gross proceeds and net proceeds are calculated on a cash basis, except that certain costs, primarily ad valorem taxes and expenditures of a material amount, may be determined on an accrual basis.

Commodity Hedge Contracts

Whiting entered into certain costless collar hedge contracts to reduce the exposure to volatility in the underlying properties’ oil revenues due to fluctuations in crude oil prices, and to achieve more predictable cash flows. Whiting in turn conveyed the rights and obligations of such costless collar hedge contracts to the Trust. All costless collar hedge contracts terminated as of December 31, 2014. Accordingly, there were no hedge contracts in place during any period presented in this Annual Report on Form 10-K. No additional hedges are allowed to be placed on Trust assets, and the Trust cannot therefore enter into derivative contracts for speculative or trading purposes. Consequently, there are no future cash settlement gains or losses on commodity derivatives, and the Trust therefore has increased exposure to oil and natural gas price volatility.

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Additional Provisions

If a controversy arises as to the sales price of any production, then for purposes of determining gross proceeds:

The Trustee is not obligated to return any cash received from the NPI. Any overpayments made to the Trust by Whiting due to adjustments to prior calculations of net proceeds or otherwise will reduce future amounts payable to the Trust until Whiting recovers the overpayments plus interest at the prevailing money market rate. Whiting may make such adjustments to prior calculations of net proceeds without the consent of the Trust unitholders or the Trustee, but is required to provide the Trustee with notice of such adjustments and supporting data.

In addition, Whiting may, without the consent of the Trust unitholders, require the Trust to sell the net profits interest associated with any well or lease that accounts for less than or equal to 0.25% of the total production from the underlying properties in the prior 12 months, provided that the net profits interest covered by such releases cannot exceed, during any 12-month period, an aggregate fair market value to the Trust of $1.0 million. These releases will be made only in connection with a sale by Whiting of the relevant underlying properties and are conditioned upon the Trust receiving an amount equal to the fair value to the Trust of such portion of the NPI. Any net sales proceeds paid to the Trust are distributable to Trust unitholders in the quarter in which they are received. During 2020, Whiting had no divestitures of Trust properties.

For the underlying properties for which Whiting is the designated operator, it may enter into farm-out, operating, participation and other similar agreements with respect to the property. Whiting may enter into any of these agreements without the consent or approval of the Trustee or any Trust unitholder. Prior to December 31, 2020, Whiting entered into three farm-out agreements with a third-party partner for certain underlying properties within the (i) Keystone South field located in Winkler County, Texas in April 2016, (ii) Signal Peak field located in Howard County, Texas in February 2017, as amended in May 2018, September 2019 and February 2020 and (iii) Flying W, SE field located in Winkler County, Texas in March 2017. Additionally, in February 2021, Whiting entered into an additional farm-out agreement for certain underlying properties in the Agua Dulce field located in Nueces County, Texas. Refer to “Abandonment, Sale and Farm-out of Underlying Properties” in Item 2 of this Annual Report on Form 10-K for additional information related to these farm-out agreements.

Whiting or any other operator has the right to abandon any well or property if it reasonably believes the well or property ceases to produce or is not capable of producing in commercially paying quantities. In making such decisions, Whiting is required under the applicable conveyance to operate, or to use commercially reasonable efforts to cause the operators of the underlying properties to operate, the underlying properties as a reasonably prudent operator in the same manner it would if these properties were not burdened by the NPI. Upon termination of the lease, the portion of the NPI relating to the abandoned property will be extinguished.

Whiting must maintain books and records sufficient to determine the amounts payable under the NPI to the Trust. Quarterly and annually, Whiting must deliver to the Trustee a statement of the computation of net proceeds for each computation period. The Trustee has the right to inspect and copy the books and records maintained by Whiting during normal business hours and upon reasonable notice.

Federal Income Tax Matters

The following is a summary of certain U.S. federal income tax matters that may be relevant to the Trust unitholders. This summary is based upon current provisions of the Internal Revenue Code of 1986, as amended, which is referred to as the “Code,” existing (and to the extent proposed) Treasury regulations thereunder, and current administrative rulings and court decisions, all of which are subject to change or different interpretation at any time, possibly with retroactive effect. No attempt has been made in the following summary to comment on all U.S. federal income tax matters affecting the Trust or the Trust unitholders.

The summary is limited to Trust unitholders who are individual citizens or residents of the United States. Accordingly, the following summary has limited application to domestic corporations and persons subject to specialized federal income tax treatment such as, without limitation, tax-exempt organizations, regulated investment companies, insurance companies, and foreign persons or entities. Each Trust unitholder should consult his own tax advisor with respect to his particular circumstances.

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Classification and Taxation of the Trust

Tax counsel to the Trust advised the Trust at the time of formation that, for U.S. federal income tax purposes, in its opinion, the Trust would be treated as a grantor trust and not as an unincorporated business entity. No ruling has been or will be requested from the IRS or another taxing authority. The remainder of the discussion below is based on tax counsel’s opinion, at the time of formation, that the Trust will be classified as a grantor trust for U.S. federal income tax purposes. As a grantor trust, the Trust is not subject to U.S. federal income tax at the Trust level. Rather, each Trust unitholder is considered for federal income tax purposes to own and receive its proportionate share of the Trust’s assets directly as though no Trust were in existence. The income of the Trust is deemed to be received or accrued by the Trust unitholder at the time such income is received or accrued by the Trust, rather than when distributed by the Trust. Each Trust unitholder is subject to tax on its proportionate share of the income and gain attributable to the assets of the Trust and is entitled to claim its proportionate share of the deductions and expenses attributable to the assets of the Trust, subject to applicable limitations, in accordance with the Trust unitholder’s tax method of accounting and taxable year without regard to the taxable year or accounting method employed by the Trust.

On the basis of that advice, the Trust will file annual information returns, reporting to the Trust unitholders all items of income, gain, loss, deduction and credit. The Trust will allocate items of income, gain, loss, deductions and credits to Trust unitholders based on record ownership at each quarterly record date. It is possible that the IRS or another tax authority could disagree with this allocation method and could assert that income and deductions of the Trust should be determined and allocated on a daily, prorated or other basis, which could require adjustments to the tax returns of the Trust unitholders affected by the issue and result in an increase in the administrative expense of the Trust in subsequent periods.

Classification of the Net Profits Interest

Tax counsel to the Trust also advised the Trust at the time of formation that, for U.S. federal income tax purposes, based upon representations made by Whiting regarding the expected economic life of the underlying properties and the expected duration of the NPI, in its opinion the NPI should be treated as a “production payment” under Section 636 of the Code, or otherwise as a debt instrument. On the basis of that advice, the Trust treats the NPI as indebtedness subject to Treasury regulations applicable to contingent payment debt instruments, and by purchasing Trust units, a Trust unitholder agrees to be bound by the Trust’s application of those regulations, including the Trust’s determination of the rate at which interest will be deemed to accrue on the NPI. No assurance can be given that the IRS or another tax authority will not assert that the NPI should be treated differently. Any such different treatment could affect the timing and character of income, gain or loss in respect of an investment in Trust units and could require a Trust unitholder to accrue income at a rate different than that determined by the Trust.

Reporting Requirements for Widely-Held Fixed Investment Trusts

Some Trust units are held by middlemen, as such term is broadly defined in the Treasury regulations (and includes custodians, nominees, certain joint owners and brokers holding an interest for a custodian street name, collectively referred to herein as “middlemen”). Therefore, the Trustee considers the Trust to be a non-mortgage widely held fixed investment trust (“WHFIT”) for U.S. federal income tax purposes. The Bank of New York Mellon Trust Company, N.A., 601 Travis Street, 16^th Floor, Houston, Texas 77002, telephone number 512-236-6555, is the representative of the Trust that will provide the tax information in accordance with applicable Treasury regulations governing the information reporting requirements of the Trust as a WHFIT. Notwithstanding the foregoing, the middlemen holding Trust units on behalf of unitholders, and not the Trustee of the Trust, are solely responsible for complying with the information reporting requirements under the Treasury regulations with respect to such Trust units, including the issuance of IRS Forms 1099 and certain written tax statements. Unitholders whose Trust units are held by middlemen should consult with such middlemen regarding the information that will be reported to them by the middlemen with respect to the Trust units. Any generic tax information provided by the Trustee of the Trust is intended to be used only to assist Trust unitholders in the preparation of their federal and state income tax returns.

Available Trust Tax Information

In compliance with the Treasury regulations reporting requirements for non-mortgage widely-held fixed investment trusts and the dissemination of Trust tax reporting information, the Trustee provides a generic tax information reporting booklet which is intended to be used only to assist Trust unitholders in the preparation of their 2020 federal and state income tax returns. The projected payment schedule for the NPI is included with the tax information booklet. This tax information booklet can be obtained at http://whzt.q4web.com/home/default.aspx.

Under current law, the highest marginal U.S. federal income tax rate applicable to ordinary income of individuals is 37%, and the highest marginal U.S. federal income tax rate applicable to long-term capital gains (generally, gains from the sale or exchange of certain

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investment assets held for more than one year) and also applicable to qualified dividends of individuals is 20%. The highest marginal U.S. federal income tax rate applicable to corporations is 21%, and such rate applies to both ordinary income and capital gains.

Section 1411 of the Code imposes a 3.8% Medicare tax on certain investment income earned by individuals, estates, and trusts for taxable years beginning after December 31, 2012. For these purposes, investment income generally will include a Trust unitholder’s allocable share of the Trust’s interest income plus the gain recognized from a sale of Trust units. In the case of an individual, the tax is imposed on the lesser of (i) the individual’s net investment income from all investments, or (ii) the amount by which the individual’s modified adjusted gross income exceeds specified threshold levels depending on such individual’s federal income tax filing status. In the case of an estate or trust, the tax is imposed on the lesser of (x) undistributed net investment income, or (y) the excess adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins.

Environmental Matters and Government Regulation

The operations of the underlying properties are subject to stringent and complex federal, state and local laws and regulations governing environmental protection as well as the release, discharge or emission of materials into the environment; the handling of hazardous materials; or otherwise relating to environmental protection. These laws and regulations may, among other things:

Failure to comply with these laws and regulations may result in the assessment of significant administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements and the issuance of orders enjoining future operations or imposing additional compliance requirements on such operations. Certain environmental statutes impose strict joint and several liability for costs required to clean up and restore sites where hazardous substances have been disposed or otherwise released. Moreover, these laws, rules and regulations may also restrict the rate of oil and natural gas production below the rate that would otherwise be possible. The regulatory burden on the oil and natural gas industry increases the cost of doing business in the industry and consequently affects profitability. Additionally, Congress and federal and state agencies frequently revise environmental laws and regulations, and any changes that result in more stringent and costly well construction, drilling, water management or completion activities or waste handling, disposal and cleanup requirements for the oil and natural gas industry could have a significant impact on the operating costs of the properties comprising the underlying properties.

The following is a summary of the more significant existing laws, rules and regulations to which the operations of the underlying properties are subject that are material to the operation of the underlying properties.

Waste Handling. The Resource Conservation and Recovery Act, as amended (“RCRA”), and comparable state statutes, regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under delegations of authority from the U.S. Environmental Protection Agency (“EPA”) the individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own, more stringent requirements. Additionally, various federal, state and local agencies have jurisdiction over transportation, storage, and disposal of hazardous waste and seek to regulate movement of hazardous waste in ways not preempted by federal law. In its operations at the underlying properties, Whiting generates solid and hazardous wastes that are subject to RCRA and comparable state laws. Drilling fluid, produced water and many other wastes associated with the exploration, development and production of crude oil or natural gas are currently exempt from RCRA’s hazardous waste provisions. However, it is possible that certain oil and natural gas exploration and production wastes now classified as non‑hazardous could be regulated as hazardous waste in the future. In September 2010, the Natural Resources Defense Council filed a petition with the EPA, requesting it to reconsider the RCRA hazardous waste exemption for exploration, production and development wastes. In December 2016, the court entered a Consent Decree resolving the litigation, under which the EPA would issue such a rulemaking or make a determination that it was not necessary by March 15, 2019. In response, in April 2019, the EPA issued a determination that rulemaking to address waste from oil and gas exploration and production operations was not necessary at this time. However, it is possible that the EPA will take up such

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regulatory changes at a later date. Any such change in the current RCRA exemption and comparable state laws, could result in an increase in the costs to manage and dispose of wastes, which could have a material adverse effect on the cash distributions to the Trust unitholders. Additionally, these exploration and production wastes will continue to be regulated by state agencies as solid waste. Also, non-exempt waste streams generated by the underlying properties will continue to be subject to existing onerous hazardous waste regulations. Although we do not believe the current costs of managing wastes (as they are presently classified) to be significant, any repeal or modification of the oil and gas exploration and production exemption by administrative, legislative or judicial process, or modification of similar exemptions in analogous state statutes would increase the volume of hazardous waste required to be managed and disposed of and may lead to increased costs to manage and dispose of wastes, which could have a material adverse effect on the cash distributions to the Trust unitholders.

Comprehensive Environmental Response, Compensation and Liability Act. The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), also known as the Superfund law and comparable state laws impose strict joint and several liability for sites contaminated by certain hazardous substances on classes of potentially responsible persons. These persons include the owner or operator of the site where the release occurred, and anyone who disposed of or arranged for the disposal of the hazardous substance released at the site. Under CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. While Whiting uses, generates or handles materials in the course of its operations of the underlying properties that may be regulated as hazardous substances, Whiting has not been notified that it has been named as a potentially responsible party at or with respect to any Superfund sites.

The underlying properties of the Trust may have been used for oil and natural gas exploration and production for many years. Although Whiting believes that it has utilized operating and waste disposal practices that were standard in the industry at the time, hazardous substances, wastes, or hydrocarbons may have been released on or under the properties, or on or under other locations, including off‑site locations, where such substances have been taken for recycling or disposal. In addition, the underlying properties of the Trust may have been previously owned or operated by third parties whose treatment and disposal of hazardous substances, wastes or hydrocarbons and materials was not under Whiting’s control and not known to Whiting. These properties and the substances disposed or released on them may give rise to potential liabilities for Whiting pursuant to CERCLA, RCRA and analogous state laws. Under such laws, Whiting could be required to investigate the source and extent of impacts from released hazardous substances, remove previously disposed substances and wastes, remediate contaminated property, perform remedial plugging or pit closure operations to prevent future contamination or to pay some or all of the costs of any such action.

Water Discharges. The Federal Water Pollution Control Act, or the Clean Water Act, as amended (the “CWA”), and analogous state laws, impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into state waters or other waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. Spill prevention, control and countermeasure requirements under federal law require appropriate containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture or leak. In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non‑compliance with discharge permits or other requirements of the CWA and analogous state laws and regulations.

Hydraulic Fracturing. Hydraulic fracturing is an important and common practice that is used to stimulate production of hydrocarbons from tight rock formations. The process involves the injection of mainly water and sand plus a de minimis amount of chemicals under pressure into formations to fracture the surrounding rock and stimulate production. Hydraulic fracturing has been utilized to complete wells drilled on the underlying properties, and Whiting expects it will also be used in the future. The process is typically regulated at the state level; however, the EPA issued guidance in 2014 to address hydraulic fracturing injections using diesel.

In addition, in June 2016, the EPA issued a final rule promulgating pretreatment standards for discharges of wastewater pollutants from onshore unconventional oil and gas extraction facilities to publicly‑owned treatment works. The EPA, along with other federal agencies such as the U.S. Department of Energy, the U.S. Government Accountability Office, the U.S. Department of Interior and the White House Council for Environmental Quality continue to study various aspects of hydraulic fracturing.

In addition, legislation has been introduced in Congress from time to time to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the fracturing process. Multiple states, including Texas, Colorado and Wyoming have already adopted rules requiring disclosures of chemicals used in hydraulic fracturing and others have enacted regulations imposing additional requirements on activities involving hydraulic fracturing. Chemical disclosure regulations may increase compliance costs and

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may limit an operator’s ability to use cutting-edge technology in markets where disclosure is required. Further, laws such as those restricting the use of or regulating the time, place and manner of hydraulic fracturing (such as setback ordinances) may impact the operator’s ability to fully extract reserves. As an example of state governmental actions, the Colorado Oil and Gas Conservation Commission (“COGCC”) has adopted new regulations that will impose, as of January 2021, siting requirements or “setbacks” on certain oil and gas drilling locations based on the distance of a proposed well pad to occupied structures. Pursuant to the regulations, well pads cannot be located within 500 feet of an occupied structure without the consent of the property owner. As part of the permitting process, the COGCC will consider a series of siting requirements for all drilling locations located between 500 feet and 2,000 feet of an occupied structure. Alternatively, the operator may seek a waiver from each owner and tenant within the designated distance. No assurance can be given as to whether or not similar or more restrictive measures might be adopted in the other jurisdictions in which the underlying properties are located. If new laws, regulations or ordinances that significantly restrict or otherwise impact hydraulic fracturing are passed by Congress or adopted in the states or local municipalities where the underlying properties are located, such legal requirements could prohibit or make it more difficult or costly for Whiting to perform hydraulic fracturing activities on the underlying properties.

In addition, in July 2014, a major university and U.S. Geological Survey researchers published a study purporting to find a connection between the deep well injection of hydraulic fracturing wastewater and a sharp increase in seismic activity in Oklahoma since 2008. This study, as well as subsequent studies and reports, may trigger new legislation or regulations that would limit or ban the disposal of hydraulic fracturing wastewater in deep injection wells. If such new laws or rules are adopted, operations on the underlying properties may be curtailed while alternative treatment and disposal methods are developed and approved, or the costs of operations on the underlying properties may increase, which could reduce cash distributions by the Trust and the value of Trust units.

Global Warming and Climate Change. In December 2009, the EPA published its findings that emissions of carbon dioxide, methane, and other greenhouse gases (“GHG”) present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth’s atmosphere and other climate changes. Based on these findings, the EPA has adopted and implemented regulations that restrict emissions of GHG under existing provisions of the federal Clean Air Act, as amended (“CAA”).

At present, the EPA may establish GHG permitting requirements for stationary sources already subject to the Prevention of Significant Deterioration (“PSD”) and Title V requirements of the CAA. Certain of Whiting’s equipment and installations may currently be subject to PSD and Title V requirements and hence, under the U.S. Supreme Court’s ruling, may also be subject to the installation of controls to capture GHG. For any equipment or installation so subject, Whiting may have to incur increased compliance costs to capture related GHG emissions, which could reduce cash distributions by the Trust and the value of Trust units.

In October 2016, the EPA proposed revisions to the rule applicable to GHG for PSD and Title V permitting requirements. The public comment period for the rulemaking concluded on December 16, 2016. While no final rule has been published, this may be taken up as a priority by the Biden administration.

In August 2015, the EPA issued a rule to reduce carbon emissions from electric generating units. The rule, commonly called the “Clean Power Plan,” required states to develop plans to reduce carbon emissions from fossil fuel‑fired generating units commencing in 2022, with the reductions to be fully phased in by 2030. However, in February 2016, the U.S. Supreme Court stayed the implementation of the Clean Power Plan while it was being challenged in court. On October 16, 2017, the EPA published a proposed rule that would repeal the Clean Power Plan and on August 18, 2018, the EPA proposed the Affordable Clean Energy (“ACE”) rule as a replacement to the Clean Power Plan. The EPA issued the final ACE rule in June 2019. As expected, over 20 states and public health and environmental organizations challenged the rule and it was vacated in January 2021. The matter has been remanded to EPA and it is expected that the Biden administration will propose new rules in this area during the next four years.

In addition, both houses of Congress have actively considered legislation to reduce emissions of GHG, and many states have already taken legal measures to reduce emissions of GHG, primarily through the development of GHG inventories, GHG permitting and/or regional GHG cap and trade programs. Most of these “cap and trade” programs work by requiring either major sources of emissions or major producers of fuels to acquire and surrender emission allowances, with the number of allowances available for purchase reduced each year until the overall GHG emission reduction goal is achieved. Also, in recent years, lawsuits have been brought against other energy companies for matters relating to climate change. Multiple states and localities have also initiated investigations in climate-change related matters. While the current suits focus on a variety of issues, at their core they seek compensation for the effects of climate change from companies with ties to GHG emissions. It is currently unknown what the outcome of these types of actions may be, but the costs of defending such actions may be expected to rise. Finally, it should be noted that many scientists have concluded that increasing

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concentrations of GHG in the atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other climatic events.

Air Emissions. The CAA and comparable state laws regulate emissions of various air pollutants from various industrial sources through air emissions permitting programs and also impose other monitoring and reporting requirements. Operators of the underlying properties, including Whiting, may be required to incur certain capital or operating expenditures in the future for air pollution control equipment in connection with obtaining and maintaining pre‑construction and operating permits and approvals for air emissions. In addition, the EPA has developed, and continues to develop, stringent regulations governing emissions of air pollutants at specified sources. Federal and state regulatory agencies can impose penalties for non‑compliance with air permits or other requirements of the CAA and associated state laws and regulations.

In May 2016, the EPA issued a final rule regulating methane emissions from oil and natural gas operations (the “Subpart OOOOa Rule”). This rule applies to emissions from new, reconstructed and modified processes and equipment and also requires owners and operators to find and repair leaks to address fugitive emissions. However, in August 2020, the EPA enacted an amendment to the Subpart OOOOa Rule, which removes all methane-specific requirements from production and processing segments and removes VOC and methane emission standards from transmission and storage facilities.  

Certain states have also adopted, or are considering, regulations addressing methane releases from oil and gas operations. Colorado has adopted regulations reducing methane emissions from oil and gas operations. Compliance with rules applicable to jurisdictions in which the Trust’s underlying properties are located could result in significant costs, including increased capital expenditures and operating costs, which may adversely impact cash distributions to unitholders.

OSHA and Other Laws and Regulation. Whiting is subject to the requirements of the federal Occupational Safety and Health Act, as amended (“OSHA”) and comparable state statutes. The OSHA hazard communication standard, the EPA community right-to-know regulations under the Title III of CERCLA and similar state statutes require that Whiting organize and/or disclose information about hazardous materials used or produced in its operations. Whiting believes that it is in substantial compliance with these applicable requirements and with other OSHA and comparable requirements.

Endangered Species Considerations. The federal Endangered Species Act, as amended (“ESA”), restricts activities that may affect endangered and threatened species or their habitats. If endangered species are located in areas of the underlying properties where Whiting or the other underlying property operators wish to conduct seismic surveys, development activities or abandonment operations, the work could be prohibited or delayed or expensive mitigation may be required. Moreover, as a result of a settlement approved by the U.S. District Court for the District of Columbia in September 2011, the U.S. Fish and Wildlife Service is required to make a determination on listing more than 250 species as endangered or threatened under the ESA over the next several years. The designation of previously unprotected species as threatened or endangered in areas where underlying property operations are conducted could cause operators of those underlying properties, including Whiting, to incur increased costs arising from species protection measures or could result in limitations on their exploration and production activities that could have an adverse impact on their ability to develop and produce reserves.

Consideration of Environmental Issues in Connection with Governmental Approvals. Whiting’s operations frequently require licenses, permits and/or other governmental approvals. Several federal statutes, including the Outer Continental Shelf Lands Act (“OCSLA”) and the National Environmental Policy Act (“NEPA”) and the Coastal Zone Management Act (“CZMA”) require federal agencies to evaluate environmental issues in connection with granting such approvals and/or taking other major agency actions. OCSLA, for instance, requires the U.S. Department of Interior to evaluate whether certain proposed activities would cause serious harm or damage to the marine, coastal or human environment. Similarly, NEPA requires the Department of Interior and other federal agencies to evaluate major agency actions having the potential to significantly impact the environment. In the course of such evaluations, an agency would have to prepare an environmental assessment and, potentially, an environmental impact statement. Recent federal court cases involving natural gas pipelines have involved challenges to the sufficiency of the evaluation of climate change impacts in environmental impact statements prepared under NEPA. The CZMA, on the other hand, aids states in developing a coastal management program to protect the coastal environment from growing demands associated with various uses, including offshore oil and gas development. In obtaining various approvals from the U.S. Department of Interior, we must certify that we will conduct our activities in a manner consistent with all applicable regulations. This process has the potential to delay the development of oil and natural gas projects.

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We believe that we are in compliance in all material respects with all existing environmental laws and regulations applicable to the current operations of the underlying properties and that our continued compliance with existing requirements will not have a material adverse effect on the cash distributions to the Trust unitholders. For instance, Whiting did not incur any material capital expenditures for remediation or pollution control activities for the year ended December 31, 2020 with respect to these properties. Additionally, we have informed the Trust that we are not aware of any environmental issues or claims that will require material capital expenditures during 2021 with respect to these properties. However, there is no assurance that the passage of more stringent laws or implementing regulations in the future will not have a negative impact on the operations of these properties and the cash distributions to the Trust unitholders.

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market may negatively affect the trading price and liquidity of the Trust units and could result in larger spreads in the bid and ask prices for Trust units. Unitholders may find it difficult to resell their Trust units due to the delisting.

The Trust and the Trust unitholders have no voting or managerial rights with respect to the underlying properties. As a result, neither the Trust nor the Trust unitholders have any ability to influence the operation of the underlying properties.

Oil and natural gas properties are typically managed pursuant to an operating agreement among the working interest owners of oil and natural gas properties. The typical operating agreement contains procedures whereby the owners of the working interests in the property designate one of the interest owners to be the operator of the property. Under these arrangements, the operator is typically responsible for making decisions relating to drilling activities, sale of production, compliance with regulatory requirements and other matters that affect the property. Neither the Trustee nor the Trust unitholders have any contractual ability to influence or control the field operations of, and sale of oil and natural gas from, the underlying properties, including underlying properties where Whiting is the operator. Also, the Trust unitholders have no voting rights with respect to the operators of these properties and, therefore, have no managerial, contractual or other ability to influence the activities of the operators of these properties.

The Trust is managed by a Trustee who cannot be replaced except at a special meeting of Trust unitholders.

The business and affairs of the Trust are administered by the Trustee. The voting rights of a Trust unitholder are more limited than those of stockholders of most public corporations. For example, there is no requirement for annual meetings of Trust unitholders or for an annual or other periodic re-election of the Trustee. The Trust agreement provides that the Trustee may only be removed and replaced by a vote of the holders of a majority of the outstanding Trust units at a special meeting of Trust unitholders called by either the Trustee or the holders of not less than 10% of the outstanding Trust units. As a result, it may be difficult to remove or replace the Trustee.

Trust unitholders have limited ability to enforce provisions of the NPI.

The Trust agreement permits the Trustee to sue Whiting on behalf of the Trust to enforce the terms of the conveyance creating the NPI. If the Trustee does not take appropriate action to enforce provisions of the conveyance, the recourse of a Trust unitholder would be limited to bringing a lawsuit against the Trustee to compel the Trustee to take specified actions. The Trust agreement expressly limits the Trust unitholders’ ability to directly sue Whiting or any other third party other than the Trustee. As a result, the unitholders are not able to sue Whiting to enforce these rights.

The financial results of the Trust may differ from the financial results of Whiting USA Trust I.

Whiting previously participated in the formation and initial public offering of Whiting USA Trust I (“Trust I”) on April 30, 2008 and Trust I terminated its NPI effective January 28, 2015 as a result of the contractual volumes being produced and sold from Trust I’s underlying properties. Given the differences in assets comprising the underlying properties, commodity prices, production and development costs, development schedule, operators of the underlying properties and regulatory environment, among other things, the historical results of operations of Trust I should not be relied on as an indicator of how Whiting USA Trust II will perform.

Under certain circumstances, the Trust provides that the Trustee may be required to sell the NPI and dissolve the Trust prior to the expected termination of the Trust. As a result, Trust unitholders may not recover their investment.

The Trust is required to sell the NPI if the holders of a majority of the Trust units approve the sale or vote to dissolve the Trust. The sale of the NPI will result in the dissolution of the Trust and the net proceeds of any such sale will be distributed to the Trust unitholders.

The Trust will wind up its affairs and terminate shortly after December 31, 2021. After the NPI termination date, it is anticipated that the Trustee will make a final quarterly cash distribution, if any, no later than March 1, 2022, to the Trust unitholders of record on the 50th day following December 31, 2021. Other than such potential payment, the Trust unitholders will not be entitled to receive any net proceeds from the sale of production from the underlying properties following the termination of the NPI. Therefore, the market price of the Trust units will approach and eventually reach zero shortly after the end of the NPI term because cash distributions from the Trust will cease following the termination of the NPI, and the Trust will have no right to any additional production from the underlying properties after the term of the NPI.

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The Trust has not requested a ruling from the IRS regarding the tax treatment of ownership of the Trust units. If the IRS were to determine (and be sustained in that determination) that the Trust is not a “grantor trust” for federal income tax purposes, or that the NPI is not properly treated as a production payment (and thus could fail to qualify as a debt instrument) for federal income tax purposes, the Trust unitholders may receive different and potentially less advantageous tax treatment than they anticipated.

If the Trust were not treated as a grantor trust for federal income tax purposes, the Trust may be treated as a partnership for such purposes. Although the Trust would not become subject to federal income taxation at the entity level as a result of treatment as a partnership, and items of income, gain, loss and deduction would flow through to the Trust unitholders, the Trust’s tax reporting requirements would be more complex and costly to implement and maintain, and its distributions to unitholders could be reduced as a result.

If the NPI were not treated as a debt instrument, any deductions allowed to an individual Trust unitholder in their recovery of basis in the NPI may be itemized deductions, the deductibility of which would be subject to limitations that may or may not apply depending upon the unitholder’s circumstances.

Neither Whiting nor the Trustee has requested a ruling from the IRS regarding these tax questions, and neither Whiting nor the Trust can assure that such a ruling would be granted if requested or that the IRS will not challenge this position on audit.

Thus, no assurance can be provided that the opinions and statements set forth in the discussion of U.S. federal income tax consequences would be sustained by a court if contested by the IRS. Any contest of this sort with the IRS may materially and adversely impact the market for the Trust units and the prices at which Trust units trade. In addition, the costs of any contest with the IRS (whether or not such challenge is successful), principally legal, accounting and related fees, will result in a reduction in cash available for distribution to the Trust unitholders, and thus will be borne indirectly by the Trust unitholders.

Trust unitholders should be aware of the possible state tax implications of owning Trust units, and should consult their own tax advisors for advice regarding the state as well as federal tax implications of owning Trust units.

The Trust allocates its items of income, gain, loss and deduction between transferors and transferees of the Trust units based upon the record ownership of the Trust units on the quarterly record date, instead of on the basis of the date a particular Trust unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among the Trust unitholders.

The Trust generally allocates its items of income, gain, loss and deduction between transferors and transferees of the Trust units based upon the record ownership of the Trust units on the quarterly record date, instead of on the basis of the date a particular Trust unit is transferred. It is possible that the IRS could disagree with this allocation method and could assert that income and deductions of the Trust should be determined and allocated on a daily, prorated or other basis, which could require adjustments to the tax returns of the Trust unitholders affected by the issue and result in an increase in the administrative expense of the Trust in subsequent periods.

Trust unitholders will be required to pay taxes on their share of the Trust’s income even if they do not receive any cash distributions from the Trust.

For income tax purposes, Trust unitholders are treated as if they own the Trust’s taxable asset (which for tax purposes, is a loan receivable owed to the Trust from Whiting) and they receive the Trust’s income and are directly taxable thereon as if no trust were in existence. The Trust unitholders generally do not receive cash distributions from the Trust equal to their share of the Trust’s taxable income or even equal to the actual tax liability that results from that income. Because the Trust typically generates taxable income that is different in amount than the cash the Trust distributes, the Trust unitholders will be required to pay any federal income taxes and, in some cases, state and local income taxes on their share of the Trust’s taxable income even if they receive no cash distributions from the Trust.

The tax treatment of an investment in Trust units could be affected by future legislative, judicial or administrative changes and differing opinions, possibly on a retroactive basis.

The U.S. federal income tax treatment of an investment in the Trust may be modified by administrative or legislative changes, or by judicial interpretation, at any time, possibly on a retroactive basis.

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Risks Related to the Trust’s Relationship with Whiting, including Whiting’s Recent Emergence from Chapter 11 Bankruptcy

If the financial position of Whiting degrades in the future, Whiting may not be able to satisfy its obligations to the Trust.

Whiting operates approximately 72% of the underlying properties based on the standardized measure of discounted future net cash flows at December 31, 2020. The conveyance provides that Whiting will be obligated to market, or cause to be marketed, the production related to the underlying properties for which it operates.

On April 1, 2020, Whiting and certain of its direct and indirect subsidiaries, including Whiting Oil and Gas (collectively, the “Debtors”) commenced voluntary cases under chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). On September 1, 2020, the Debtors emerged from the Chapter 11 Cases and the Plan became effective in accordance with its terms. Whiting’s ability to perform its obligations related to the operation of the underlying properties and its obligations to the Trust will depend on Whiting’s future financial condition and economic performance, which in turn will depend upon the supply and demand for oil and natural gas, prevailing economic conditions and financial, business and other factors, many of which are beyond the control of Whiting. Whiting’s financial condition and economic performance could deteriorate in the future. A substantial or extended decline in oil or natural gas prices may materially and adversely affect Whiting’s future business, financial condition, results of operations, liquidity or ability to finance planned capital expenditures. If the reduced demand for crude oil in the global market as a result of the economic effects of the COVID-19 pandemic, and the reduction in the benchmark price of crude oil due in part to the announcement in 2020 of Saudi Arabia’s plans to abandon previously agreed upon output restraints, persists for the near future or longer, or if the pandemic adversely affects employees of Whiting and such employees’ ability to conduct Whiting’s operations, such factors could have a negative impact on the financial condition and economic performance of Whiting.

Conflicts of interest could arise between Whiting and the Trust unitholders.

The interests of Whiting and the interests of the Trust and the Trust unitholders with respect to the underlying properties could at times differ. For example:

The documents governing the Trust generally do not provide a mechanism for resolving these conflicting interests.

Whiting depends on computer and telecommunications systems, and failures in its systems or cyber security attacks could significantly disrupt its business operations.

Whiting has become increasingly dependent upon digital technologies to conduct day-to-day operations, including information systems, infrastructure and cloud applications. Whiting has entered into agreements with third parties for hardware, software, telecommunications

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and other information technology services in connection with its business. In addition, Whiting has developed proprietary software systems, management techniques and other information technologies incorporating software licensed from third parties. Whiting relies on these systems to process, transmit and securely store electronic information, including financial records and personally identifiable information such as contractor, investor and payroll data, and to manage or support a variety of business processes, including its supply chain, pipeline operations, gathering and processing operations, financial transactions, banking and numerous other processes and transactions.

As dependence on digital technologies has increased, cyber incidents, including deliberate attacks or unintentional events, also have increased in frequency. A cyber-attack could include unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption, or result in denial-of-service on websites. It is possible that Whiting, or these third parties, could incur interruptions from cyber security attacks, computer viruses or malware, or that third-party service providers could cause a breach of Whiting’s data. Whiting believes that it has positive relations with its related vendors and maintains adequate anti-virus and malware software and controls over personally identifiable information and contractor data; however, any interruptions to Whiting’s arrangements with third parties for its computing and communications infrastructure or any other interruptions to, or breaches of, its information systems could lead to data corruption, communication interruption, loss of sensitive or confidential information or otherwise significantly disrupt Whiting’s business operations, which in turn, could have a negative impact on the Trust and cash distributions.

Strategic targets, such as energy-related assets and transportation assets, may be at greater risk of future cyber-attacks than other targets. The various procedures, facilities, infrastructure and controls utilized by Whiting to monitor these threats and mitigate its exposure to such threats are costly and labor intensive. There can be no assurance that these measures will be sufficient to prevent security breaches from occurring. Whiting does not maintain or expect to obtain specialized insurance for possible liability or loss resulting from a cyber- attack on its assets that may shut down all or part of its business. However, as cyber threats continue to evolve, Whiting may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities. State and federal cybersecurity legislation could also impose new requirements, which could increase costs of doing business.

To Whiting’s knowledge, Whiting has not experienced any material losses relating to cyber-attacks; however, there can be no assurance that Whiting will not suffer material losses in the future either as a result of an interruption to or a breach of its systems or those of its third-party vendors and service providers, and any such interruption or breach could have a material adverse effect on the Trust.

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Risks Related to the Trust’s Business and Operations

The amount of cash distributions by the Trust are subject to fluctuation as a result of changes in oil, natural gas and natural gas liquids prices.

The reserves attributable to the underlying properties and the quarterly cash distributions of the Trust, if any, are highly dependent upon the prices realized from the sale of oil, natural gas and natural gas liquids. Prices of oil, natural gas and natural gas liquids applicable to the underlying properties can fluctuate widely on a quarter-to-quarter basis in response to a variety of factors that are beyond the control of the Trust and Whiting, including, but not limited to, the following:

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These factors and the volatility of the energy markets generally make it extremely difficult to predict future oil and natural gas price movements. Also, prices for crude oil and prices for natural gas do not necessarily move in tandem. Declines in oil or natural gas prices would not only reduce revenue, but could also reduce the amount of oil and natural gas that can be economically produced from the underlying properties.

Whiting entered into hedge contracts, which were structured as costless collar arrangements and were conveyed to the Trust to reduce the exposure to volatility in the underlying properties’ oil and gas revenues due to fluctuations in crude oil and natural gas prices, and to achieve more predictable cash flows. However, all such costless collar hedge contracts terminated as of December 31, 2014 and no additional hedges are allowed to be placed on the Trust assets. As a result, the amounts of the cash distributions may fluctuate significantly as a result of changes in commodity prices because there are no hedge contracts in place to reduce the Trust’s exposure to oil and natural gas price volatility.

Oil prices declined sharply in 2020 in response to the economic effects of the COVID-19 pandemic and announcements by Saudi Arabia to abandon output restraints. Substantial and extended declines in oil, natural gas and natural gas liquids prices have resulted and may continue to result in reduced net proceeds to which the Trust is entitled, which could materially reduce or completely eliminate the amount of cash available for distribution to Trust unitholders, and may ultimately reduce the amount of oil, natural gas and natural gas liquids that is economic to produce from the underlying properties. As a result, the operator of any of the underlying properties could determine during periods of low commodity prices to shut in or curtail production from the underlying properties. In addition, the operator of these properties could determine during periods of low commodity prices to plug and abandon marginal wells that otherwise may have been allowed to continue to produce for a longer period under conditions of higher prices. Because these properties are mature, decreases in commodity prices could have a more significant effect on the economic viability of these properties as compared to more recently discovered properties. The commodity price sensitivity of these mature wells is due to a culmination of factors that vary from well to well, including the additional costs associated with water handling and disposal, chemicals, surface equipment maintenance, downhole casing repairs and reservoir pressure maintenance activities that are necessary to maintain production. As a result, the volatility of commodity prices may cause the amount of future cash distributions to Trust unitholders to fluctuate, and a substantial decline in the price, or sustained periods of low prices, of oil, natural gas or natural gas liquids, will likely materially reduce, or completely eliminate, the amount of cash available for distribution to Trust unitholders.

The occurrence of epidemic or pandemic diseases, including the COVID-19 pandemic, could adversely affect the amount of cash distributions by the Trust and the value of the Trust units.

Global or national health concerns, including the outbreak of pandemic or contagious disease, can negatively impact the global economy and, therefore, demand and pricing for oil and natural gas products. For example, the World Health Organization declared COVID-19 a pandemic in March 2020, and the continued duration and severity of the COVID-19 pandemic and its ongoing impact on Whiting’s business cannot be predicted. The outbreak of communicable diseases, or the perception that such an outbreak could occur, could result in a widespread public health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that would negatively impact the demand for oil and natural gas products. Furthermore, uncertainty regarding the impact and length of any outbreak of pandemic or contagious disease, including COVID-19, could lead to increased volatility in oil and

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natural gas prices. The occurrence or continuation of any of these events could lead to decreased revenues and could adversely affect the amount of cash distributions by the Trust and the value of the Trust units. For example, no distributions were made to unitholders in the third and fourth quarters of 2020 and the first quarter of 2021. This was due to the net profits interest generating a net loss during the second, third and fourth quarterly payment periods of 2020 primarily due to the dramatic decline in oil prices in April 2020 and continuing through the remainder of the year. All accumulated net losses funded by Whiting, which equaled $0.2 million as of December 31, 2020 and increased to $0.4 million as a result of the February 2021 net loss, plus accrued interest at the prevailing money market rate, will be deducted from gross proceeds in future computation periods for purposes of determining net proceeds (or net losses as the case may be) until the negative net proceeds, including interest, have been recovered in full. The Trust will make no further distributions until that occurs.

Additionally, in response to the COVID-19 pandemic, Whiting’s corporate staff has been working remotely and many of its key vendors, service suppliers and partners have similarly been working remotely. As a result of such remote work arrangements, certain operational, reporting, accounting and other processes may slow, which could result in longer time to execute critical business functions, higher operating costs and uncertainties regarding the quality of services and supplies. Also, in the event that there is an outbreak of COVID-19 at any of Whiting’s operating locations, Whiting could be forced to cease operations at such location. Any of the foregoing could adversely affect the amount of cash distributions by the Trust and the value of the Trust units.

The ability or willingness of OPEC and other oil exporting nations to set and maintain production levels has a significant impact on oil and natural gas commodity prices, which could reduce the amount of cash available for distribution to Trust unitholders.

OPEC is an intergovernmental organization that seeks to manage the price and supply of oil on the global energy market. Actions taken by OPEC members, including those taken alongside other oil exporting nations, have a significant impact on global oil supply and pricing. For example, OPEC and certain other oil exporting nations have previously agreed to take measures, including production cuts, to support crude oil prices. In March 2020, members of OPEC and Russia considered extending and potentially increasing these oil production cuts. However, those negotiations were unsuccessful. As a result, Saudi Arabia announced an immediate reduction in export prices and Russia announced that all previously agreed upon oil production cuts would expire on April 1, 2020. These actions led to an immediate and steep decrease in oil prices, which reached a closing NYMEX price low of under negative $37.00 per Bbl of crude oil in April 2020. Although OPEC members subsequently agreed on certain production cuts beginning in May 2020 and continuing through April 2022, in December 2020 OPEC members agreed to minor production increases beginning January 2021 and to reassess production targets each subsequent month. There can be no assurance that OPEC members and other oil exporting nations will continue to agree to future production cuts, moderating future production or other actions to support and stabilize oil prices, nor can there be any assurance that they will not further reduce oil prices or increase production. Uncertainty regarding future actions to be taken by OPEC members or other oil exporting countries could lead to increased volatility in the price of oil, which could adversely affect the financial condition and economic performance of the operators of the underlying properties and may reduce the net proceeds to which the Trust is entitled, which could materially reduce or completely eliminate the amount of cash available for distribution to Trust unitholders.

The processes of drilling and completing wells are high risk activities.

The processes of drilling and completing wells are subject to numerous risks beyond the Trust’s and Whiting’s control, including risks that could delay the current drilling schedule of Whiting or any other operator of an underlying property and the risk that drilling will not result in commercially viable production. Neither Whiting nor any other operator is obligated to undertake any development activities, so any drilling and completion activities are subject to their discretion. Further, Whiting’s or any other operator’s future business, financial condition, results of operations, liquidity or ability to finance its share of planned development expenditures could be materially and adversely affected by any factor that may curtail, delay or cancel drilling, including the following:

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In the event that development activities are delayed or cancelled, or development wells have lower than anticipated production, due to one or more of the factors above or for any other reason, estimated future distributions to unitholders may be reduced.

The reserves attributable to the underlying properties are depleting assets and production from those reserves will diminish over time. Furthermore, the Trust is precluded from acquiring other oil and natural gas properties or NPI to replace the depleting assets and production.

The net proceeds payable to the Trust from the NPI are derived from the sale of oil, natural gas and natural gas liquids produced from the underlying properties less the costs to operate such properties. The reserves attributable to the underlying properties are depleting assets, which means that such reserves will decline over time. Based on the reserve report, overall production for both oil and gas attributable to the underlying properties is expected to decline at an average year over year rate of approximately 12.5% for oil and 12.0% for gas in 2021, assuming the level of developmental drilling and investments on the underlying properties as set forth in the year end reserve report. However, cash distributions to unitholders may decline at a faster rate than the rate of production due to fixed and semi variable costs attributable to the underlying properties or if expected future development is delayed, reduced or cancelled. Also, the anticipated rate of decline is an estimate and actual decline rates will likely vary from those estimated. As of December 31, 2020, the percentage of remaining reserves expected to be produced during the term of the NPI was 9.6%. The Trust will wind up its affairs and terminate shortly after December 31, 2021. After the NPI termination date of December 31, 2021, it is anticipated that the Trustee will make a final quarterly cash distribution, if any, no later than March 1, 2022, to the Trust unitholders of record on the 50th day following December 31, 2021.

Future maintenance projects on the underlying properties beyond those which are currently estimated may affect the quantity of proved reserves that can be economically produced from the underlying properties. The timing and size of these projects will depend on, among other factors, the market prices of oil, natural gas and natural gas liquids. If operators of the underlying properties do not implement required maintenance projects when warranted, the future rate of production decline of proved reserves may be higher than the rate currently expected by Whiting or estimated in the reserve report. Additionally, although Whiting retained a 10% interest in the net proceeds from the sale of oil, natural gas and natural gas liquids from the underlying properties, Whiting does not own any Trust units, which could reduce its economic incentive to operate the underlying properties in an efficient and cost-effective manner.

The Trust agreement provides that the Trust’s business activities are limited to owning the NPI and any activity reasonably related to such ownership, including activities required or permitted by the terms of the conveyance related to the NPI. As a result, the Trust is not permitted to acquire other oil and natural gas properties or net profits interests to replace the depleting assets or production attributable to the NPI, nor is the Trust permitted to enter into any new hedging arrangements.

Because the net proceeds payable to the Trust are derived from the sale of depleting assets, the portion of the distributions to unitholders attributable to depletion should be considered a return of capital as opposed to a return on investment. Eventually, the NPI may cease to produce in commercial quantities and the Trust may, therefore, cease to receive any distributions of net proceeds. Further, distributions will cease upon termination of the Trust.

Risks associated with the production, gathering, transportation and sale of oil, natural gas and natural gas liquids could adversely affect cash distributions by the Trust and the value of the Trust units.

The revenues of the Trust, the value of the Trust units and the amount of cash distributions to the Trust unitholders depend upon, among other things, oil, natural gas and natural gas liquids production and the prices received and the costs incurred to exploit oil and natural gas reserves attributable to the underlying properties. Drilling, production or transportation accidents that temporarily or permanently halt the production and sale of oil, natural gas and natural gas liquids at any of the underlying properties reduces Trust distributions by reducing the amount of net proceeds available for distribution. For example, accidents may occur that result in personal injuries, property damage, damage to productive formations or equipment and environmental damages. Any costs incurred in connection with any such accidents that are not insured against will have the effect of reducing the net proceeds available for distribution to the Trust. Also, Whiting does not have insurance policies in effect that are intended to provide coverage for losses solely related to hydraulic fracturing operations. The Trust does not maintain any type of insurance against any of the risks of conducting oil and gas exploration and production, hydraulic fracturing operations or related activities.

Also, Whiting’s oil, natural gas liquids and natural gas production depends in large part on the proximity, capacity and ongoing operation of pipeline systems, transportation facilities and processing plants, which are mostly owned by third parties. The lack of availability or the lack of capacity on these systems, facilities and plants could result in the curtailment of production or the delay or discontinuance of drilling plans, as occurred as a result of the permanent shutdown of the third-party operated Chatom Gas Plant in November 2019, which

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impacts underlying property wells located in the Lake Como field. Similarly, curtailments or damage to pipelines and other transportation facilities used to transport oil, natural gas and natural gas liquids production to markets for sale could reduce the amount of net proceeds available for distribution. Any such curtailment or damage to the gathering systems could also require finding alternative means to transport the oil, natural gas and natural gas liquids production from the underlying properties, which alternative means could result in additional costs that will have the effect of reducing net proceeds available for distribution. Adverse changes in the terms and conditions of oil or natural gas pipeline tariffs could result in increased costs.

Also, accidents involving rail cars could result in significant personal injuries and property and environmental damage. In May 2015, the Pipeline and Hazardous Material Safety Administration issued new rules applicable to “high hazard flammable trains,” which could increase transportation expenses. Similarly, regulatory responses to the October 2015 failure at a Southern California underground natural gas storage facility could also lead to increased expenses for underground storage.

In addition, drilling, production and transportation of hydrocarbons bear the inherent risk of loss of containment. Potential consequences include, but are not limited to, loss of reserves, loss of production, loss of economic value associated with the affected wellbore, personal injuries and death, contamination of air, soil, ground water, and surface water, as well as potential fines, penalties or damages associated with any of the foregoing consequences.

Actual reserves and future production may be less than current estimates, which could reduce cash distributions by the Trust and the value of the Trust units.

The value of the Trust units and the amount of future cash distributions, if any, to the Trust unitholders depends upon, among other things, the accuracy of the production and reserves estimated to be attributable to the underlying properties and the NPI. Estimating production and reserves is inherently uncertain. Ultimately, actual production, revenues and expenditures for the underlying properties will vary from estimates, and those variations could be material. Petroleum engineers consider many factors and make assumptions in estimating production and reserves. Those factors and assumptions include:

Changes in these assumptions may materially alter production and reserve estimates. The estimated proved reserves attributable to the NPI and the “standardized measure” value attributable to the NPI are based on estimates of reserve quantities and revenues for the underlying properties. The quantities of reserves attributable to the underlying properties and the NPI may decrease in the future as a result of future decreases in the price of oil, natural gas or natural gas liquids. For example, the reserve estimates in the reserve report have been derived from NYMEX oil and gas prices of $39.57 per Bbl and $1.99 per MMBtu, respectively, which are calculated using an average of the first-day-of-the month price for each month within the 12 months ended December 31, 2020, pursuant to current SEC and FASB guidelines.

The bankruptcy of operators could impede the operation of wells.

The value of the NPI and the Trust’s ultimate cash available for distribution is highly dependent on the financial condition of the operators of the wells. The ability to operate the underlying properties depends on all operators’ future financial condition and economic performance and access to capital, which in turn will depend upon the supply and demand for oil, natural gas and NGLs, prevailing economic conditions and financial, business and other factors, many of which are beyond the control of such operators. If the reduced demand for crude oil in the global market as a result of the economic effects of the outbreak of COVID-19, and the reduction in the benchmark price of crude oil due in part to the announcement in March 2020 of Saudi Arabia’s abandonment of output restraints, such factors could have a negative impact on the financial condition and economic performance of the operators of the underlying properties.

In the event of any future bankruptcy of Whiting or any other operator of the underlying properties, the value of the NPI could be adversely affected by, among other things, delay or cessation of payments under the NPI, business disruptions or cessation of operations by the operator, replacements of operators, inability to find a replacement operator if necessary, reduced production of reserves or decreased distributions to Trust unitholders.

Weaker price differentials and/or weaker benchmark prices of oil and natural gas and the wellhead price received could reduce cash distributions by the Trust and the value of Trust units.

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Oil and natural gas production from the underlying properties generally trades at a discount, but sometimes at a premium, to the relevant benchmark prices, such as NYMEX. A negative or positive difference between the benchmark price and the price received is called a differential. The differential may vary significantly due to market conditions, the quality and location of production and other risk factors. Whiting cannot accurately predict oil and natural gas differentials. Changes in the differential and decreases in the benchmark price for oil and natural gas could reduce cash distributions by the Trust and the value of the Trust units, as recently occurred when a significant increase in the differential for certain properties located in Wyoming and Texas impacted the February 2019 distribution.

Whiting has limited control over activities on the underlying properties that Whiting does not operate, which could reduce production from the underlying properties, increase capital expenditures and reduce cash available for distribution to Trust unitholders.

Whiting is currently designated as the operator of 72% of the underlying properties based on the standardized measure of discounted future net cash flows at December 31, 2020. However, for the 28% of the underlying properties that it does not operate, including properties subject to active farm-out, operating, participation and other similar agreements. Whiting has limited control over normal operating procedures, expenditures or future development relating to such properties. The failure of an operator to adequately perform operations or an operator’s breach of the applicable agreements could reduce production from the underlying properties and the cash available for distribution to Trust unitholders. The success and timing of operational activities on properties operated by others therefore depends upon a number of factors outside of Whiting’s control, including the operator’s decisions with respect to the timing and amount of capital expenditures, the period of time over which the operator seeks to generate a return on capital expenditures, the inclusion of other participants in drilling wells, and the use of technology, as well as the operator’s expertise and financial resources and the operator’s relative interest in the underlying field or property. Operators may also opt to decrease operational activities following a significant decline in oil or natural gas prices. Because Whiting does not have a majority interest in most of the non-operated properties comprising the underlying properties, Whiting may not be in a position to remove the operator in the event of poor performance. Accordingly, while Whiting has agreed to use commercially reasonable efforts to cause the operator to act as a reasonably prudent operator, it is limited in its ability to do so.

Whiting or other operators may abandon individual wells or properties that it or they reasonably believe to be uneconomic.

Whiting or other operators may abandon any well if it or they reasonably believe that the well can no longer produce oil or natural gas in commercially economic quantities. This could result in termination of the NPI relating to the abandoned well.

The Trust units may lose value as a result of title deficiencies with respect to the underlying properties.

The existence of a material title deficiency with respect to the underlying properties could reduce the value of a property or render it worthless, thus adversely affecting the NPI and distributions to Trust unitholders. Whiting does not obtain title insurance covering mineral leaseholds, and Whiting’s failure to cure any title defects may cause Whiting to lose its rights to production from the underlying properties. In the event of any such material title problem, proceeds available for distribution to Trust unitholders and the value of the Trust units may be reduced.

Shortages or increases in costs of oil field equipment, services, qualified personnel and supply materials could delay production, thereby reducing the amount of cash available for distribution.

The demand for qualified and experienced field personnel to conduct field operations, geologists, geophysicists, engineers and other professionals in the oil and natural gas industry can fluctuate significantly, often in correlation with oil and natural gas prices, causing periodic shortages. Historically, there have been shortages of drilling rigs, completion crews and other oil field equipment as demand for these items has increased along with the number of wells being drilled and completed. These factors also cause significant increases in costs for equipment, services and personnel. Higher oil and natural gas prices generally stimulate demand and result in increased prices for drilling rigs and other oil field goods and services. Additionally, operations on the underlying properties in some instances require supply materials such as CO₂ for production which could become subject to shortage and increasing costs. Shortages of field personnel, drilling rigs, completion crews, equipment, supplies or personnel or price increases could delay or adversely affect the amount of cash available for distribution to the Trust unitholders, or restrict operations on the underlying properties.

Cyber security attacks or other failures in telecommunications or information technology systems could result in information theft, data corruption and significant disruption of the Trustee’s operations.

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The Trustee depends heavily upon information technology systems and networks in connection with its business activities. Despite a variety of security measures implemented by the Trustee, events such as the loss or theft of back-up tapes or other data storage media could occur, and the Trustee’s computer systems could be subject to physical and electronic break-ins, cyber-attacks and similar

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disruptions from unauthorized tampering, including threats that may come from external factors, such as governments, organized crime, hackers and third parties to whom certain functions are outsourced, or may originate internally from within the respective companies.

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If a cyber-attack were to occur, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, the Trustee’s computer systems and networks, or otherwise cause interruptions or malfunctions in the operations of the Trust, which could result in litigation, increased costs and regulatory penalties. Although steps are taken to prevent and detect such attacks, it is possible that a cyber incident will not be discovered for some time after it occurs, which could increase exposure to these consequences.

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Risks Related to Legal Proceedings and Government Regulation

Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays as well as adversely affecting Whiting’s and other operators’ services.

Hydraulic fracturing is an important and common practice that is used to stimulate production of hydrocarbons from tight rock formations. The process involves the injection of mainly water and sand plus a de minimis amount of chemicals under pressure into formations to fracture the surrounding rock and stimulate production. The process is typically regulated at the state level, however, the EPA issued guidance in 2014 to address hydraulic fracturing injections involving diesel.

In addition, in June 2016 the “EPA” issued a final rule promulgating pretreatment standards for discharges of wastewater pollutants from onshore unconventional oil and gas extraction facilities to publicly owned treatment works.

The EPA, along with other federal agencies such as the U.S. Department of Energy, the U.S. Government Accountability Office, the U.S. Department of Interior and the White House Council for Environmental Quality continue to study various aspects of hydraulic fracturing.

In addition, legislation has been introduced in Congress from time to time to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the fracturing process. Multiple states, including Texas, Colorado and Wyoming have already adopted rules requiring disclosures of chemicals used in hydraulic fracturing and others have enacted regulations imposing additional requirements on activities involving hydraulic fracturing. Chemical disclosure regulations may increase compliance costs and may limit our ability to use cutting-edge technology in markets where disclosure is required. Further, laws such as those restricting the use of or regulating the time, place and manner of drilling or hydraulic fracturing (such as setback ordinances) may impact our ability to fully extract reserves. No assurance can be given as to whether or not similar or more restrictive measures might be considered or implemented in the other jurisdictions in which the underlying properties are located. If new laws, regulations or ordinances that significantly restrict or otherwise impact hydraulic fracturing are passed by Congress or adopted in the states or local municipalities where the underlying properties are located, such legal requirements could prohibit or make it more difficult or costly for the operator of any of the underlying properties to perform hydraulic fracturing activities on the underlying properties.

In addition, in July 2014, a major university and U.S. Geological Survey researchers published a study purporting to find a connection between the deep well injection of hydraulic fracturing wastewater and a sharp increase in seismic activity in Oklahoma since 2008. This study, as well as subsequent studies and reports may trigger new legislation or regulations that would limit or ban the disposal of hydraulic fracturing wastewater in deep injection wells. If such new laws or rules are adopted, operations on the underlying properties may be curtailed while alternative treatment and disposal methods are developed and approved, or the costs of operations on the underlying properties may increase, which could reduce cash distributions by the Trust and the value of Trust units.

The Biden administration, acting through the executive branch and/or in coordination with Congress, could enact rules and regulations that impose more onerous permitting and other costly environmental, health and safety requirements.

During the campaign, President Biden stated that, if elected President, he would issue Executive Orders to permanently protect certain federal lands, establish monuments, restrict new oil and gas permitting on public lands and waters and modify royalties to account for climate costs. In January 2021, President Biden signed an Executive Order temporarily suspending oil and gas permitting on federal lands and waters. In addition, President Biden has indicated that his administration is likely to pursue more stringent methane pollution limits for new and existing oil and gas operations. These efforts, among others, are intended to support Mr. Biden’s stated goal of addressing climate change. The potential legislative actions Congress could pursue include imposing more restrictive laws and regulations pertaining to permitting, limitations on greenhouse gas emissions, increased requirements for financial assurance including

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additional bonding for decommissioning liabilities and carbon taxes. Any of these administrative or Congressional actions could materially and adversely affect our business, financial condition, results of operations and cash flows by restricting the lands available for development and/or access to permits required for such development, or by imposing additional and costly environmental, health and safety requirements.

Courts outside of Delaware may not recognize the limited liability of the Trust unitholders provided under Delaware law.

Under the Delaware Statutory Trust Act, Trust unitholders are entitled to the same limitation of personal liability extended to stockholders of private corporations under the General Corporation Law of the State of Delaware. Courts in jurisdictions outside of Delaware, however, may not give effect to such limitation.

The operations of the underlying properties may result in significant costs and liabilities with respect to environmental and operational safety matters, which could reduce the amount of cash available for distribution to Trust unitholders.

Significant costs and liabilities can be incurred as a result of environmental and safety requirements applicable to the oil and natural gas exploration, development and production activities of the underlying properties. These costs and liabilities could arise under a wide range of federal, regional, state and local environmental and safety laws, regulations, and enforcement policies, which legal requirements have tended to become increasingly strict over time. Numerous governmental authorities, such as the EPA and analogous state agencies have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly actions. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of cleanup and site restoration costs and liens, and to a lesser extent, issuance of injunctions to limit or cease operations. In addition, claims for damages to persons, property or natural resources may result from environmental and other impacts on the operations of the underlying properties.

Strict, joint and several liability may be imposed under certain environmental laws and regulations, which could result in liability being imposed on Whiting with respect to its portion of the underlying properties due to the conduct of others or from Whiting’s actions even if such actions were in compliance with all applicable laws at the time those actions were taken. Private parties, including the surface estate owners of the real properties at which the underlying properties are located and the owners of facilities where petroleum hydrocarbons or wastes resulting from operations at the underlying properties are taken for reclamation or disposal, may also have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damages. New laws, regulations or enforcement policies could be more stringent and impose unforeseen liabilities or significantly increase compliance costs. If it were not possible to recover the resulting costs for such liabilities or non-compliance through insurance or increased revenues, then these costs could have a material adverse effect on the cash distributions to the Trust unitholders.

The Trust bears indirectly 90% of all costs and expenses paid by Whiting, including those related to environmental compliance and liabilities associated with the underlying properties. In addition, as a result of the increased cost of compliance, the operators of the underlying properties may decide to discontinue drilling.

The operations of the underlying properties are subject to complex federal, state, local and other laws and regulations that could adversely affect cash distributions to the Trust unitholders.

The development and production operations of the underlying properties are subject to complex and stringent laws and regulations. In order to conduct the operations of the underlying properties in compliance with these laws and regulations, Whiting and the other operators must obtain and maintain numerous permits, approvals and certificates from various federal, state, local and governmental authorities. Whiting and the other operators may incur substantial costs and experience delays in order to maintain compliance with these existing laws and regulations, which could decrease the cash distributions to the Trust unitholders. In addition, the costs of compliance may increase or the operations of the underlying properties may be otherwise adversely affected if existing laws and regulations are revised or reinterpreted, or if new laws and regulations become applicable to such operations. Such costs could have a material adverse effect on the cash distributions to the Trust unitholders.

The operations of the underlying properties are subject to federal, state and local laws and regulations as interpreted and enforced by governmental authorities possessing jurisdiction over various aspects of the exploration for, and the production of, oil and natural gas. Failure to comply with such laws and regulations, as interpreted and enforced, could have a material adverse effect on the cash distributions to the Trust unitholders.

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Issues surrounding climate change and greenhouse gas emissions could result in increased operating costs and reduced demand for oil and gas which could reduce the amount of cash available for distribution to Trust unitholders.

In December 2009, the EPA published its findings that emissions of carbon dioxide, methane, and other greenhouse gases (“GHG”) present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth’s atmosphere and other climate changes. Based on these findings, the EPA has adopted and implemented regulations that restrict emissions of GHG under existing provisions of the federal Clean Air Act, as amended (the “CAA”).

At present, the EPA may establish GHG permitting requirements for stationary sources already subject to the Prevention of Significant Deterioration (“PSD”) and Title V requirements of the CAA. Certain of Whiting’s equipment and installations may currently be subject to PSD and Title V requirements and hence, under the Supreme Court’s ruling, may also be subject to the installation of controls to capture GHG. For any equipment or installation so subject, Whiting may have to incur increased compliance costs to capture related GHG emissions, which could reduce cash distributions by the Trust and the value of Trust units.

In October 2016, the EPA proposed revisions to the rule applicable to GHG for PSD and Title V permitting requirements. The public comment period for the rulemaking concluded on December 16, 2016. While no final rule has been published, this may be taken up as a priority by the Biden presidential administration.

In August 2015, the EPA issued a rule to reduce carbon emissions from electric generating units. The rule, commonly called the “Clean Power Plan,” requires states to develop plans to reduce carbon emissions from fossil fuel fired generating units commencing in 2022, with the reductions to be fully phased in by 2030. However, in February 2016, the U.S. Supreme Court stayed the implementation of the Clean Power Plan while it was being challenged in court. On October 16, 2017, the EPA published a proposed rule that would repeal the Clean Power Plan and on August 18, 2018, the EPA proposed the Affordable Clean Energy (“ACE”) rule as a replacement to the Clean Power Plan. The EPA issued the final ACE rule in June 2019. As expected, over 20 states and public health and environmental organizations challenged the rule and it was vacated in January 2021. The matter has been remanded to the EPA and it is expected that the Biden administration will propose new rules in this area during the next four years.

In addition, both houses of Congress have actively considered legislation to reduce emissions of GHG, and many states have already taken legal measures to reduce emissions of GHG, primarily through the development of GHG inventories, GHG permitting and/or regional GHG cap and trade programs. Most of these cap and trade programs work by requiring either major sources of emissions or major producers of fuels to acquire and surrender emission allowances, with the number of allowances available for purchase reduced each year until the overall GHG emission reduction goal is achieved.

Also, in recent years, lawsuits have been brought against other energy companies for matters relating to climate change. Multiple states and localities have also initiated investigations in climate-change related matters. While the current suits focus on a variety of issues, at their core they seek compensation for the effects of climate change from companies with ties to GHG emissions. It is currently unknown what the outcome of these types of actions may be, but the costs of defending against such actions may rise. Finally, many scientists have concluded that increasing concentrations of GHG in the atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other climatic events. If any such effects were to occur, they could have a material adverse effect on the Trust’s assets and the amount of cash available for distribution to the Trust unitholders.

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attributable to (i) the Trust based on the term of its NPI, and (ii) the underlying properties on a full economic life basis (dollars in thousands):

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Proved reserves. Estimates of proved reserves are inherently imprecise and are continually subject to revision based on production history, results of additional exploration and development, price changes and other factors. Oil and gas reserve quantities and related discounted future net cash flows have been derived from oil and gas prices calculated using an average of the first-day-of-the month price for each month of 2020, pursuant to current SEC and FASB guidelines. Assumptions used to estimate reserve quantities and related discounted future net cash flows also include costs for estimated future production and development expenditures required to produce the proved reserves as of December 31, 2020. Future net cash flows are discounted at an annual rate of 10%. There is no provision for federal income taxes with respect to the future net cash flows attributable to the underlying properties or to the NPI because future net revenues are not subject to taxation at the Trust level. Refer to “Federal Income Tax Matters” in Item 1 of this Annual Report on Form 10-K for more information.

A rollforward of changes in net proved reserves attributable to the Trust’s interest in the NPI from January 1, 2020 to December 31, 2020, and the calculation of the standardized measure of the related discounted future net revenues, are contained in the Supplemental Oil And Gas Reserve Information (Unaudited) in Item 8 of this Annual Report on Form 10-K. Whiting has not filed reserve estimates covering the underlying properties with any other federal authority or agency.

In 2020, revisions to previous estimates decreased proved reserves by a net amount of 283 MBOE. Included in these revisions were (i) 263 MBOE of downward adjustments caused by lower oil and gas pricing incorporated into the Trust’s reserve estimates as of December 31, 2020 compared to December 31, 2019 and (ii) 20 MBOE of downward adjustments attributable to engineering and reservoir analysis and other factors.

Preparation of reserves estimates. Whiting has advised the Trustee that it maintains adequate and effective internal controls over the reserve estimation process as well as the underlying data upon which reserve estimates are based. The primary inputs to the reserve estimation process are comprised of technical information, financial data, ownership interests and production data. All field and reservoir technical information, which is updated annually, is assessed for validity when the reservoir engineers hold technical meetings with geoscientists, operations and land personnel to discuss field performance. Current revenue and expense information is obtained from Whiting’s accounting records, which are subject to their own set of internal controls over financial reporting. Internal controls over financial reporting are assessed for effectiveness annually using the criteria set forth in Internal Control – Integrated Framework (2013)

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issued by the Committee of Sponsoring Organizations of the Treadway Commission. All current financial data such as commodity prices, lease operating expenses, transportation, gathering, compression and other expenses, production taxes and field commodity price differentials are updated in the reserve database and then analyzed to ensure that they have been entered accurately and that all updates are complete. Whiting’s current ownership in mineral interests and well production data are also subject to the aforementioned internal controls over financial reporting, and they are incorporated in the reserve database as well and verified to ensure their accuracy and completeness. Once the reserve database has been entirely updated with current information, and all relevant technical support material has been assembled, the Trust’s independent engineering firm Netherland, Sewell, & Associates, Inc. (“NSAI”) meets with Whiting’s technical personnel to review the performance of the underlying properties. Following this review the reserve database is furnished to NSAI so that they can prepare their independent reserve estimates and final report. Access to Whiting’s reserve database is restricted to specific members of the reservoir engineering department.

The reserves estimates shown herein have been independently evaluated by NSAI, a worldwide leader of petroleum property analysis for industry and financial organizations and government agencies. NSAI was founded in 1961 and performs consulting petroleum engineering services under Texas Board of Professional Engineers Registration No. F-2699.  

Within NSAI, the technical persons primarily responsible for preparing the estimates set forth in the NSAI reserves report incorporated herein are Mr. Richard B. Talley, Jr. and Mr. Edward C. Roy III.  Mr. Talley, a Licensed Professional Engineer in the State of Texas (No. 102425) and in the State of Louisiana (No. 36998), has been practicing consulting petroleum engineering at NSAI since 2004 and has over 5 years of prior industry experience. He graduated from University of Oklahoma in 1998 with a Bachelor of Science degree in mechanical engineering and from Tulane University in 2001 with a Master of Business Administration degree. Mr. Roy, a Licensed Professional Geoscientist in the State of Texas, Geology (No. 2364), has been practicing consulting petroleum geoscience at NSAI since 2008 and has over 11 years of prior industry experience. He graduated from Texas Christian University in 1992 with a Bachelor of Science degree in geology and from Texas A&M University in 1998 with a Master of Science degree in geology. Both technical principals meet or exceed the education, training and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers; both are proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.  

Whiting’s Reserves and Reservoir Engineering Manager is responsible for overseeing the preparation of the reserves estimates under the supervision of Whiting’s Chief Operating Officer, Charles Rimer. Whiting’s Reserves and Reservoir Engineering Manager has more than 10 years of broad reservoir engineering experience in the oil and gas industry, focused across conventional and unconventional evaluation and development projects, including corporate reserves estimations. He holds a Bachelor of Science degree in petroleum engineering from the Colorado School of Mines and is a member of the Society of Petroleum Engineers.

Producing Acreage and Well Counts

For the following data, “gross” refers to the total wells or acres in the oil and natural gas properties in which Whiting owns a working interest and “net” refers to gross wells or acres multiplied by the percentage working interest owned by Whiting and in turn attributable to the underlying properties. Although many of Whiting’s wells produce both oil and natural gas, a well is categorized as an oil well or a natural gas well based upon the ratio of oil to natural gas production.

The underlying properties are mainly interests in developed properties located in oil and natural gas producing regions outlined in the chart below. The following is a summary of the number of fields and approximate acreage of these properties by region at December 31, 2020:

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The following is a summary of the producing wells on the underlying properties as of December 31, 2020:

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The following is a summary of the number of productive wells drilled on the underlying properties during the last three years. There were no dry wells drilled on the underlying properties during the years ended December 31, 2020, 2019 and 2018. A productive well is an exploratory, development or extension well that is not a dry well. A dry well is an exploratory, development or extension well that proves to be incapable of producing either oil or natural gas in sufficient quantities to justify completion as an oil or gas well. The information should not be considered indicative of future performance, nor should it be assumed that there is necessarily any correlation between the number of productive wells drilled and quantities of reserves found.

As of December 31, 2020, no wells were in the process of being drilled or completed.

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Certain of the Trust’s wells are included in eight separate enhanced oil recovery waterflood projects, which include both secondary (waterflood) and tertiary (CO2 injection) recovery efforts. Aggregate production from such enhanced oil recovery fields averaged 967 BOE/d during 2020 or 38% of 2020 daily production from the underlying properties. For these areas, the operator needs to use enhanced recovery techniques in order to maintain oil and gas production from these fields.

Delivery Commitments

Neither the Trust nor the underlying properties are committed to deliver fixed quantities of oil or natural gas in the future under existing contracts or agreements.

Major Producing Areas

The underlying properties are located in several major onshore producing basins in the continental United States. However, even this broad distribution may not provide protection against regional trends that may negatively impact production or prices. Based on the standardized measure of discounted future net cash flows at December 31, 2020, approximately 72% of these properties were operated by Whiting. Based on annual 2020 production attributable to the underlying properties, approximately 85% of production was crude oil and natural gas liquids and 15% of production was natural gas. These properties are located in mature fields and have established production profiles. However, production and distributions to the Trust will continue to decline over time.

Permian Basin Region. The Permian Basin region is one of the major hydrocarbon producing provinces in the continental United States. The underlying properties in the Permian Basin region are located in Texas and New Mexico. These properties consist of 16 fields of which Whiting operates wells in 12. The major fields in this region include the Keystone South field that produces from the Clear Fork, Wolfcamp, Wichita Albany and Ellenberger zones; the Martin field that produces from the Clear Fork and Wichita Albany zones; the DEB field that produces from the Wolfcamp zone; the Signal Peak field that produces from the Wolfcamp zone; and the Sable field that produces from the San Andres zone. For the year ended December 31, 2020, the net production attributable to the underlying properties in this region was 415.1 MBOE or 1.1 MBOE/d.

Rocky Mountains Region. The underlying properties in the Rocky Mountains region are located in Colorado, Wyoming, North Dakota and Montana. These properties consist of 12 fields of which Whiting operates wells in three. The Trust’s NPI does not include any of Whiting’s interests in the Bakken and Three Forks formations. The major fields in this region include the Rangely field that produces from the Weber Sand zone; the Garland field that produces from the Madison and Tensleep zones; the Cedar Hills field that produces from the Red River zone; and the Whiting-operated Torchlight field that produces from the Madison and Tensleep zones. For the year ended December 31, 2020, the net production attributable to the underlying properties in this region was 416.1 MBOE or 1.1 MBOE/d.

Gulf Coast Region. The underlying properties in the Gulf Coast region are located in Texas and Mississippi. These properties consist of eight onshore fields, and Whiting operates wells in four. The major field in this region is the Whiting-operated Lake Como field located in Mississippi that produces from the Smackover formation. For the year ended December 31, 2020, the net production attributable to the underlying properties in this region was 75.7 MBOE or 0.2 MBOE/d.

Mid-Continent Region. The underlying properties in the Mid-Continent region are located in Michigan, Arkansas, Oklahoma and Texas. These properties consist of six fields of which Whiting operates wells in two. The major field in this region is the Whiting-operated Wesson field located in Arkansas that produces from the Hogg Sand zone. For the year ended December 31, 2020, the net production attributable to the underlying properties in this region was 15.3 MBOE or 0.1 MBOE/d.

Abandonment, Sale, and Farm-out of Underlying Properties

Any operator of the underlying properties, including Whiting, has the right to abandon its interest in any well or property comprising a portion of the underlying properties if, in its opinion, such well or property ceases to produce or is not capable of producing in commercially paying quantities. To reduce the potential conflict of interest between Whiting and the Trust in determining whether a well is capable of producing in commercially paying quantities, Whiting has agreed to operate the underlying properties as a reasonably prudent operator in the same manner that it would operate these properties if they were not burdened by the NPI. In addition, Whiting has agreed to use commercially reasonable efforts to cause the other operators to operate these properties in the same manner. However,

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Whiting’s ability to cause other operators to take certain actions is limited. For the years ended December 31, 2020, 2019 and 2018, there were five, zero and five gross wells, respectively, that were plugged and abandoned on the underlying properties, based on the determination that such wells were no longer economic to operate.

Divestitures. Whiting may, without the consent of the Trust unitholders, require the Trust to sell the NPI associated with any well or lease that accounts for less than or equal to 0.25% of the total production from the underlying properties in the prior 12 months, provided that the NPI covered by such releases cannot exceed, during any 12-month period, an aggregate fair market value to the Trust of $1.0 million. These releases will be made only in connection with a sale by Whiting of the relevant underlying properties and are conditioned upon the Trust receiving an amount equal to the fair value to the Trust of such portion of the NPI. Any net sales proceeds paid to the Trust are distributable to Trust unitholders for the quarter in which they are received. No sales of oil and gas wells occurred during the years ended December 31, 2020, 2019 and 2018.

Farm-out agreements. For the underlying properties for which Whiting is the designated operator, it may enter into farm-out, operating, participation and other similar agreements with respect to the property. Whiting may enter into any of these agreements without the consent or approval of the Trustee or any Trust unitholder. In an effort to develop the underlying properties while limiting additional capital expenditures for the Trust and prior to December 31, 2020, Whiting Oil and Gas entered into three farm-out agreements with a third-party partner covering (i) 5,127 gross acres in eight leasehold sections within the Keystone South field in Winkler, Texas in April 2016, as amended in July 2020 (the “Keystone South farm-out”), (ii) 9,740 gross acres in approximately 15 units (which unit size is determined by the lateral well length) within the Signal Peak field in Howard County, Texas in February 2017, as amended in May 2018, September 2019 and February 2020 (the “Signal Peak farm-out”) and (iii) 640 gross acres in one leasehold section within the Flying W, SE field in Winkler County, Texas in March 2017 (the “Flying W farm-out”).

These farm-out agreements provide the third-party partner with the option, but not the obligation, to drill one well in each of the leasehold sections or units, as the case may be, subject to the applicable farm-out agreement, whereby the partner will pay 100% of the related drilling and well completion costs to earn a 75% working interest. As a result, the applicable underlying properties will consist of (i) 25% of the original working interest in these properties and (ii) an overriding royalty interest equal to the difference between 25% and the lease burdens of record. Upon completion of one well in each section or unit, as the case may be, pursuant to the terms of the applicable agreements, the partner has the option to drill (i) up to 15 additional wells under the Keystone South farm-out, (ii) up to 12 additional wells under the Signal Peak farm-out and (iii) one additional well under the Flying W farm-out. For each of these additional optional wells, the partner is required to pay 85% of the drilling and well completion costs otherwise ascribed to the underlying properties for a 75% working interest. Given the Trust’s interest in the NPI, the Trust would be responsible for 13.5% of the underlying properties’ remaining drilling and well completion costs at the 90% NPI, subject to the average annual capital expenditure amount limitation as described in the “Computation of Net Proceeds” section in Item I of this Annual Report on Form 10-K.

The third-party partner drilled and completed the first three wells pursuant to the terms of the Keystone South farm-out agreement during 2017, a fourth well was drilled and completed during the second quarter of 2018, a fifth well was drilled and completed during the fourth quarter of 2019, and a sixth well was drilled in the first quarter of 2021 which is scheduled for completion before the second quarter of 2021, whereby the partner earned a 75% working interest in each of the underlying properties’ respective leasehold sections. The partner has no obligation to drill and complete any additional wells, and the Keystone South farm-out agreement will terminate during the fourth quarter of 2021 if no additional drilling has commenced by that time.

During the fourth quarter of 2019, the third-party partner drilled and completed the first well under the Signal Peak farm-out, whereby the partner earned a 75% working interest in the underlying properties’ respective leasehold section. The partner has no obligation to drill and complete any additional wells, and the Signal Peak farmout will terminate during the fourth quarter of 2021 if no additional drilling has commenced by that time.

In addition, the partner drilled and completed the first well under the Flying W farm-out during the second quarter of 2018, whereby the partner earned a 75% working interest in the underlying properties’ respective leasehold section.

Additionally, in February 2021, Whiting entered into an additional farm-out agreement with a third-party partner, which agreement covers 1,091 gross acres within the Agua Dulce field in Nueces County, Texas. The agreement provides the partner with the option, but not the obligation, to drill one well in each of the two leasehold sections subject to the farm-out agreement, whereby the partner will pay 100% of the related drilling and well completion costs to earn a 90% working interest, which results in the underlying properties retaining (i) a 10% working interest and (ii) an overriding royalty interest equal to the difference between 24% and the lease burdens of record, without incurring any capital costs for these wells. Pursuant to the terms of the agreement, within 365 days of the completion of either well in either section, the partner has the option to drill a second well in the respective section where the underlying properties can elect

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to receive a 10% working interest or a 5% carried working interest. Upon completion of a second well in either section, the partner has the option to drill subsequent wells in either section where the underlying properties can retain a 10% working interest (if such option was elected for the respective second well) or can receive a 5% working interest or a 2.5% carried working interest.

Title to Properties

The underlying properties are subject to certain burdens that are described in more detail below. To the extent that these burdens and obligations affect Whiting’s rights to production and the value of production from the underlying properties, they have been taken into account in calculating the Trust’s interests and in estimating the size and value of the reserves attributable to the underlying properties.

Whiting’s interests in the oil and natural gas properties comprising the underlying properties are typically subject, in one degree or another, to one or more of the following:

Whiting has informed the Trustee that Whiting believes the burdens and obligations affecting the oil and natural gas properties comprising the underlying properties are conventional in the industry for similar properties. Whiting also has informed the Trustee that Whiting believes that the existing burdens and obligations do not, in the aggregate, materially interfere with the use of the underlying properties and do not materially adversely affect the value of the NPI.

At the time of its acquisitions of the underlying properties, Whiting undertook a title examination of these properties. As such, Whiting has informed the Trustee that Whiting believes its title to the underlying properties is, and the Trust’s title to the net profits interest is, good and defensible in accordance with standards generally accepted in the oil and gas industry, subject to such exceptions as are not so material to detract substantially from the use or value of such properties or royalty interests.

Net profits interests are non-operating, non-possessory interests carved out of the oil and natural gas leasehold estate, but some jurisdictions have not directly determined whether a NPI is a real or a personal property interest. Whiting has recorded the conveyance of the NPI in the relevant real property records of all applicable jurisdictions. Whiting has informed the Trustee that Whiting believes the delivery and recording of the conveyance creates a fully conveyed and vested property interest under the applicable state’s laws, but because there is no direct authority to this effect in some jurisdictions, this may not always be the result. Whiting has also informed the Trustee that Whiting believes that it is possible the NPI may not be treated as a real property interest under the laws of certain of the jurisdictions where the underlying properties are located. Whiting has also informed the Trustee that Whiting believes that, if, during the term of the NPI, Whiting becomes involved as a debtor in a bankruptcy proceeding, the NPI relating to the underlying properties in most, if not all, of the jurisdictions should be treated as a fully conveyed property interest. In such a proceeding, however, a determination could be made that the conveyance constitutes an executory contract and the NPI is not a fully conveyed property interest under the laws of the applicable jurisdiction, and if such contract were not to be assumed in a bankruptcy proceeding involving Whiting, the Trust would be treated as an unsecured creditor of Whiting with respect to the NPI in the pending bankruptcy proceeding. Although no assurance can be given, Whiting has informed the Trustee that Whiting believes that the conveyance of the NPI relating to the underlying properties in most, if not all, of the jurisdictions of which these properties are located should not be subject to rejection in a bankruptcy proceeding as an executory contract.

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properties at a loss, or may believe such losses will be offset by future income from such properties, including periods after the termination of the NPI. Refer to the risk factor entitled  “Whiting has limited control over activities on the underlying properties that Whiting does not operate, which could reduce production from the underlying properties, increase capital expenditures and reduce cash available for distribution to Trust unitholders” in Item 1A of this Annual Report on Form 10-K.

Annual capital expenditure limitation. The capital expenditures included in the net proceeds attributable to the underlying properties are subject to an annual limitation which became effective January 1, 2018. As a result, the sum of the capital expenditures and amounts reserved for approved capital expenditure projects for each year beginning in 2018 may not exceed the average annual capital expenditure amount. The “average annual capital expenditure amount” means the quotient of (x) the sum of the capital expenditures and amounts reserved for approved capital expenditure projects with respect to the three years ended December 31, 2017, divided by (y) three, which amount equals $3.9 million and will be increased annually by 2.5% to account for expected increased costs due to inflation. The capital expenditures incurred during 2020 and 2019 did not exceed this annual limitation, and capital expenditures included in the net proceeds attributable to the underlying properties cannot exceed $4.3 million during the year ending December 31, 2021.

Farm-out agreements. In an effort to develop the underlying properties while limiting additional capital expenditures for the Trust, prior to December 31, 2020, Whiting Oil and Gas entered into three farm-out agreements with a third-party partner covering (i) 5,127 gross acres in eight leasehold sections within the Keystone South field in Winkler, Texas in April 2016, as amended in July 2020 (the “Keystone South farm-out”), (ii) 9,740 gross acres in approximately 15 units (which unit size is determined by the lateral well length) within the Signal Peak field in Howard County, Texas in February 2017, as amended in May 2018, September 2019 and February 2020 (the “Signal Peak farm-out”) and (iii) 640 gross acres in one leasehold section within the Flying W, SE field in Winkler County, Texas in March 2017 (the “Flying W farm-out”).

These farm-out agreements provide the third-party partner with the option, but not the obligation, to drill one well in each of the leasehold sections or units, as the case may be, subject to the applicable farm-out agreement, whereby the partner will pay 100% of the related drilling and well completion costs to earn a 75% working interest. As a result, the applicable underlying properties will consist of (i) 25% of the original working interest in these properties and (ii) an overriding royalty interest equal to the difference between 25% and the lease burdens of record. Upon completion of one well in each section or unit, as the case may be, pursuant to the terms of the applicable agreements, the partner has the option to drill (i) up to 15 additional wells under the Keystone South farm-out, (ii) up to 12 additional wells under the Signal Peak farm-out and (iii) one additional well under the Flying W farm-out. For each of these additional optional wells, the partner is required to pay 85% of the drilling and well completion costs otherwise ascribed to the underlying properties for a 75% working interest. Given the Trust’s interest in the NPI, the Trust would be responsible for 13.5% of the underlying properties’ remaining drilling and well completion costs at the 90% NPI, subject to the average annual capital expenditure amount limitation discussed above.

The third-party partner drilled and completed the first three wells pursuant to the terms of the Keystone South farm-out agreement during 2017, a fourth well was drilled and completed during the second quarter of 2018, a fifth well was drilled and completed during the fourth quarter of 2019, and a sixth well was drilled in the first quarter of 2021 which is scheduled for completion before the second quarter of 2021, whereby the partner earned a 75% working interest in each of the underlying properties’ respective leasehold sections. The partner has no obligation to drill and complete any additional wells, and the Keystone South farm-out agreement will terminate during the fourth quarter of 2021 if no additional drilling has commenced by that time.

During the fourth quarter of 2019, the third-party partner drilled and completed the first well under the Signal Peak farm-out, whereby the partner earned a 75% working interest in the underlying properties’ respective leasehold section. The partner has no obligation to drill and complete any additional wells, and the Signal Peak farmout will terminate during the fourth quarter of 2021 if no additional drilling has commenced by that time.

In addition, the partner drilled and completed the first well under the Flying W farm-out during the second quarter of 2018, whereby the partner earned a 75% working interest in the underlying properties’ respective leasehold section.

Additionally, in February 2021, Whiting entered into an additional farm-out agreement with a third-party partner, which agreement covers 1,091 gross acres within the Agua Dulce field in Nueces County, Texas. The agreement provides the partner with the option, but not the obligation, to drill one well in each of the two leasehold sections subject to the farm-out agreement, whereby the partner will pay 100% of the related drilling and well completion costs to earn a 90% working interest, which results in the underlying properties retaining (i) a 10% working interest and (ii) an overriding royalty interest equal to the difference between 24% and the lease burdens of record, without incurring any capital costs for these wells. Pursuant to the terms of the agreement, within 365 days of the completion of either well in either section, the partner has the option to drill a second well in the respective section where the underlying properties can elect

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to receive a 10% working interest or a 5% carried working interest. Upon completion of a second well in either section, the partner has the option to drill subsequent wells in either section where the underlying properties can retain a 10% working interest (if such option was elected for the respective second well) or can receive a 5% working interest or a 2.5% carried working interest.

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Comparison of Results of the Trust for the Years Ended December 31, 2020 and 2019

Income from Net Profits Interest. Income from net profits interest is recorded on a cash basis when NPI proceeds are received by the Trust from Whiting. NPI proceeds are based on the oil and gas production for which Whiting has received payment within one month following the end of the most recent fiscal quarter. Whiting receives payment for its crude oil sales generally within 30 days following the month in which it is produced, and Whiting receives payment for its natural gas sales generally within 60 days following the month in which it is produced. Income from net profits interest is generally a function of oil and gas revenues, lease operating expenses, production taxes and development costs as follows:

Revenues. Oil and natural gas revenues were $16 million (or 34%) lower in 2020 compared to 2019. Sales revenue is a function of average commodity prices realized and oil and gas volumes sold. The decrease in revenue between periods was primarily due to lower realized oil prices and a decline in oil production volumes. The average sales price realized decreased for crude oil and natural gas by 23% and 35%, respectively, between periods primarily as a result of lower NYMEX oil and gas prices, which were partially offset by improved oil and gas differentials. Crude oil production volumes decreased by 129 MBbls (or 14%) between periods and natural gas volumes decreased by 194 MMcf (or 17%) in 2020 compared to 2019.

The decrease in oil and gas volumes between periods were primarily related to (i) normal field production decline, (ii) the permanent shutdown of the third-party operated Chatom Gas Plant in November 2019, which impacts wells located in the Lake Como field and (iii) the partial year shut-in of the Garland field and other wells in response to depressed oil and gas pricing for a portion of 2020. Based on the December 31, 2020 reserve report, overall production attributable to the underlying properties is expected to decline at a year-over-year rate of approximately 12.5% for oil and 12.0% for gas from 2020 through the NPI termination date of December 31, 2021.

Lease Operating Expenses. LOE decreased $5.7 million (or 18%) during the year ended December 31, 2020 compared to the same 2019 period primarily due to a $3.9 million decrease in oilfield goods and services, which includes a decrease of $1.9 million in workover costs between periods and a $1.8 million decrease due to lower labor and other operating costs. The decrease in overall LOE coupled with the decline in overall production volumes resulted in a decrease in LOE on a per BOE basis of 4% from $29.52 during 2019 to $28.48 for 2020.

Production Taxes. Production taxes are typically calculated as a percentage of oil and gas revenues. Production taxes as a percentage of revenues decreased from 5.0% during 2019 to 4.8% during 2020. Additionally, overall production taxes in 2020 decreased $0.9 million (or 37%) as compared to 2019 primarily due to lower oil and natural gas revenues between periods.

Development Costs. Development costs were $0.6 million (or 30%) lower in 2020 as compared to 2019. Development costs decreased primarily due to reduced drilling and capital workover costs in the Justis, Mary Two, Garland and Keystone South fields.

Provision for estimated Trust expenses. The provision for estimated Trust expenses increased $0.3 million during 2020 compared to the same 2019 period due to the expected impacts of (i) the sharp decline in oil prices that occurred in March 2020 which oil prices remained depressed at the time the expenses were estimated in August 2020 and (ii) the COVID-19 pandemic. In consideration of the anticipated impacts, the Trustee increased the provision for Trust expenses to enable it to pay the Trust’s future liabilities for approximately 12 months from the time at which it was established.

Accumulated Net Losses Funded by Whiting. During the year ended December 31, 2020, the net profits interest generated accumulated net losses of $0.2 million attributable to the Trust primarily due to the decline in oil and natural gas prices, which lower commodity prices caused production and development costs on the underlying properties to exceed the proceeds from production. Neither the Trust nor the unitholders are liable for any net losses that are generated by the net profits interest. Whiting funds the payment of any such net losses until the accumulated net losses, plus accrued interest at the money market interest rate, are recovered from future NPI net profits. All accumulated net losses, plus accrued interest, must be repaid to Whiting before any further distributions will be made to Trust unitholders. There were no accumulated net losses during the year ended December 31, 2019.

Comparison of Results of the Trust for the Years Ended December 31, 2019 and 2018

For a discussion of the Trust’s financial performance in the year ended December 31, 2019 compared to the year ended December 31, 2018, refer to Part II, Item 7 “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2019 Annual Report on Form 10-K filed with the SEC on March 24, 2020 under the subheading “Results of Trust Operations – Comparison of Results of the Trust for the Years Ended December 31, 2019 and 2018.”

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applied by Whiting to qualifying expenses incurred during the period. Accordingly, there is no remaining reserve for expenditures to offset future development, maintenance or operating expenses on the underlying properties and related activities.

Plugging and Abandonment. Plugging and abandonment costs related to the underlying properties, net of any proceeds received from the salvage of equipment, cannot be included as a deduction in the calculation of net proceeds pursuant to the terms of the conveyance agreement. During the year ended December 31, 2020, Whiting incurred $2.4 million of plugging and abandonment charges on the underlying properties, and these costs were not charged to the unitholders of the Trust..

New Accounting Pronouncements

There were no accounting pronouncements issued during the year ended December 31, 2020 applicable to the Trust or its financial statements.

Critical Accounting Policies and Estimates

The financial statements of the Trust are significantly affected by its basis of accounting and estimates related to its oil and gas properties and proved reserves, as summarized below.

Basis of Accounting. The Trust’s financial statements are prepared on a modified cash basis, which is a comprehensive basis of accounting other than GAAP. This method of accounting is consistent with reporting of taxable income to the Trust unitholders. The most significant differences between the Trust’s financial statements and those prepared in accordance with GAAP are:

While these statements differ from financial statements prepared in accordance with GAAP, the modified cash basis of reporting revenues and distributions is considered to be the most meaningful for the Trust and its results because quarterly distributions to the Trust unitholders are based on net cash receipts. This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the SEC, as specified by FASB ASC Topic 932, Extractive Activities – Oil and Gas: Financial Statements of Royalty Trusts. For additional information regarding the Trust’s basis of accounting, refer to Note 2 to the Financial Statements included in Item 8 of this Annual Report on Form 10-K.

All amounts included in the Trust’s financial statements are based on cash amounts received or disbursed, or on the carrying value of the net profits interests, which was derived from the historical cost of the interests at the date of their transfer from Whiting less accumulated amortization and impairment charges to date.

Oil and Gas Reserves. The proved oil and gas reserves for the underlying properties are estimated by independent petroleum engineers. Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof. Estimates by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices and production costs, may justify revision of such estimates. Accordingly, oil and gas quantities ultimately recovered and the timing of production may be substantially different from estimates, and the Trust is unable to predict changes in reserve quantity estimates as such quantities are dependent on future economic and operational conditions.

The standardized measure of discounted future net cash flows is prepared using assumptions made pursuant to FASB and SEC guidelines. Such assumptions include using average fiscal-year oil and gas prices (calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month reporting period) and year-end costs for estimated future production and development expenditures. Discounted future net cash flows are calculated using a 10% discount rate. Changes in any of these assumptions could have a significant impact on the standardized measure. The standardized measure does not necessarily result in an estimate of the current fair market value of proved reserves.

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Amortization of Net Profits Interest. The investment in net profits interest is amortized using the units-of-production method. The rate of recording amortization is dependent upon the Trust’s estimates of total proved reserves, which incorporates various assumptions and future projections. If the estimates of total proved reserves decline significantly, the rate at which amortization expense is recorded would increase, reducing Trust corpus.

Impairment of Investment in Net Profits Interest. The value of the investment in net profits interest is reviewed whenever the Trustee judges that events and circumstances indicate that the recorded carrying value of the investment in net profits interest may not be recoverable. Potential impairments of the investment in net profits interest are determined by comparing future net undiscounted cash flows based on the oil and gas reserves attributable to the underlying properties to the net book value at the end of each period. If the net capitalized cost exceeds undiscounted future cash flows, the cost of the investment in net profits interest is written down to “fair value,” which is determined using net discounted future cash flows from the net profits interest. Different pricing assumptions, discount rates, or oil and gas reserve estimates could result in a different calculated impairment.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures to address the Trustee’s significant judgments included the following, among others:

Termination of the Trust and Basis of Accounting

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As described in Note 1 to the financial statements, the net profits interest will terminate on December 31, 2021. Soon thereafter, the Trust will wind up its affairs and terminate, after which it will pay no further distributions. As described in Note 2 to the financial statements, these financial statements have been prepared on a modified cash basis of accounting which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.

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/s/ Deloitte & Touche LLP

Austin, Texas

March 19, 2021

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We have served as the Trust's auditor since 2011.

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WHITING USA TRUST II

Statements of Assets, Liabilities and Trust Corpus

(In thousands, except unit data)

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The accompanying notes are an integral part of these modified cash basis financial statements.

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WHITING USA TRUST II

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While these statements differ from financial statements prepared in accordance with GAAP, the modified cash basis of reporting revenues and distributions is considered to be the most meaningful for the Trust’s activities and results because quarterly distributions to the Trust unitholders are based on net cash receipts. This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the SEC as specified by FASB ASC Topic 932, Extractive Activities – Oil and Gas: Financial Statements of Royalty Trusts.

Most accounting pronouncements apply to entities whose financial statements are prepared in accordance with GAAP, directing such entities to accrue or defer certain revenues and expenses in a period other than when such revenues are received or expenses are paid. Because the Trust’s financial statements are prepared on the modified cash basis as described above, however, most accounting pronouncements are not applicable to the Trust’s financial statements.

Cash and Short-Term Investments — Cash and short-term investments include all highly liquid short-term investments with original maturities of three months or less.

Concentration of Credit Risk — The underlying properties from which the NPI is derived principally sell their oil and natural gas production to end users, marketers and other purchasers that have access to nearby pipeline facilities. The following table presents the percentages by purchaser that accounted for 10% or more of the underlying properties’ total oil and gas sales for the years ended December 31, 2020, 2019 and 2018.