Development Costs
As previously disclosed, XTO Energy advised the Trustee that it elected to participate in the development of three non-operated wells in Major County, Oklahoma. As of the date hereof, $9.0 million underlying ($7.2 million net to the Trust) in development costs have been charged to the Trust for the three non-operated wells. The Trustee and XTO Energy will continue to provide material updates on the three non-operated wells in subsequent communications.
Arbitration
As previously disclosed, XTO
Energy advised the Trustee that it reached a settlement with the plaintiffs in the Chieftain class action royalty case. On July 27, 2018, the final plan of allocation was approved by the court. Based on the final plan of allocation, XTO
Energy advised the Trustee that it believes approximately $24.3 million in additional production costs should be allocated to the Trust. On May 2, 2018, the Trustee submitted a demand for arbitration seeking a declaratory judgment that the
Chieftain settlement is not a production cost and that XTO Energy is prohibited from charging the settlement as a production cost under the conveyance or otherwise reducing the Trusts payments now or in the future as a result of the
Chieftain litigation. The Trust and XTO Energy conducted the interim hearing on the claims related to the Chieftain settlement on October 12-13, 2020. In the arbitration, the Trustee contended
that the approximately $24.3 million allocation related to the Chieftain settlement was not a production cost and, therefore, there should not be a related adjustment to the Trusts share of net proceeds. However, XTO Energy
contended that the approximately $24.3 million was a production cost and should reduce the Trusts share of net proceeds.
On
January 20, 2021, the arbitration panel issued its Corrected Interim Final Award (i) reject[ing] the Trusts contention that XTO has no right under the Conveyance to charge the Trust with amounts XTO paid under section 1.18(a)(i) as
royalty obligations to settle the Chieftain litigation and (ii) stating [t]he next phase will determine how much of the Chieftain settlement can be so charged, if any of it can be, in the exercise of the right found by
the Panel. Following briefing by both parties, on May 18, 2021, the Panel issued its second interim final award over the amount of XTO Energys settlement in the Chieftain class action lawsuit that can be charged to the Trust
as a production cost. The Panel in its decision has ruled that out of the $80 million settlement, the Trust is obligated to pay its share under the Conveyance of the $48 million that was received by the plaintiffs in the
Chieftain lawsuit by virtue of the settlement of that litigation. The Trust is not obligated by the Conveyance to pay any share of the $32 million received by the lawyers for the plaintiffs in the Chieftain lawsuit by virtue of
the settlement. XTO Energy and the Trustee are in the process of determining the portion of the $48 million that is allocable to Trust properties to be charged as an excess cost to the Trust, but estimate it to be approximately
$14.6 million net to the Trust.
The reduction in the Trusts share of net proceeds from the portion of the settlement amount
the Panel has ruled may be charged against the Oklahoma conveyance would result in excess costs under the Oklahoma conveyance that would likely result in no distributions under the Oklahoma conveyance while these excess costs are recovered. This
award completes the portion of the arbitration related to the Chieftain settlement. Excess costs on any individual conveyance would not affect net proceeds to the Trust on any of the other remaining conveyances.
Other Trustee claims related to disputed amounts on the computation of the Trusts net proceeds for 2014 through 2019 and 2021 were
bifurcated from the initial arbitration. The final hearing regarding the remaining dispute over net proceeds, previously scheduled to occur in November 2023, has been canceled. XTO Energy and the Trustee will provide material updates as they become
available.
For more information on the Trust, please visit our website at
www.hgt-hugoton.com.
Statements made in this press release regarding future events or conditions are
forward looking statements. Actual future results, including development costs and timing, and future net profits, could differ materially due to changes in natural gas and oil prices and other economic conditions affecting the gas and oil industry
and other factors described in Part I, Item 1A of the Trusts Annual Report on Form 10-K for the year ended December 31, 2022.
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Contact: |
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Nancy Willis Vice President
Argent Trust Company, Trustee 855-588-7839 |