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