Production Expense
Production expense decreased 26% for the first quarter primarily because of decreased labor and salt water disposal costs, partially offset by increased plug
and abandonment costs in Oklahoma and Wyoming, and increased repairs and maintenance due to absence of credits received for material transfers.
Development Costs
Development costs deducted are
based on the current level of development expenditures, budgeted future development costs and the cumulative actual costs under (over) previous deductions. XTO Energy has advised the Trustee that actual development costs were charged to the Trust as
incurred. These development costs decreased 87% from the first quarter 2020, primarily due to a decrease in trailing costs for the drilling of four horizontal wells in Major County, Oklahoma, completed in 2019. For further information on development
costs, see Note 2 to Condensed Financial Statements.
Overhead
Overhead decreased 4% for the first quarter. Overhead is charged by XTO Energy and other operators for administrative expenses incurred to support operations
of the underlying properties. Overhead fluctuates based on changes in the active well count and drilling activity on the underlying properties, as well as an annual cost level adjustment based on an industry index.
Excess Costs
If monthly costs exceed revenues for
any conveyance, these excess costs must be recovered, with accrued interest, from future net proceeds of that conveyance and cannot reduce net profits income from another conveyance. Underlying cumulative excess costs for the Kansas, Oklahoma and
Wyoming conveyances remaining as of March 31, 2021 totaled $32.2 million ($25.8 million net to Trust), including accrued interest of $2.4 million ($1.9 million net to Trust). For further information on excess costs, see Note
5 to Condensed Financial Statements.
Other Proceeds
The calculation of net profits income for the quarter ended March 31, 2021 included $2,809 ($2,247 net to the Trust) from XTO Energy due to interest
received on past due payments.
Contingencies
For
information on contingencies, see Note 4 to Condensed Financial Statements.
Forward-Looking Statements
Statements in this report relating to future plans, predictions, potential asset sales or termination of the Trust, continued funding of Trust expenses by
Simmons Bank, production, excess costs, litigation, arbitration, liquidity, financing, regulatory or court decisions, economic activity and recovery, and the impact of one or more waves of the COVID-19
pandemic and the accompanying government response on trade, travel and energy demand and pricing are forward-looking statements. All statements other than statements of historical fact included in this Form
10-Q, including, without limitation, statements regarding the net profits interests, underlying properties, development activities, annual and monthly development, production and other costs and expenses,
estimated rates of natural production decline, monthly development cost deductions, oil and gas prices and differentials to NYMEX prices, supply levels, drilling, workover and restimulation plans, the outcome of litigation or settlement discussions
and the impact on Trust proceeds,
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