SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1995
Commission File No. 1-8032
SAN JUAN BASIN ROYALTY TRUST
Texas I.R.S. No. 75-6279898
Bank One, Texas, NA, Trust Department
P. O. Box 2604
Fort Worth, Texas 76113
Telephone Number 817/884-4630
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
-- --
Number of units of beneficial interest outstanding at August 14, 1995:
46,608,796
Page 1 of 17
SAN JUAN BASIN ROYALTY TRUST
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed financial statements included herein have been prepared
by Bank One, Texas, NA as Trustee for the San Juan Basin Royalty
Trust, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements have been
condensed or omitted pursuant to such rules and regulations, although
the Trustee believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the Trust's
latest annual report on Form 10-K. In the opinion of the Trustee, all
adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the assets, liabilities and trust corpus
of the San Juan Basin Royalty Trust at June 30, 1995, and the
distributable income and changes in trust corpus for the three-month
and six-month periods ended June 30, 1995 and 1994 have been included.
The distributable income for such interim periods is not necessarily
indicative of the distributable income for the full year.
Deloitte & Touche LLP, independent certified public accountants, has
made a limited review of the condensed financial statements as of
June 30, 1995 and for the three-month and six-month periods ended
June 30, 1995 and 1994 included herein.
-2-
INDEPENDENT ACCOUNTANTS' REPORT
Bank One, Texas, NA as Trustee
for the San Juan Basin Royalty Trust:
We have reviewed the accompanying condensed statement of assets,
liabilities and trust corpus of the San Juan Basin Royalty Trust as of
June 30, 1995 and the related condensed statements of distributable
income and changes in trust corpus for the three-month and six-month
periods ended June 30, 1995 and 1994. These financial statements are
the responsibility of the Trustee.
We conducted our reviews in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
The accompanying condensed financial statements are prepared on a
modified cash basis as described in Note 1, which is a comprehensive
basis of accounting other than generally accepted accounting
principles.
Based on our reviews, we are not aware of any material modifications
that should be made to such condensed financial statements for them to
be in conformity with the basis of accounting described in Note 1.
We have previously audited, in accordance with generally accepted
auditing standards, the statement of assets, liabilities and trust
corpus of the San Juan Basin Royalty Trust as of December 31, 1994,
and the related statements of distributable income and changes in
trust corpus for the year then ended (not presented herein); and in
our report dated March 20, 1995, we expressed an unqualified opinion
on those financial statements. In our opinion, the information set
forth in the accompanying condensed statement of assets, liabilities
and trust corpus as of December 31, 1994 is fairly stated, in all
material respects, in relation to the statement of assets, liabilities
and trust corpus from which it has been derived.
/s/ Deloitte & Touche LLP
-----------------------------------
DELOITTE & TOUCHE LLP
August 4, 1995
-3-
<TABLE>
<CAPTION>
SAN JUAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
--------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
ASSETS 1995 1994
(UNAUDITED)
<S> <C> <C>
Cash and short-term investments $ 1,479,767 $ 589,365
Net overriding royalty interest in producing
oil and gas properties (net of accumulated
amortization of $61,106,447 and $58,333,488
at June 30, 1995 and December 31, 1994) 72,169,081 74,942,040
---------- ----------
$73,648,848 $75,531,405
========== ==========
LIABILITIES AND TRUST CORPUS
Distribution payable to Unit holders (Note 3) $ 1,479,767 $ 589,365
Commitments and contingencies (Note 3)
Trust corpus - 46,608,796 Units of beneficial
interest authorized and outstanding 72,169,081 74,942,040
---------- ----------
$73,648,848 $75,531,405
========== ==========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
-----------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- --------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Royalty income (Note 3) $5,457,704 $8,762,002 $9,934,182 $15,994,296
Interest income 11,247 13,321 19,032 21,451
--------- --------- --------- ----------
5,468,951 8,775,323 9,953,214 16,015,747
General and administrative
expenditures 415,185 257,142 676,941 436,188
--------- --------- --------- ----------
Distributable income $5,053,766 $8,518,181 $9,276,274 $15,579,559
========= ========= ========= ==========
Distributable income per Unit
(46,608,796 Units) $ .108430 $ .182759 $ .199025 $ .334262
======= ======= ======= =======
<FN>
The accompanying notes to condensed financial statements are an integral part of this statement.
</FN>
</TABLE>
-4-
<TABLE>
<CAPTION>
SAN JUAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
-----------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Trust corpus, beginning of period $73,878,671 $78,444,873 $74,942,040 $79,898,032
Amortization of net overriding
royalty interest (1,709,590) (1,652,205) (2,772,959) (3,105,364)
Distributable income 5,503,766 8,518,181 9,276,274 15,579,559
Distributions declared (5,503,766) (8,518,181) (9,276,274) (15,579,559)
--------- --------- --------- ----------
Trust corpus, end of period $72,169,081 $76,792,668 $72,169,081 $76,792,668
========== ========== ========== ==========
<FN>
The accompanying notes to condensed financial statements are an integral part of this statement.
</FN>
</TABLE>
-5-
SAN JUAN BASIN ROYALTY TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------------------
1. BASIS OF ACCOUNTING
The San Juan Basin Royalty Trust ("Trust") was established as
of November 1, 1980. The financial statements of the Trust
are prepared on the following basis:
- Royalty income recorded for a month is the amount
computed and paid by the interest owner, Southland
Royalty Company ("Southland"), to the Trustee for the
Trust. Royalty income consists of the amounts received
by the owner of the interest burdened by the net
overriding royalty interest ("Royalty") from the sale of
production less accrued production costs, development
and drilling costs, applicable taxes, operating charges,
and other costs and deductions, multiplied by 75%.
- Trust expenses recorded are based on liabilities paid
and cash reserves established from royalty income for
liabilities and contingencies.
- Distributions to Unit holders are recorded when declared
by the Trustee.
- The conveyance which transferred the overriding royalty
interest to the Trust provides that any excess of
production costs over gross proceeds must be recovered
from future net profits.
The financial statements of the Trust differ from financial
statements prepared in accordance with generally accepted
accounting principles ("GAAP") because revenues are not
accrued in the month of production and certain cash reserves
may be established for contingencies which would not be
accrued in financial statements prepared in accordance with
GAAP. Amortization of the Royalty calculated on a unit-of-
production basis is charged directly to trust corpus.
2. FEDERAL INCOME TAXES
For Federal income tax purposes, the Trust constitutes a
fixed investment trust which is taxed as a grantor trust. A
grantor trust is not subject to tax at the trust level. The
Unit holders are considered to own the Trust's income and
principal as though no trust were in existence. The income
of the Trust is deemed to have been received or accrued by
each Unit holder at the time such income is received or
accrued by the Trust rather than when distributed by the
Trust.
The Royalty constitutes an "economic interest" in oil and gas
properties for Federal income tax purposes. Unit holders
must report their share of the revenues of the Trust as
ordinary income from oil and gas royalties and are entitled
to claim depletion with respect to such income. The Royalty
is treated as a single property for depletion purposes.
The Trust has on file technical advice memoranda confirming
the tax treatment described above.
The Trust began receiving royalty income from coal seam wells
beginning in 1989. Under Section 29 of the Internal Revenue
Code, production from coal seam gas wells drilled prior to
January 1, 1993, qualifies for the federal income tax credit
for producing non-conventional fuels. This tax credit was
approximately $1.01 per MMBtu for the year 1994 and is
adjusted for inflation annually. The credit currently
applies to production through the year 2002. Each Unit
holder must determine his pro rata share of such production
based upon the number of Units owned during each month of the
year and apply the tax credit against his own income tax
liability, but such credit may not reduce his regular tax
liability (after the foreign tax credit and certain other
nonrefundable credits) below his tentative minimum tax.
Section 29 also provides that any amount of Section 29 credit
disallowed for
-6-
the tax year solely because of this limitation
will increase his credit for prior year minimum tax
liability, which may be carried forward indefinitely as a
credit against the taxpayer's regular tax liability, subject,
however, to the limitations described in the preceding
sentence. There is no provision for the carryback or
carryforward of the Section 29 credit in any other
circumstances.
The classification of the Trust's income for purposes of the
passive loss rules may be important to a Unit holder. As a
result of the Tax Reform Act of 1986, royalty income will
generally be treated as portfolio income and will not reduce
passive losses.
3. COMMITMENTS AND CONTINGENCIES
On June 4, 1992, the Trustee filed suit against Meridian Oil
Inc. ("MOI") and Southland in state district court in Rio
Arriba County, New Mexico. MOI and Southland are the
operators of certain of the Trust properties. The claims
asserted on behalf of the Trust in this lawsuit include
breach of contract, violation of the operator's duties and
breach of fiduciary duty. The relief sought includes
compensatory and punitive damages as well as the equitable
remedy of removal of Southland and MOI from certain positions
including that of marketer of the Trust's gas.
In response, Southland filed suit on August 7, 1992, against
the Trustee in probate court in Tarrant County, Texas. The
lawsuit seeks declaratory relief that: (I) the rights and
duties of the Trustee be governed in accordance with and by
the terms and provisions of the trust instruments which
established the Trust as well as the Texas Trust Code, (II)
the Trustee cannot object to Southland's reports or audits
after 180 days, (III) the interests held by the Trust are not
subject to partition, and (IV) the Trust is without standing
to remove Southland as operator of the Trust properties. The
lawsuit also seeks to remove Bank One, Texas, NA as Trustee.
In a decision filed August 8, 1994, the Supreme Court of New
Mexico ruled in the lawsuit in the state district court in
Rio Arriba County, New Mexico, that venue was not proper and
remanded the case for dismissal without prejudice to its
refiling. In its ruling, the Supreme Court of New Mexico
also ruled that venue is proper in Santa Fe County, New
Mexico. The August 8 decision does not relate to the merits
of the Trust's claims. The Trustee refiled the lawsuit in
Santa Fe County, New Mexico on August 31, 1994. The claims
asserted and the relief sought on behalf of the Trust in the
suit filed in Santa Fe County include breach of contract,
breach of fiduciary duty and breach of the covenant of good
faith and fair dealing. The relief sought includes
compensatory and punitive damages, an accounting and a
permanent injunction relating to the operation of the Trust
properties.
On October 3, 1994, MOI and Southland filed a motion seeking
to dismiss the newly filed lawsuit on grounds of forum non
conveniens. MOI and Southland also filed two additional
motions seeking the dismissal of the Trust's claims of breach
of fiduciary duty and breach of the covenant of good faith
and fair dealing. The Trustee responded to these motions.
The Trustee has filed a motion to amend the complaint of
August 1994 in order to allege that MOI and Southland have
failed to account to the Trustee for the volumes and revenues
for a large number of wells and to drop claims relating to
the amendment by Southland of old pipeline gas purchase
contracts which occurred prior to the Burlington Resources
Inc. acquisition of Southland.
On May 25, 1995, the court denied the motion filed by MOI and
Southland to dismiss the lawsuit on the basis of forum non
conveniens. The court also denied MOI and Southland's motion
to dismiss the Trustee's claims relating to the breach of the
covenant of good faith and fair dealing. On June 5, 1995,
the court granted the Defendants' motion to dismiss the
Trustee's claims of breach of fiduciary duties by the
Defendants.
On June 5, 1995, the Trustee announced that non-binding
mediation, which had been ongoing with regard to this lawsuit
filed in Santa Fe County, was not successful in resolving the
claims asserted by the Trust. Trial has been set for
February 1996.
-7-
On July 5, 1995, Southland filed a counterclaim in the Santa
Fe County lawsuit. The counterclaim seeks declaratory relief
as follows:
A. That Southland's policy and practice of remitting payment to
the Trustee for the net overriding royalty interest ("NORI")
based on the proceeds actually received by Southland at
prevailing prices in the area of production constitutes good
faith compliance with its duties and obligations under the
Net Overriding Royalty Conveyance filed of record in San
Juan County, New Mexico on November 21, 1980 ("Conveyance");
B. That the revenues or profits realized by Meridian Oil
Trading Inc. ("MOTI") and Meridian Oil Hydrocarbons Inc.
("MOHI") on subsequent downstream resale or treatment of the
gas is immaterial to the calculation and payment of the
NORI.
C. That Meridian Oil Gathering Inc. ("MOGI") is not compelled
or required to grant the Trustee a discounted fee or rate
(different and less than that charged by MOGI to the owners
of other interests) for gathering and processing services
provided by MOGI;
D. That the Trustee has no power or authority under the
Conveyance or the San Juan Basin Royalty Trust Indenture
dated November 3, 1980 ("Indenture") to take exception to
the quarterly and annual reports and audits by Southland
relating to the NORI that were not timely excepted to in
writing by the Trustee as required by Section 2.04 of the
Conveyance, and that the reports and audits are deemed to be
correct as rendered.
E. That the Trustee is precluded under the Conveyance and
Indenture from seeking partition of the Trust and that its
attempt to do so in the complaint filed by the Trustee on
June 4, 1992, in Rio Arriba County, New Mexico ("First
Complaint") was wrongful.
F. That the Trustee is precluded under the Conveyance and
Indenture from seeking removal of Southland from the
position of operator of the subject properties, and that its
attempts to do so in the First Complaint and in the amended
complaint filed on October 29, 1992 in Rio Arriba County,
New Mexico ("Second Complaint") were wrongful.
G. That the Trustee is precluded under the Conveyance and
Indenture from demanding or requiring that Southland abandon
or relinquish its role in the management and administration
of sales, accounting and other non-field related business
pertaining to the Trust.
H. That Southland's future marketing plans for oil and gas
produced from the properties subject to the Conveyance are
in accordance and conformity with its duties and obligations
under the Conveyance.
I. That Southland is entitled to its costs, attorneys' fees and
for such other relief as the court deems just and proper.
On August 4, 1995, the Trustee filed a motion to dismiss such
counterclaim.
A resolution of the Santa Fe County lawsuit favorable to the Trust
could possibly have a material effect on distributable income
depending on the nature and terms of the resolution.
4. CONTRACTS
In connection with a settlement agreement entered into
effective March 1, 1990, between Southland, Gas Company of
New Mexico (a division of Public Service Company of New
Mexico) ("Gas Company") and Sunterra Gas Gathering Company (a
subsidiary of Public Service Company of New Mexico)
("Sunterra"), Southland entered into five year gas purchase
agreements replacing intrastate and interstate gas purchase
agreements in effect at that time at prices favorable under market
-8-
conditions at the time of the settlement. In
addition, new gas gathering, transportation and processing
agreements were executed in connection with the settlement.
While it is impossible to determine the exact value to be derived
under these agreements, Southland has advised the Trustee
that it considers the terms of the agreements to be
favorable and of substantial additional value. Unit holders
should refer to Note 6 of Notes to Financial Statements in
the Trust's 1994 Annual Report for further discussion of
these contracts and their impact upon the Trust.
Southland Royalty has informed the Trust that an amendment has
also been entered into for the 1994-1995 winter heating season.
Gas Company and Sunterra must purchase, at the wellhead, an
average volume of 10,529 MMBtu per day at $2.884 per MMBtu for the
period beginning November 1, 1994 and ending March 31, 1995 and an
additional 14,900 MMBtu per day at $3.146 per MMBtu for the period
beginning December 1, 1994 and ending February 28, 1995. Gas
Company and Sunterra have been granted a make-up period of four
months beginning April 1, 1995 to fulfill this purchase
obligation.
Gas Company and Sunterra have also been granted recall rights on
volumes up to 15,000 MMBtu per day at the tailgate of the Kutz and
Lybrook plants, provided they have nominated the full contract
volume specified above. The price for recall gas will be the
average of the first and second issues of the Inside FERC EPNG SJ
Index.
Southland Royalty has also advised the Trust that Williams
Field Service ("Williams") is in the process of purchasing
the Kutz and Lybrook processing plants and the gathering
systems behind these plants which are all currently owned by
Sunterra, Gas Company and Sunterra Gas Processing Company
("SGPC") and that new gathering and processing agreements
with Williams have been entered into which contain acceptable
rates, terms and conditions. The new agreements will replace
the current gathering and processing agreements with Gas
Company, Sunterra and SGPC and will be effective on the
closing date of the sale of these facilities to Williams.
The Trust has further been advised by Southland Royalty that
MOTI has negotiated an agreement with Gas Company providing
for transportation on Gas Company's Albuquerque mainline.
This agreement will also be effective on the closing date of
the sale of Gas Company's gathering and processing facilities
to Williams. This transportation agreement will be necessary
to deliver volumes of gas behind the Lybrook processing plant
to mainline delivery points.
Southland Royalty has further advised the Trust that on
September 13, 1994, MOTI, one of the first purchasers of
Meridian Oil Inc. producing affiliates' gas, entered into a
gas sales agreement with Gas Company for the next five winter
periods beginning November 1, 1995 and ending March 31, 2000.
MOTI will be purchasing the gas supplied for this sale from
Meridian Oil Inc. producing affiliates and other third party
sellers. Sales will be based on a monthly published index as
opposed to the previous fixed price agreement. Valid
delivery points under the agreement will be the tailgate of
the Lybrook Plant, the tailgate of the Kutz plant, the Blanco
Hub, or Rio Puerco.
******
-9-
Item 2. Trustee's Discussion and Analysis
THREE MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994:
The San Juan Basin Royalty Trust received royalty income of $5,457,704
and interest income of $11,247 during the second quarter of 1995.
After deducting administrative expenses of $415,185, distributable
income for the quarter was $5,053,766 ($.108430 per Unit). In the
second quarter of 1994, royalty income was $8,762,002, interest income
was $13,321, administrative expenses were $257,142 and distributable
income was $8,518,181 ($.182759 per Unit). The tax credit relating to
production from coal seam wells totaled approximately $.03 per Unit
for the second quarter of 1995 and $.04 per Unit for the second
quarter of 1994. Based on 46,608,796 Units outstanding during the
second quarter of 1995, the per Unit distributions were as follows:
April $.034728
May .041953
June .031749
--------
Quarter Total $.108430
========
The royalty income distributed in the second quarter of 1995 was lower
than that distributed in the second quarter of 1994 primarily due to a
decrease in production and a 30% decrease in the average gas price.
Interest earnings for the quarter ended June 30, 1995 compared to the
quarter ended June 30, 1994 were lower primarily due to a decrease in
funds available for investment. Administrative expenses increased
primarily due to timing of the payment of certain expenses and
increases for legal, consulting, accounting and financial services
relating to litigation involving MOI, Southland and Bank One, Texas,
N.A., as Trustee.
The capital costs attributable to the properties from which the
Trust's 75% net overriding royalty ("Royalty") was carved for the
second quarter of 1995 were reported by Southland Royalty Company as
$735,105 versus $1,476,742 for the second quarter of 1994. Lease
operating expenses and property taxes were $2,404,568 for the second
quarter of 1995 as compared to $2,328,626 for the second quarter of
1994.
Southland advised the Trust that 1 gross (.50 net) coal seam well and
7 gross (3.23 net) conventional gas wells were completed on the
properties from which the Royalty was carved during the second quarter
of 1995. On June 30, 1995, 4 gross (2.39 net) coal seam wells and 7
gross (2.77 net) conventional wells were in progress. Two gross (2.00
net) coal seam wells and 6 gross (2.79 net) conventional wells were
recompleted during the second quarter of 1995. Two gross (1.13 net)
coal seam wells and 9 gross (0.36 net) conventional gas wells were
completed on the properties from which the Royalty was carved during
the second quarter of 1994. On June 30, 1994, 4 gross (2.55 net) coal
seam wells and 12 gross (5.71 net) conventional wells were in
progress. Four gross (1.29 net) coal seam wells and 8 gross (2.62
net) conventional wells were recompleted during the second quarter of
1994.
Unit holders are referred to "Description of the Properties" in the
Trust's 1994 Annual Report for further information concerning
Southland's coal seam gas well drilling program in the San Juan Basin.
This program includes properties in which the Trust owns an interest.
-10-
Gas and oil sales from the properties from which the Royalty was
carved for the quarters ended June 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED:
Gas:
Total sales (Mcf) 8,752,030 9,075,132
Mcf per day 98,337 101,968
Average price (per Mcf) $1.31 $1.89
Oil:
Total sales (Bbls) 18,965 19,859
Bbls per day 213 223
Average price (per Bbl) $15.36 $11.85
ROYALTIES:
Gas sales (Mcf) 4,594,490 5,130,452
Oil sales (Bbls) 9,925 11,180
</TABLE>
Royalty income for the Trust for the second quarter ended June 30,
1995 is associated with actual oil and gas production during February
through April from the properties from which the Royalty was carved.
Since the oil and gas production attributable to the Royalty is based
on an allocation formula that is dependent on such factors as price
and cost (including capital expenditures), the production amounts do
not provide a meaningful comparison.
During the second quarter of 1995, gas prices were lower than during
the second quarter of 1994, primarily due to decreased spot market
prices. Gas production decreased in 1995 as compared to 1994
primarily due to a decrease in coal seam gas production in the San
Juan 30-6 Federal Unit. The average oil price for the second quarter
of 1995 was higher than that in the second quarter of 1994 primarily
due to increases in the posted prices.
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994:
For the six months ended June 30, 1995 distributable income was
$9,276,274 ($.199025 per Unit) which was less than the $15,579,559
($.334262 Unit) of income distributed during the same period in 1994.
The decrease resulted primarily from a decrease in coal seam gas
production and a decrease in gas prices. Interest income for the six
months ended June 30, 1995 was $19,032 compared to $21,451 during the
first six months of 1994. This decrease is due to a decrease in funds
available for investment. General and administrative expenses during
the 1995 period were $676,941 compared to $436,188 during the 1994
period primarily due to the payment of certain expenses and increases
for legal, consulting, accounting and financial services relating to
litigation involving MOI, Southland and Bank One, Texas, N.A., as
Trustee.
Capital expenditures incurred by Southland, attributable to the
properties from which the Royalty was carved, for the first six months
of 1995 amounted to $3,029,743. Capital expenditures were $3,349,505
for the first six months of 1994.
Lease operating expenses and property taxes totaled approximately
$4,744,446 for the first six months of 1995 compared to $4,634,703 for
the first six months of 1994.
-11-
Southland advised the Trustee that during the six months ended
June 30, 1995, 21 gross (5.69 net) conventional gas wells and 4 gross
(1.54 net) coal seam gas wells were completed on the properties from
which the Royalty was carved. Five gross (5.00 net) coal seam and 22
gross (7.53 net) conventional wells were recompleted during the first
six months of 1995. During the six months ended June 30, 1994, 9
gross (.36 net) conventional gas well and 8 gross (4.80 net) coal seam
gas wells were completed on the properties from which the Royalty was
carved. Twelve (6.07 net) coal seam wells and 27 gross (6.03 net)
conventional wells were recompleted during the first six months of
1994.
For the six months ended June 30, 1995 and 1994 comparative gas and
oil production is as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED:
Gas:
Total sales (Mcf) 16,551,795 17,910,593
Mcf per day 91,446 98,954
Average price (per Mcf) $1.40 $1.82
Oil:
Total sales (Bbls) 35,019 35,393
Bbls per day 193 196
Average price (per Bbl) $14.72 $11.80
ROYALTIES:
Gas sales (Mcf) 7,861,273 9,712,947
Oil sales (Bbls) 16,942 19,509
</TABLE>
The first six months production figures are associated with actual oil
and gas production during November 1994 through April 1995 from the
properties from which the Royalties were carved. During the first six
months of 1995, gas prices were lower than during the first six months
of 1994, primarily due to decreased spot market prices. Gas
production decreased primarily due to a decrease in coal seam gas
production on the San Juan 30-6 Federal Unit partially offset by an
increase in production from other coal seam properties. The average
oil price for the first six months of 1995 was higher than that for
the first six months of 1994 primarily due to higher posted prices.
Since the oil and gas production attributable to the Royalties is
based on an allocation formula that is dependent on such factors as
price and cost (including capital expenditures), the production
amounts do not provide a meaningful comparison.
-12-
ROYALTY CALCULATION:
Royalty income received by the Trust for the three months and six
months ended June 30, 1995 and 1994, respectively, was computed as
shown in the following table:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Gross proceeds of sales from the
properties from which the net
overriding royalty was carved:
Gas proceeds $11,432,999 $17,147,451 $23,104,157 $32,385,886
Oil proceeds 291,317 235,406 515,494 418,211
---------- ---------- ---------- ----------
Total 11,724,316 17,382,857 23,619,651 32,804,097
---------- ---------- ---------- ----------
Less production costs:
Severance tax - Gas 1,278,604 1,865,014 2,549,670 3,450,594
Severance tax - Oil 29,101 29,806 50,216 43,568
Lease operating expenses and
property tax 2,404,568 2,328,626 4,744,446 4,634,703
Capital expenditures 735,105 1,476,742 3,029,743 3,349,505
--------- ---------- ---------- ----------
Total 4,447,378 5,700,188 10,374,075 11,478,370
--------- ---------- ---------- ----------
Net profits 7,276,938 11,682,669 13,245,576 21,325,727
--------- ---------- ---------- ----------
Net overriding royalty interest 75% 75% 75% 75%
--------- --------- ---------- ----------
Royalty income $ 5,457,704 $ 8,762,002 $ 9,934,182 $15,994,296
========= ========= ========= ==========
</TABLE>
-13-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Trustee of the San Juan Basin Royalty Trust (the "Trust"),
has filed suit against Meridian Oil Inc. ("MOI") and Southland
Royalty Company ("Southland") in state district court in Rio
Arriba County, New Mexico, Cause No. RA 92-1211(C).
The principal asset of the Trust consists of a seventy-five
percent (75%) net overriding royalty interest carved out of
certain of Southland's oil and gas leasehold and royalty
interests in the San Juan Basin located in San Juan, Rio
Arriba and Sandoval counties of northwestern New Mexico (the
"Trust Properties"). MOI and Southland are the operators of
the Trust Properties.
The claims asserted on behalf of the Trust in the lawsuit
include breach of contract, violation of the operator's duties
and breach of fiduciary duty. The relief sought includes
compensatory and punitive damages as well as the equitable
remedies of removal of Southland and MOI from certain
positions including that of marketer of the Trust's gas.
In response, Southland filed suit on August 7, 1992 against
the Trustee in probate court in Tarrant County, Texas, Cause
No. 92-1927-2. The lawsuit seeks declaratory relief that: (i)
the rights and duties of the Trustee be governed in accordance
with and by the terms and provisions of the trust instruments
which established the Trust as well as the Texas Trust Code,
(ii) the Trustee cannot object to Southland's reports or
audits after 180 days, (iii) the interests held by the Trust
are not subject to partition, and (iv) the Trust is without
standing to remove Southland as operator of the Trust
properties. The lawsuit also seeks to remove Bank One, Texas,
N.A. as Trustee.
In a decision filed August 8, 1994, the Supreme Court of New
Mexico ruled in the lawsuit filed by the Trustee against MOI
and Southland in state district court in Rio Arriba County,
New Mexico in June 1992, that venue was not proper in Rio
Arriba County and remanded the case for dismissal without
prejudice to its refiling. In its ruling, the Supreme Court
of New Mexico also ruled that venue was proper in Santa Fe
County, New Mexico. The August 8 decision does not relate to
the merits of the Trust's claims. The Trustee refiled the
lawsuit in Santa Fe County, New Mexico on August 31, 1994.
The claims asserted and the relief sought on behalf of the
Trust in the suit filed in Santa Fe County include breach of
contract, breach of fiduciary duty and breach of the covenant
of good faith and fair dealing. The relief sought includes
compensatory and punitive damages, an accounting and a
permanent injunction relating to the operation of the Trust
properties.
On October 3, 1994, MOI and Southland filed a motion seeking
to dismiss the newly filed lawsuit on the grounds of forum non
conveniens. MOI and Southland also filed two additional
motions seeking the dismissal of the Trust's claims of breach
of fiduciary duty and breach of the covenant of good faith and
fair dealing. The Trustee responded to these motions. The
Trustee has filed a motion to amend the complaint of August
1994 in order to allege that MOI and Southland have failed to
account to the Trustee for the volumes and revenues for a
large number of wells and to drop claims relating to the
amendment by Southland of old pipeline gas purchase contracts
which occurred prior to the Burlington Resources, Inc.
acquisition of Southland. On May 25, 1995, the court denied
the motion filed by the Defendants to dismiss the lawsuit on
the basis of forum non conveniens. The court also denied the
Defendants' motion to dismiss the Trustee's claims relating to
breach of the covenant of good faith and fair dealing. On
June 5, 1995, the court granted the Defendants' motion to
dismiss the Trustee's claims of breach of fiduciary duties by
the Defendants.
-14-
On June 5, 1995, the Trustee announced that non-binding
mediation, which had been ongoing with regard to this lawsuit
filed in Santa Fe County, was not successful in resolving the
claims asserted by the Trust. Trial is currently set in the
Santa Fe County lawsuit for February 1996.
On July 5, 1995, Southland filed a counterclaim in the Santa
Fe County lawsuit. The counterclaim seeks declaratory relief
as follows:
A. That Southland's policy and practice of remitting payment to
the Trustee for the net overriding royalty interest ("NORI")
based on the proceeds actually received by Southland at
prevailing prices in the area of production constitutes good
faith compliance with its duties and obligations under the Net
Overriding Royalty Conveyance filed of record in San Juan
County, New Mexico on November 21, 1980 ("Conveyance");
B. That the revenues or profits realized by Meridian Oil Trading
Inc. ("MOTI") and Meridian Oil Hydrocarbons Inc. ("MOHI") on
subsequent downstream resale or treatment of the gas is
immaterial to the calculation and payment of the NORI.
C. That Meridian Oil Gathering Inc. ("MOGI") is not compelled or
required to grant the Trustee a discounted fee or rate
(different and less than that charged by MOGI to the owners of
other interests) for gathering and processing services
provided by MOGI;
D. That the Trustee has no power or authority under the
Conveyance or the San Juan Basin Royalty Trust Indenture dated
November 3, 1980 ("Indenture") to take exception to the
quarterly and annual reports and audits by Southland relating
to the NORI that were not timely excepted to in writing by the
Trustee as required by Section 2.04 of the Conveyance, and
that the reports and audits are deemed to be correct as
rendered.
E. That the Trustee is precluded under the Conveyance and
Indenture from seeking partition of the Trust and that its
attempt to do so in the complaint filed by the Trustee on June
4, 1992, in Rio Arriba County, New Mexico ("First Complaint")
was wrongful.
F. That the Trustee is precluded under the Conveyance and
Indenture from seeking removal of Southland from the position
of operator of the subject properties, and that its attempts
to do so in the First Complaint and in the amended complaint
filed on October 29, 1992 in Rio Arriba County, New Mexico
("Second Complaint") were wrongful.
G. That the Trustee is precluded under the Conveyance and
Indenture from demanding or requiring that Southland abandon
or relinquish its role in the management and administration of
sales, accounting and other non-field related business
pertaining to the Trust.
H. That Southland's future marketing plans for oil and gas
produced from the properties subject to the Conveyance are in
accordance and conformity with its duties and obligations
under the Conveyance.
I. That Southland is entitled to its costs, attorneys' fees and
for such other relief as the court deems just and proper.
On August 4, 1995, the Trustee filed a motion to dismiss such
counterclaim.
A resolution of the Santa Fe County lawsuit favorable to the Trust
could possibly have a material effect on distributable income
depending on the nature and terms of the resolution.
-15-
Items 2-5 Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4)(a) San Juan Basin Royalty Trust Indenture dated
November 3, 1980, between Southland Royalty
Company and The Fort Worth National Bank
(now Bank One, Texas, NA), as Trustee,
heretofore filed as Exhibit (4)(a) to the
Trust's Annual Report on Form 10-K to the
Securities and Exchange Commission for the
fiscal year ended December 31, 1980 is
incorporated herein by reference.
(4)(b) Net Overriding Royalty Conveyance from
Southland Royalty Company to The Fort Worth
National Bank (now Bank One, Texas, NA), as
Trustee, dated November 3, 1980 (without
Schedules), heretofore filed as Exhibit
(4)(b) to the Trust's Annual Report on Form
10-K to the Securities and Exchange
Commission for the fiscal year ended
December 31, 1980 is incorporated herein by
reference.
(27) Financial Data Schedule
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter
ending June 30, 1995. The report on Form 8-K dated
June 5, 1995 reported the conclusion of the non-
binding mediation that been ongoing with regard to
the lawsuit filed in Santa Fe County, New Mexico and
that such mediation was not successful in resolving
the claims asserted by the Trust in such lawsuit.
Such Form 8-K also reported that the court in such
lawsuit had denied the Defendants' motion to dismiss
the Trustee's claims relating to breach of the
covenant of good faith and fair dealing and the
Defendants' motion to dismiss the Trustee's claims of
breach of fiduciary duties by the Defendants. It was
further reported that the prior trial setting of
October 23, 1995 had been canceled and that the case
would be tried during the first half of 1996.
Such matters are reported under Item 5, "Other
Events" on Form 8-K. No financial statements were
filed in connection with such Form 8-K.
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
BANK ONE, TEXAS, NA, AS TRUSTEE FOR
THE SAN JUAN BASIN ROYALTY TRUST
By /s/ LEE ANN ANDERSON
--------------------------------------
Lee Ann Anderson
Vice President
Date: August 14, 1995
(The Trust has no directors or executive officers.)
-17-
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
(4)(a) San Juan Basin Royalty Trust Indenture dated November
3, 1980, between Southland Royalty Company and The
Fort Worth National Bank (now Bank One, Texas, NA),
as Trustee, heretofore filed as Exhibit (4)(a) to the
Trust's Annual Report on Form 10-K to the Securities
and Exchange Commission for the fiscal year ended
December 31, 1980 is incorporated herein by
reference.*
(4)(b) Net Overriding Royalty Conveyance from Southland
Royalty Company to The Fort Worth National Bank (now
Bank One, Texas, NA), as Trustee, dated November 3,
1980 (without Schedules), heretofore filed as Exhibit
(4)(b) to the Trust's Annual Report on Form 10-K to
the Securities and Exchange Commission for the fiscal
year ended December 31, 1980 is incorporated herein
by reference.*
(27) Financial Data Schedule **
* A copy of this Exhibit is available to any Unit holder, at the
actual cost of reproduction, upon written request to the Trustee, Bank
One, Texas, N.A., P.O. Box 2604, Fort Worth, Texas 76113.
** Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited condensed statements of assets, liabilities and trust corpus of San
Juan Basin Royalty Trust as of June 30, 1995, and the related condensed
statements of distributable income and changes in trust corpus for the
three-month period ended June 30, 1995.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,479,767
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,479,767
<PP&E> 133,275,528
<DEPRECIATION> 61,106,447
<TOTAL-ASSETS> 73,648,848
<CURRENT-LIABILITIES> 1,479,767
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 72,169,081
<TOTAL-LIABILITY-AND-EQUITY> 73,648,848
<SALES> 0
<TOTAL-REVENUES> 5,468,951
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 415,185
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,053,766
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,053,766
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,053,766
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
