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, 1996
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, 1996:
46,608,796
-1-
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, 1996, and the distributable income and
changes in trust corpus for the three-month and six-month periods ended
June 30, 1996 and 1995 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, 1996 and for the three-month and six-month periods ended June 30,
1996 and 1995 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, 1996 and the related condensed statements of distributable
income and changes in trust corpus for the three-month and six-month
periods ended June 30, 1996 and 1995. 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, 1995, 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 April 11, 1996, 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, 1995 is fairly stated, in all material
respects, in relation to the statement of assets, liabilities and trust
corpus from which it has been derived.
DELOITTE & TOUCHE LLP
August 1, 1996
-3-
SAN JUAN BASIN ROYALTY TRUST
<TABLE>
CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
- - - ------------------------------------------------------------
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
(Unaudited)
<S> <C> <C>
Cash and short-term investments $ 311,128 $ 421,446
Net overriding royalty interest in producing
oil and gas properties (net of accumulated
amortization of $66,496,694 and $63,141,992
at June 30, 1996 and December 31, 1995) 66,778,834 70,133,536
----------- -----------
$67,089,962 $70,554,982
=========== ===========
LIABILITIES AND TRUST CORPUS
Distribution payable to Unit holders (Note 3) $ 311,128 $ 421,446
Commitments and contingencies (Note 3)
Trust corpus - 46,608,796 Units of beneficial
interest authorized and outstanding 66,778,834 70,133,536
----------- -----------
$67,089,962 $70,554,982
=========== ===========
<CAPTION>
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ -------------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Royalty income (Note 3) $4,047,512 $5,457,704 $8,755,129 $9,934,182
Interest income 7,325 11,247 13,832 19,032
---------- ---------- ---------- -----------
4,054,83 5,468,951 8,768,961 9,953,214
General and administrative
expenditures 1,111,813 415,185 1,899,587 676,941
---------- ---------- ---------- -----------
Distributable income $2,943,024 $5,053,766 $6,869,374 $9,276,274
========== ========== ========== ===========
Distributable income per Unit
(46,608,796 Units) $ .063143 $ .108430 $ .147382 $ .199025
========== ========== ========== ==========
The accompanying notes to condensed financial statements are an integral part of this statement.
-4-
<CAPTION>
SAN JUAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
- - - -----------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
--------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Trust corpus, beginning of period $68,491,379 $73,878,671 $70,133,536 $74,942,040
Amortization of net overriding
royalty interest (1,712,545) (1,709,590) (3,354,702) (2,772,959)
Distributable income 2,943,024 5,503,766 6,869,374 9,276,274
Distributions declared (2,943,024) (5,503,766) (6,869,374) (9,276,274)
----------- ----------- ---------- -----------
Trust corpus, end of period $66,778,834 $72,169,081 $66,778,834 $72,169,081
=========== =========== =========== ===========
The accompanying notes to condensed financial statements are an integral part of this statement.
</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, Burlington Resources Oil &
Gas Company ("Burlington"), 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 1995 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
-6-
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 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 Royalty Company ("Southland")in state district
court in Rio Arriba County, New Mexico. In a decision filed August 8,
1994, the Supreme Court of New Mexico ruled 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.
Such decision did not relate to merits of the Trust's claims. The
Trustee refiled the lawsuit in Santa Fe County, New Mexico on August
31, 1994.
Effective January 1, 1996, Southland, a wholly-owned subsidiary of MOI,
was merged with and into MOI, by which action the separate corporate
existence of Southland ceased and MOI survived and succeeded to the
ownership of all the assets, has the rights, powers and privileges and
assumed all of the liabilities and obligations of Southland. Subsequent to
the merger, MOI changed its name to Burlington Resources Oil & Gas
Company ("Burlington").
The principal asset of the Trust consists of a 75% net overriding
royalty carved out of certain of Burlington'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"). Burlington is the operator of the Trust Properties.
The claims asserted on behalf of the Trust in the Santa Fe County, New
Mexico, lawsuit now include breach of contract, breach of the covenant
of good faith and fair dealing, breach of express good faith duty,
constructive fraud, unjust enrichment, prima facie tort, intentional
interference with contract and conspiracy. The relief sought includes
compensatory and punitive damages, an accounting and a permanent
injunction relating to marketing and production from the Trust Properties.
In response to the Trustee's lawsuit, Southland, now Burlington, 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 establish the
Trust as well as the Texas Trust Code, (II) the Trustee cannot object
to Burlington'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 Burlington as operator of the Trust Properties.
The lawsuit also seeks to remove Bank One, Texas, N.A. as Trustee.
Burlington has filed a counterclaim in the Santa Fe County lawsuit, seeking
declaratory relief that (I) Burlington's remitting payment to the
Trustee constitutes good faith compliance with its obligation and
duties to the Trust; (II) the profits realized by the subsidiaries of
Burlington on the resale or treatment of gas is immaterial; (III)
Burlington, or its subsidiaries, are not required to
-7-
grant the Trust a discounted fee or rate for gathering and processing
services; (IV) the Trustee does not have the power or authority to take
exception to the quarterly or annual reports and audits by Burlington,
and such reports and audits are correct as rendered; and (V) Burlington
is entitled to its costs, attorneys' fees and such other relief as the
Court deems just and proper.
On June 5, 1995, the Trustee announced that non-binding mediation,
which had been ongoing with regard to the lawsuit filed in Santa Fe
County, New Mexico, was not successful in resolving the claims asserted
by the Trust. The matter was set for trial commencing July 15, 1996.
On July 19, 1996, the Trustee announced that by agreement of the parties the
trial of the lawsuit had been continued to an unspecified future date.
Settlement negotiations are continuing in that litigation, and a tentative
agreement has been reached on underpayment of royalty claims and the
resolution of certain issues relative to lease operating expense, gas
gathering and processing and reporting and auditing. The focus of
negotiations at this time is the mechanism for the marketing of Trust gas
going forward. None of the preliminary agreements will become final unless
and until the marketing issues are resolved. However, taking into account
the potential that the settlement negotiations may ultimately fail, at
the request of the Trustee, the lawsuit has been rescheduled for trial. The
Trustee has been advised by its legal counsel that the matter may be
reached as early as September 9, 1996. (See Note 5 to Financial Statements
in the Trust's 1995 Annual Report for further information regarding such
litigation.)
A resolution of the Santa Fe County, New Mexico, lawsuit favorable to
the Trust could possibly have a material effect on distributable income
depending upon the nature and terms of the resolution.
* * * * * *
-8-
Item 2. Trustee's Discussion and Analysis
THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995:
The San Juan Basin Royalty Trust received royalty income of $4,047,512
and interest income of $7,325 during the second quarter of 1996. After
deducting administrative expenses of $1,111,813, distributable income
for the quarter was $2,943,024 ($.063143 Unit). In the second quarter
of 1995, royalty income was $5,457,704, interest income was $11,247,
administrative expenses were $415,185 and distributable income was
$5,053,766 ($.108430 per Unit). The tax credit relating to production
from coal seam wells totaled approximately $.04 per Unit for the second
quarter of 1996 and $.03 per Unit for the second quarter of 1995.
Based on 46,608,796 Units outstanding during the second quarter of
1996, the per Unit distributions were as follows:
April $ .032135
May .024333
June .006675
----------
Quarter Total $ .063143
==========
The royalty income distributed in the second quarter of 1996 was lower
than that distributed in the second quarter of 1995 primarily due to
increased administration expenses and a decrease in the average gas
price. Interest earnings for the quarter ended June 30, 1996, compared
to the quarter ended June 30, 1995, were lower primarily due to
decreased funds available for investment. Administrative expenses
increased primarily due to increases for legal, consulting, accounting
and financial services relating to litigation filed by Bank One, Texas,
N.A., as Trustee, against Meridian Oil Inc. (now known as Burlington
Resources Oil & Gas Company ("Burlington")) and Southland Royalty
Company in the state district court of Santa Fe County, New Mexico, in
Cause No. SF94-1982(c). Settlement negotiations are continuing in that
litigation, and tentative agreement has been reached on underpayment of
royalty claims and the resolution of certain issues relative to lease
operating expense, gas gathering and processing and reporting and
auditing. The focus of negotiations at this time is the mechanism for
the marketing of Trust gas going forward. None of the preliminary
agreements will become final unless and until the marketing issues are
resolved. (See Note 5 to Financial Statements in the Trust's 1995
Annual Report for further information regarding such litigation.)
The capital costs attributable to the properties from which the Trust's
75% net overriding royalty ("Royalty") was carved for the second
quarter of 1996 were reported by Burlington as $1,288,864 versus
$735,105 for the second quarter of 1995. Lease operating expenses and
property taxes were $3,108,603 for the second quarter of 1996 as
compared to $2,404,568 for the second quarter of 1995.
Burlington has informed the Trustee that during the second quarter of
1996, 1 gross (.004 net) conventional well was completed on the
properties from which the Royalty was carved. There were 2 gross (.25
net) coal seam and 8 gross (1.32 net) conventional wells in progress
at June 30, 1996. Four gross (3.08 net) coal seam wells were
recavitated in the second quarter of 1996. Two gross (.66 net)
conventional well recompletions and 6 gross (.16 net) coal seam well
recavitations were in progress at June 30, 1996. One 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.
-9-
Unit holders are referred to "Description of the Properties" in the
Trust's 1995 Annual Report for further information concerning
Burlington's coal seam gas well drilling program in the San Juan Basin.
This program includes properties in which the Trust owns an interest.
Gas and oil sales from the properties from which the Royalty was carved
for the quarters ended June 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED:
<S> <C> <C>
Gas:
Total sales (Mcf) 9,885,383 8,752,030
Mcf per day 109,838 98,337
Average price (per Mcf) $1.09 $1.31
Oil:
Total sales (Bbls) 19,475 18,965
Bbls per day 216 213
Average price (per Bbl) $20.13 $15.36
ROYALTIES:
Gas sales (Mcf) 4,064,427 4,594,490
Oil sales (Bbls) 8,128 9,925
</TABLE>
Royalty income for the Trust for the second quarter ended June 30, 1996
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 1996, gas prices were lower than during
the second quarter of 1995, primarily due to decreased spot market
prices. Gas production increased in 1996 as compared to 1995 primarily
due to the recompletion or recavitation of existing wells and the
successful institution of a compression program involving the Trust
Properties located within Federal Unit 30-6. The average oil price
for the second quarter of 1996 was higher than that in the second
quarter of 1995 primarily due to increases in the posted prices.
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995:
For the six months ended June 30, 1996 distributable income was
$6,869,374 ($.147382 per Unit) which was less than the $9,276,274
($.199025 Unit) of income distributed during the same period in 1995.
The decrease resulted primarily from an increase in administrative
expenses and a decrease in gas prices. Interest income for the six
months ended June 30, 1996 was $13,832 compared to $19,032 during
the first six months of 1995. This decrease is due to a decrease in
funds available for investment. General and administrative expenses during
the 1996 period were $1,899,587 compared to $676,941 during the 1995 period
primarily due to the payment of certain expenses and increases for legal,
consulting, accounting and financial services relating to litigation filed
by Bank One, Texas, N.A., as Trustee, against Burlington and Southland
Royalty Company.
-10-
Capital expenditures incurred by Burlington, attributable to the
properties from which the Royalty was carved, for the first six months
of 1996 amounted to $2,662,955. Capital expenditures were $3,029,743
for the first six months of 1995.
Lease operating expenses and property taxes totaled approximately
$5,768,151 for the first six months of 1996 compared to $4,744,446 for
the first six months of 1995.
Burlington advised the Trustee that during the six months ended June
30, 1996, 8 gross (1.144 net) conventional gas wells and 1 gross (.5
net) coal seam gas wells were completed on the properties from which
the Royalty was carved. Six gross (4.67 net) coal seam and 8 gross
(4.54 net) conventional wells were recompleted during the first six
months of 1996. During the six months ended June 30, 1995, 21 gross
(5.69 net) conventional gas well 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 wells and 22 gross (7.53 net)
conventional wells were recompleted during the first six months of
1995.
For the six months ended June 30, 1996 and 1995 comparative gas and oil
production is as follows:
<TABLE>
<CAPTION>
1996 1995
PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED:
<S> <C> <C>
Gas:
Total sales (Mcf) 19,546,632 16,551,795
Mcf per day 107,399 91,446
Average price (per Mcf) $1.13 $1.40
Oil:
Total sales (Bbls) 39,554 35,019
Bbls per day 217 193
Average price (per Bbl) $18.94 $14.72
ROYALTIES:
Gas sales (Mcf) 8,504,049 7,861,273
Oil sales (Bbls) 17,244 16,942
</TABLE>
The first six months production figures are associated with actual oil
and gas production during November 1995 through April 1996 from the
properties from which the Royalties were carved. During the first six
months of 1996, gas prices were lower than during the first six months
of 1995, primarily due to decreased spot market prices. Gas production
increased primarily due to the recompletion or recavitation of existing
wells and the successful institution of a compression program involving
the Trust Properties located within Federal Unit 30-6. The average oil
price for the first six months of 1996 was higher than that for the first
six months of 1995 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.
-11-
ROYALTY CALCULATION:
Royalty income received by the Trust for the three months and six
months ended June 30, 1966 and 1995, respectively, was computed as
shown in the following table:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Gross proceeds of sales from the
properties from which the net
overriding royalty was carved:
Gas proceeds $10,781,798 $11,432,999 $22,046,595 $23,104,157
Oil proceeds 395,525 291,317 759,040 515,494
----------- ----------- ----------- -----------
Total 11,177,323 11,724,316 22,805,635 23,619,651
----------- ----------- ----------- -----------
Less production costs:
Severance tax - Gas 1,342,394 1,278,604 2,617,209 2,549,670
Severance tax - Oil 40,779 29,101 83,814 50,216
Lease operating expenses and
property tax 3,108,603 2,404,568 5,768,151 4,744,446
Capital expenditures 1,288,864 735,105 2,662,955 3,029,743
------------ ----------- ----------- -----------
Total 5,780,640 4,447,378 11,132,129 10,374,075
------------ ----------- ----------- -----------
Net profits 5,396,683 7,276,938 11,673,506 13,245,576
------------ ----------- ----------- -----------
Net overriding royalty interest 75% 75% 75% 75%
------------ ----------- ----------- -----------
Royalty income $ 4,047,512 $ 5,457,704 $ 8,755,129 $ 9,934,182
============ =========== =========== ===========
</TABLE>
-12-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 4, 1992, the Trustee of the San Juan Basin Royalty Trust (the
"Trust"), 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). In a decision filed
August 8, 1994, the Supreme Court of New Mexico ruled 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. Such decision did not relate to merits of the Trust's claims.
The Trustee refiled the lawsuit in Santa Fe County, New Mexico on
August 31, 1994, in Cause No. SF 94-1982(C).
Effective January 1, 1996, Southland, a wholly-owned subsidiary of MOI,
was merged with and into MOI, by which action the separate corporate
existence of Southland ceased and MOI survived and succeeded to the
ownership of all the assets, has the rights, powers and privileges and
assumed all of the liabilities and obligations of Southland. Subsequent
to the merger, MOI changed its name to Burlington Resources Oil & Gas
Company ("Burlington").
The principal asset of the Trust consists of a seventy-five percent
(75%) net overriding royalty interest carved out of certain of Burlington'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"). Burlington is the operator of the Trust
Properties.
The claims asserted on behalf of the Trust in the Santa Fe County, New
Mexico, lawsuit now include breach of contract, breach of the covenant
of good faith and fair dealing, breach of express good faith duty,
constructive fraud, unjust enrichment, prima facie tort, intentional
interference with contract and conspiracy. The relief sought includes
compensatory and punitive damages, an accounting and a permanent
injunction relating to marketing the production from the Trust Properties.
In response to the Trustee's lawsuit, Southland, now Burlington, 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 Burlington'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 Burlington as operator of the
Trust Properties. The lawsuit also seeks to remove Bank One, Texas, N.A.
as Trustee.
Burlington has filed a counterclaim in the Santa Fe County lawsuit, seeking
declaratory relief that (I) Burlington's remitting payment to the
Trustee constitutes good faith compliance with its obligation and
duties to the Trust; (ii) the profits realized by the subsidiaries of
Burlington on the resale or treatment of gas is immaterial; (iii) Burlington,
or its subsidiaries, are not required to grant the Trust a discounted fee
or rate for gathering and processing services; (iv) the Trustee does not
have the power or authority to take exception to the quarterly or
annual reports and audits by Burlington, and such reports and audits are
correct as rendered; and (v) Burlington is entitled to its costs,
attorneys' fees and such other relief as the Court deems just and
proper.
On June 5, 1995, the Trustee announced that non-binding mediation,
which had been ongoing with regard to the lawsuit filed in Santa Fe
County, New Mexico, was not successful in resolving the claims asserted
by the Trust. The matter was set for trial commencing July 15, 1996.
-13-
On July 19, 1996, the Trustee announced that by agreement of the parties
the trial of the lawsuit had been continued to an unspecified future date.
Settlement negotiations are continuing in that litigation, and a tentative
agreement has been reached on underpayment of royalty claims and the
resolution of certain issues relative to lease operating expense, gas
gathering and processing and reporting and auditing. The focus of
negotiations at this time is the mechanism for the marketing of Trust gas
going forward. None of the preliminary agreements will become final unless
and until the marketing issues are resolved. However, taking into account
the potential that the settlement negotiations may ultimately fail, at
the request of the Trustee, the lawsuit has been rescheduled for trial. The
Trustee has been advised by its legal counsel that the matter may be
reached as early as September 9, 1996. (See Note 5 to Financial Statements
in the Trust's 1995 Annual Report for further information regarding such
litigation.)
A resolution of this matter favorable to the Trust could possibly have
a material effect on distributable income depending upon the nature and
terms of the resolution.
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 (now Burlington Resources Oil & Gas
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 (now Burlington Resources Oil &
Gas 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
No reports on Form 8-K were filed during the quarter ended June 30,
1996.
-14-
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, 1996
(The Trust has no directors or executive officers.)
-15-
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 (now Burlington Resources
Oil & Gas Company) and The Fort Worth
National Bank (now Bank One, Texas, N.A.),
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 (now Burlington
Resources Oil & Gas Company) to The Fort
Worth National Bank (now Bank One, Texas,
N.A.), 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, 1996, AND THE RELATED
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME AND CHANGES IN TRUST
CORPUS FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 1996.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> $311,128
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> $311,128
<PP&E> $133,275,528
<DEPRECIATION> $66,496,694
<TOTAL-ASSETS> $73,648,848
<CURRENT-LIABILITIES> $311,128
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> $66,778,834
<TOTAL-LIABILITY-AND-EQUITY> $67,089,962
<SALES> 0
<TOTAL-REVENUES> $4,054,837
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> $1,111,813
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> $2,943,024
<INCOME-TAX> 0
<INCOME-CONTINUING> $2,943,024
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $2,943,024
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
