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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission File Number 1-8032
SAN JUAN BASIN ROYALTY TRUST
TEXAS I.R.S. No. 75-6279898
Bank One, Texas, N.A. Corporate 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 past 12 months (or for such shorter period that the registrant was required
to file such reports), 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 May 15, 1999: 46,608,796
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The registrant, San Juan Basin Royalty Trust (the "Trust"), hereby amends Item 1
of its Quarterly Report for the three month period ended March 31, 1999 on Form
10-Q, to amend and restate note 2 to the unaudited financial statements in its
entirety as follows:
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 gas wells beginning in
1989. Under Section 29 of the Internal Revenue Code, coal seam gas production
from wells drilled prior to January 1, 1993 (including certain wells recompleted
in coal seams formations thereafter), generally qualifies for the federal income
tax credit for producing non-conventional fuels if such production and the sale
thereof occurs before January 1, 2003. For 1998, this tax credit was $1.06 per
MMBtu. For qualifying production of the Trust, 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 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 Trustee is provided summary Section 29 tax credit information related to
Trust Properties by BROG, which information is then passed along to the Unit
holders. In Nielson-True Partnership, et al v. Commissioner, a 1997 Tax Court
decision, the court ruled that nonconventional fuel (such as coal seam gas)
produced from a well drilled and completed in an otherwise qualifying formation
prior to December 31, 1992, is not eligible for the Section 29 credit unless the
producer has received an appropriate well category determination from the
Federal Energy Regulatory Commission ("FERC"). On March 23, 1999, the U.S. Court
of Appeals for the 10th Circuit affirmed that decision. Dictum in the appeals
court's decision (which is not binding as precedent) even suggests that,
contrary to the clear implications of a 1993 Internal Revenue Service ruling,
lack of such a well category determination may render the Section 29 credit
unavailable in respect of production from wells recompleted in a qualified
formation after January 1, 1993, the date that FERC's authority to render well
category determinations ended (so that obtaining the requisite
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determination for any such well was impossible). Many producers assert that
wells meeting the definitional requirements applied by FERC in rendering well
category determinations are eligible for the Section 29 credit regardless of
whether a well category determination is actually applied for or received,
particularly for wells recompleted in qualifying formations after January 1,
1993, and additional litigation (and perhaps a legislative initiative) on this
issue is to be expected.
In some cases the extent to which production from the various coal seam gas
wells in which the Trust holds an interest would qualify for the Section 29
credit under the standards applied in the Nielson-True case is unclear, and the
Trustee has requested that BROG provide clarification and an assessment of the
effects of the foregoing, if any, on the Trust and its Unit holders. Pending
such clarification and assessment, or further developments, or both, however,
the availability of Section 29 credits to Unit holders in respect of some
portion of the Trust's coal seam gas production could be subject to debate and
challenge.
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.
The Trust hereby amends Item 2 to amend and restate the first sentence of the
fifth paragraph under the heading "Three Months Ended March 31, 1999 and 1998"
as follows:
BROG has informed the Trustee that during the first quarter of 1999, 3 gross
(.10 net) conventional wells were completed on the Underlying Properties.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has duly caused the report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BANK ONE, TEXAS, N.A., AS TRUSTEE
FOR THE SAN JUAN BASIN ROYALTY
TRUST
Date: June 9, 1999 /s/ Lee Ann Anderson
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Lee Ann Anderson
Trustee
[The Trust has no directors or executive officers]
