<PAGE> 1
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, 2000
Commission File No. 1-8032
SAN JUAN BASIN ROYALTY TRUST
Texas I.R.S. No. 75-6279898
Bank One, Texas, N.A., 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 (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 July 31, 2000: 46,608,796
<PAGE> 2
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, N.A. as Trustee for the San Juan Basin Royalty Trust (the "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 Rule 10-01 of Regulation S-X promulgated under the Securities and Exchange
Act of 1934, although the Trustee believes that the disclosures are adequate to
make the information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Trust's annual report on Form 10-K for the year
ended December 31, 1999. 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, 2000, and the distributable income and changes in trust corpus for the
three-month and six-month periods ended June 30, 2000 and 1999 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, 2000 and for
the three-month and six-month periods ended June 30, 2000 and 1999 included
herein.
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<PAGE> 3
INDEPENDENT ACCOUNTANTS' REPORT
Bank One, Texas, N.A. 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, 2000 and the
related condensed statements of distributable income and changes in trust corpus
for the three-month and six-month periods ended June 30, 2000 and 1999. 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, 1999, 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 24, 2000, 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, 1999 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
July 14, 2000
-3-
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAN JUAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
(UNAUDITED)
<S> <C> <C>
Cash and short-term investments $ 7,705,657 $ 3,862,453
Net overriding royalty interest in producing
oil and gas properties (net of accumulated
amortization of $90,266,881 and $88,089,329
at June 30, 2000 and December 31, 1999, respectively) 43,008,647 45,186,199
------------ ------------
$ 50,714,304 $ 49,048,652
============ ============
LIABILITIES AND TRUST CORPUS
Distribution payable to Unit holders $ 7,705,657 $ 3,862,453
Commitments and contingencies
Trust corpus - 46,608,796 Units of beneficial
interest authorized and outstanding 43,008,647 45,186,199
------------ ------------
$ 50,714,304 $ 49,048,652
============ ============
</TABLE>
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Royalty income $ 13,608,946 $ 5,359,825 $ 23,685,540 $ 12,405,031
Interest income 17,107 16,103 41,602 29,729
Other 892,496 892,496
------------ ------------ ------------ ------------
13,626,053 6,268,424 23,727,142 13,327,256
General and administrative
expenditures 433,233 324,515 645,819 591,464
------------ ------------ ------------ ------------
Distributable income $ 13,192,820 $ 5,943,909 $ 23,081,323 $ 12,735,792
============ ============ ============ ============
Distributable income per Unit
(46,608,796 Units) $ .283054 $ .127528 $ .495214 $ .273249
============ ============ ============ ============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
-4-
<PAGE> 5
SAN JUAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Trust corpus, beginning of period $ 43,972,106 $ 49,714,087 $ 45,186,199 $ 51,088,020
Amortization of net overriding
royalty interest (963,459) (1,373,459) (2,177,552) (2,747,392)
Distributable income 13,192,820 5,943,909 23,081,323 12,735,792
Distributions declared (13,192,820) (5,943,909) (23,081,323) (12,735,792)
------------ ------------ ------------ ------------
Trust corpus, end of period $ 43,008,647 $ 48,340,628 $ 43,008,647 $ 48,340,628
============ ============ ============ ============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
-5-
<PAGE> 6
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:
o Royalty income recorded for a month is the amount computed and paid
by the working interest owner, Burlington Resources Oil & Gas Company
("BROG"), 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%. The Royalty income amount of $5,359,825 for the
quarter ended June 30, 1999, does not include the $892,496 paid to
the Trust for a one-time business interruption insurance claim.
o Trust expenses recorded are based on liabilities paid and cash
reserves established from royalty income for liabilities and
contingencies.
o Distributions to Unit holders are recorded when declared by the
Trustee.
o 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;
certain cash reserves may be established for contingencies which would not
be accrued in financial statements prepared in accordance with GAAP; and
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 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 1999, this tax credit was $1.04 per MMBtu. To benefit from the
credit, each Unit holder must determine from the tax information they
receive from the Trust, their pro rata share of qualifying production of
the Trust, based upon the number of Units owned during each month of the
year, and the amount of available credit per MMbtu for the year, and then
apply the tax
-6-
<PAGE> 7
credit against their own income tax liability, but such credit may not
reduce their regular tax liability (after the foreign tax credit and
certain other nonrefundable credits) below their 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 their
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 (i.e., language 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 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 fact, on
December 23, 1999, a petition was filed with the FERC by a coalition of
energy producers seeking reinstatement of the certification process. By
letter dated January 14, 2000, the U. S. Department of Energy expressed
its support of that petition. On July 14, 2000, the FERC issued a final
ruling amending its regulations to reinstate certain regulations involving
well category determinations for all wells and tight formation areas that
could qualify for the Section 29 tax credit. The Trustee is in
communication with BROG regarding the application of the amended
regulations, BROG's plans, if any, to seek certification of additional
wells and an assessment of the effects of the amended regulations on the
Trust and its Unit holders. Pending such assessment and further
developments, the availability of Section 29 tax credits to Unit holders
with respect to some portion of the Trust's coal seam gas production could
remain 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.
3. CONTINGENCIES
See Part II - Item 1 Legal Proceedings concerning the status of litigation
matters.
4. UNDERCHARGE OF CAPITAL EXPENDITURES AND LEASE OPERATING EXPENSES
Based on its year-end review, BROG has determined that since January of
1999, BROG has undercharged the Trust for both capital expenditures and
lease operating charges related to properties burdened by the Trust but
not operated by BROG. In April and May of 2000, BROG passed through to the
Trust additional charges of $652,303 in capital expenditures and
$1,689,509 in lease operating charges related to the undercharged
non-operated properties. The Trust's consultants will continue their
review of cost reporting data and advise the Trust as to the
appropriateness of the pass through of these additional charges.
-7-
<PAGE> 8
5. SETTLEMENT OF CLAIMS RELATING TO GAS IMBALANCE
In June 2000, the Trust and BROG entered into a partial settlement of
claims relating to a gas imbalance with respect to production from mineral
properties currently operated by BROG. Under the terms of the partial
settlement, BROG paid the Trust $3,490,000 to settle the imbalance insofar
as it relates to some of the wells located on the subject properties. The
remainder of the imbalance is to be addressed through volume adjustments
whereby the Trust's net overriding royalty interest will be applied to 50%
of the overproduced parties' interest, on a monthly basis, until the
imbalance is corrected. The Trust is in communication with BROG in order
to determine the estimated value of the volume adjustments and the time
during which the remainder of the imbalance will be corrected.
******
-8-
<PAGE> 9
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS
FORWARD LOOKING INFORMATION
Certain information included in this report contains, and other materials filed
or to be filed by the Trust with the Securities and Exchange Commission (as well
as information included in oral statements or other written statements made or
to be made by the Trust) may contain or include, forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, and
Section 27A of the Securities Act of 1933. Such forward looking statements may
be or may concern, among other things, capital expenditures, drilling activity,
development activities, production efforts and volumes, hydrocarbon prices and
the results thereof, and regulatory matters. Such forward looking statements
generally are accompanied by words such as "may," "will," "estimate," "expect,"
"predict," "anticipate," "goal," "should," "assume," "believe," "plan,"
"intend," or other words that convey the uncertainty of future events or
outcomes. Such statements reflect our current view with respect to future
events; are based on our assessment of, and are subject to, a variety of factors
deemed relevant by the Trustee and involve risks and uncertainties. Should one
or more of these risks or uncertainties occur, actual results may vary
materially and adversely from those anticipated.
-9-
<PAGE> 10
THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999:
The Trust received royalty income of $13,608,946 and interest income of $17,107
during the second quarter of 2000. The royalty income amount of $13,608,946 for
the quarter ended June 30, 2000, includes $3,490,000 paid to the Trust as
partial settlement of its claims relating to a gas imbalance with respect to
production from mineral properties currently operated by BROG. After deducting
administrative expenses of $433,233 distributable income for the quarter was
$13,192,820 ($.283054 per Unit). In the second quarter of 1999, royalty income
was $5,359,825 and interest income was $16,103. The royalty income amount of
$5,359,825 for the quarter ended June 30, 1999, does not include the $892,496
paid to the Trust for a one-time business interruption insurance claim. After
deducting administrative expenses of $324,515, distributable income for the
quarter was $5,943,909 ($.127528 per Unit). The tax credit relating to
production from coal seam wells totaled approximately $.04 per Unit for the
second quarter of 2000 and $.03 per Unit for the second quarter of 1999. For
further information concerning this tax credit, Unit holders should refer to the
Trust's Annual Report for 1999. Based on 46,608,796 Units outstanding, the per
Unit distributions during the second quarter of 2000 were as follows:
<TABLE>
<S> <C>
April $ .067251
May .050477
June .165326
---------
Quarter Total $ .283054
=========
</TABLE>
The royalty income distributed in the second quarter of 2000 was higher than
that distributed in the second quarter of 1999, primarily due to an increase in
the average gas price from $1.34 per Mcf for the second quarter of 1999 to $2.39
per Mcf for the second quarter of 2000, and the gas imbalance claims settlement
of $3,490,000 received during the second quarter of 2000. Interest earnings for
the quarter ended June 30, 2000, as compared to the quarter ended June 30, 1999,
were higher, primarily due to an increase in funds available for investment.
Administrative expenses were higher, primarily as a result of differences in
timing of the receipt and payment of these expenses.
The capital costs attributable to the properties from which the Trust's 75% net
overriding royalty ("Royalty") was carved (the "Underlying Properties") for the
second quarter of 2000 were reported by BROG as $4,779,093 (including $652,000
relating to undercharges during prior periods on non-operated properties) versus
$2,997,840 for the second quarter of 1999. BROG has reduced its estimate for
capital expenditures for 2000 from $20,500,000 to $18,500,000, of which
$9,400,000 has been incurred through June 30, 2000. BROG has indicated to the
Trust that it anticipates the benefit of the higher capital spending will be
realized in the form of a near offset of the natural production decline for
calendar year 2000, and that full realization of this benefit should be seen by
year-end.
In April 2000, BROG informed the Trustee that it had determined that since
January of 1999, BROG had undercharged the Trust for both capital expenditures
and lease operating charges related to properties burdened by the Trust's
Royalty but not operated by BROG. In April and May of 2000, BROG passed through
to the Trust additional charges of $652,303 in capital expenditures and
$1,689,509 in lease operating charges related to the undercharged non-operated
properties.
Lease operating expenses and property taxes increased to $5,028,808 for the
second quarter of 2000 as compared to $2,849,124 for the second quarter of 1999
primarily due to the passed through lease operating charges related to
undercharged non-operated properties.
-10-
<PAGE> 11
BROG has informed the Trustee that during the second quarter of 2000, seven
gross (2.57 net) conventional wells and five gross (2.55 net) conventional
recompletions were completed on the Underlying Properties. There were 92 gross
(29.78 net) conventional wells and 33 gross (5.43 net) recompletions in progress
at June 30, 2000. Six gross (.04 net) coal seam recavitations and two gross (.08
net) coal seam recompletions were completed in the second quarter of 2000. Ten
gross (4.54 net) coal seam wells, eleven gross (.07 net) coal seam recavitations
and five gross (1.35 net) coal seam recompletions were in progress at June 30,
2000. By comparison, 17 gross (.30 net) conventional wells were completed on the
Underlying Properties during the second quarter of 1999. There were 66 gross
(14.28 net) conventional wells and eight gross (1.45 net) recompletions in
progress at June 30, 1999. Seven gross (.048 net) coal seam recavitations were
completed and 14 gross (.27 net) coal seam recavitations were in progress in the
second quarter of 1999. Three gross (1.42 net) coal seam wells and one gross
(.108 net) coal seam recompletion were in progress at June 30, 1999.
Royalty income for the quarter ended June 30, 2000 is associated with actual gas
and oil production during February 2000 through April 2000 from the Underlying
Properties. Gas and oil sales from the Underlying Properties for the quarters
ended June 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Gas:
Total sales (Mcf) 10,662,060 10,533,677
Mcf per day 118,467 118,356
Average price (per Mcf) $ 2.39 $ 1.34
Oil:
Total sales (Bbls) 21,777 18,074
Bbls per day 242 203
Average price (per Bbl) $ 21.66 $ 12.65
</TABLE>
Gas and oil sales attributable to the Royalty for the quarters ended June 30,
2000 and 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Gas sales (Mcf) 4,567,487 4,393,718
Oil sales (Bbls) 9,473 7,598
</TABLE>
During the second quarter of 2000, gas prices were higher than during the second
quarter of 1999. Gas production increased slightly in 2000 as compared to 1999.
The price per barrel of oil during the second quarter of 2000 was $9.01 per bbl
higher than that received for the second quarter of 1999 due to increases in oil
prices in world markets generally including the posted prices applicable to oil
sales attributable to the Royalty.
Since the oil and gas sales attributable to the Royalty are based on an
allocation formula that is dependent on such factors as price and cost,
including capital expenditures, the aggregate production volumes from the
Underlying Properties may not provide a meaningful comparison to volumes
attributable to the Royalty.
BROG has entered into a contract dated November 10, 1999, for the sale of all
volumes of gas which are subject to the Royalty (the "Trust gas") to Duke Energy
and Marketing L.L.C. That contract provides for the delivery of Trust gas at
various delivery points over a period commencing January 1, 2000, and ending
October 31, 2001, and provides for the sale of Trust gas at prices which
fluctuate in accordance with published indices for gas sold in the San Juan
Basin of New Mexico. Unit holders are referred to Note 6 of
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<PAGE> 12
the Notes to Financial Statements in the Trust's 1999 Annual Report for further
information concerning the marketing of gas produced from the Underlying
Properties.
In February 1999, the Trust's consultants notified the Trust of an apparent gas
imbalance. A gas imbalance occurs where more than one party is entitled to the
economic benefit of the production of natural gas, but the gas is sold for the
account of less than all of the parties. The resulting imbalance may be
corrected by various means including a cash settlement and/or a volume
adjustment whereby an increased percentage of future production is sold for the
account of the underproduced party or parties. The Trust's consultants suggested
that the subject imbalance might relate to the acquisition by BROG's
predecessor, Southland Royalty Company ("Southland Royalty"), of mineral
properties which had been operated under a Joint Operating Agreement between
Southland Royalty and Unicon, the seller of the properties. The Trust made
inquiry of BROG concerning the imbalance and BROG agreed to investigate the
records. The Trustee met with BROG representatives in June 1999 to discuss the
investigation and by correspondence of September 24, 1999, BROG reported that
the imbalance probably related to problems experienced in the 1980's and early
1990's by Southland Royalty and Unicon in their dealings with Public Service
Company of New Mexico. BROG reported that Unicon was flowing gas to its account
while Southland Royalty was not producing and that this created a gas imbalance.
The imbalance was addressed, as between Southland Royalty and Unicon, by a
reduction in the total purchase price for Unicon assets acquired by Southland
Royalty in June 1990. However, there was no payment made to the Trust at the
time of that acquisition.
In June 2000, the Trust and BROG entered into a partial settlement of the claims
relating to the gas imbalance, under the terms of which BROG paid the Trust
$3,490,000 to settle the imbalance insofar as it relates to some of the wells
located on the subject properties. The remainder of the imbalance is to be
addressed through volume adjustments whereby the Trust's net overriding royalty
interest will be applied to 50% of the overproduced parties' interest, on a
monthly basis, until the imbalance is corrected. The Trust is in communication
with BROG in order to determine the estimated value of the volume adjustments
and the time during which the remainder of the imbalance will be corrected.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999:
For the six months ended June 30, 2000 distributable income was $23,081,323
($.495214 per Unit) which was more than the $12,735,792 ($.273249 per Unit) of
income distributed during the same period in 1999. The increase resulted
primarily from increases in gas and oil prices. Interest income for the six
months ended June 30, 2000 was $41,602 compared to $29,729 during the first six
months of 1999. This increase is due to an increase in funds available for
investment. General and administrative expenses increased to $645,819 from
$591,464 during the 1999 period primarily due to differences in timing of the
receipt and payment of these expenses.
Capital expenditures incurred by BROG, attributable to the Underlying
Properties, for the first six months of 2000 amounted to $9,362,219. Capital
expenditures were $5,271,041 for the first six months of 1999. Lease operating
expenses and property taxes totaled $8,136,369 for the first six months of 2000
compared to $5,644,926 for the first six months of 1999. The six month 2000
amounts include the charges for non-operated properties by BROG mentioned above.
BROG informed the Trustee that during the six months ended June 30, 2000, 14
gross (5.98 net) conventional wells were completed on the Underlying Properties.
Eight gross (3.69 net) conventional wells were recompleted. Nineteen gross (.11
net) coal seam wells were recavitated and two gross (.08 net) coal seam
recompletions were completed during the first six months of 2000. During the six
months ended June 30, 1999, 22 gross (.401 net) conventional wells were
completed on the Underlying Properties. One gross (.65 net) conventional well
was recompleted. Twelve gross (.144 net) coal seam wells were recavitated during
the first six months of 1999.
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<PAGE> 13
Royalty income for the six months ended June 30, 2000 is associated with actual
gas and oil production during November 1999 through April 2000 from the
Underlying Properties. Gas and oil sales from the Underlying Properties for the
six months ended June 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Gas:
Total sales (Mcf) 20,742,656 20,871,116
Mcf per day 113,971 115,310
Average price (per Mcf) $ 2.31 $ 1.44
Oil:
Total sales (Bbls) 45,067 36,520
Bbls per day 248 202
Average price (per Bbl) $ 22.10 $ 11.12
</TABLE>
Gas and oil sales attributable to the Royalty for the six months ended June 30,
2000 and 1999 were as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Gas sales (Mcf) 9,310,784 9,436,600
Oil sales (Bbls) 20,577 16,616
</TABLE>
During the first six months of 2000, gas and oil prices were higher than during
the first six months of 1999. Since the oil and gas sales attributable to the
Royalty are based on an allocation formula that is dependent on such factors as
price and cost, including capital expenditures, the aggregate sales amounts from
the Underlying Properties may not provide a meaningful comparison to sales
attributable to the Royalty.
-13-
<PAGE> 14
CALCULATION OF ROYALTY INCOME:
Royalty income received by the Trust for the three months and six months ended
June 30, 2000 and 1999, respectively, was computed as shown in the following
table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Gross proceeds of sales from the
Underlying Properties:
Gas proceeds $ 25,242,345 $ 14,138,802 $ 47,756,306 $ 30,090,028
Oil proceeds 483,594 228,556 1,009,004 406,116
------------ ------------ ------------ ------------
Total 25,725,939 14,367,358 48,765,310 30,496,144
------------ ------------ ------------ ------------
Less production costs:
Severance tax - Gas 2,266,118 1,448,732 4,460,637 3,097,060
Severance tax - Oil 38,382 20,674 90,422 38,522
Lease operating expenses and
property tax (a) 5,028,808 2,849,124 8,136,369 5,644,926
Capital expenditures (a) 4,779,093 2,997,840 9,362,219 5,271,041
Other 121,610 (95,445) 121,610 (95,445)
------------ ------------ ------------ ------------
Total 12,234,011 7,220,925 22,171,257 13,956,104
------------ ------------ ------------ ------------
Net profits 13,491,928 7,146,433 26,594,053 16,540,040
------------ ------------ ------------ ------------
Net overriding royalty interest 75% 75% 75% 75%
------------ ------------ ------------ ------------
Subtotal 10,118,946 5,359,825 19,945,540 12,405,031
Other (b) 3,490,000 3,740,000
------------ ------------ ------------ ------------
Royalty income $ 13,608,946 $ 5,359,825 $ 23,685,540 $ 12,405,031
============ ============ ============ ============
</TABLE>
(a) Includes charges received from BROG during the three months ended June 30,
2000 for capital expenditures ($652,000) and lease operating costs
($1,690,000) relating to non-operated properties not previously charged to
the Trust (see Note 4 to the financial statements).
(b) Represents additional revenues of $3,490,000 received in the second quarter
of 2000 as settlement of a gas imbalance and a $250,000 offset to lease
operating expense in the first quarter of 2000 in connection with the
settlement of litigation.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Trust has not entered into derivative financial instruments, derivative
commodity instruments or other similar instruments during the quarter ended June
30, 2000. The Trust does not market the Trust gas, oil and/or natural gas
liquids. BROG is responsible for such marketing.
-14-
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Trust is not a party to any litigation. However, the Trust is
aware that BROG is involved in litigation from time to time that could
affect the royalty income received by the Trust.
A lawsuit was commenced on September 1, 1995, against BROG by certain
royalty and overriding royalty owners on behalf of those persons
similarly situated. The suit involves properties that are burdened by
the Trust. This case is one of six virtually identical class actions
filed against New Mexico gas producers. All such cases have been
consolidated in the First Judicial District of Santa Fe County, New
Mexico where the case is styled San Juan 1990-A, L.P., et al. v. El
Paso Production Company and Meridian Oil Inc. The plaintiffs allege
that they and members of the proposed class have been underpaid for
royalties and overriding royalties. The plaintiffs have sought to
certify the actions as class actions and seek monetary damages. The
court has denied class certification, but the plaintiffs have renewed
their request for class certification. Discovery in this matter is
closed. BROG anticipates summary judgment proceedings to occur in the
fall of 2000. Because of the pending nature of the litigation,
exposure to the Trust from this suit cannot be quantified. However, if
the plaintiffs who have interests in properties that are burdened by
the Trust are successful, royalty income received by the Trust could
decrease.
In addition, an administrative claim was initiated on March 17, 1997,
by the Mineral Management Service of the United States Department of
the Interior (the "MMS") against BROG regarding a gas contract
settlement dated March 1, 1990, between BROG and certain other parties
thereto. The claim alleges that additional royalties are due on
production from federal and Indian leases in the State of New Mexico
on properties that are burdened by the Royalty. BROG filed its
statement of reasons in June 1997 thereby contesting whether the
royalties are payable as claimed. BROG has informed the Trust that the
administrative claim is in the appeal process. If the MMS claim is
successful, royalty income received by the Trust could decrease. BROG
reports that the MMS and BROG have entered into settlement discussions
in an attempt to settle this issue together with other take-or-pay
claims made by the MMS, but there has been no indication of the
likelihood of success in resolving the claim or when the negotiations
are to be completed.
MMS has notified BROG of underpaid royalty related to coal seam gas
including inappropriate deductions for costs to separate carbon
dioxide from the gas. BROG has continued to calculate and pay
royalties using deductions the MMS is attempting to disallow. The
Company has appealed the MMS Demand Letter dated October 28, 1996.
There is a tolling agreement with the MMS while settlement
negotiations are attempted.
BROG is in negotiations with the State of New Mexico for a tax refund
based upon a claim for reimbursement of compression costs used in
calculating wellhead values. BROG has obtained the approval of the
Attorney General of New Mexico of a settlement in the amount of
$4,200,000, and payment in that amount has been received. BROG has
informed the Trust that its preliminary calculations indicate that the
proportion of the settlement proceeds which will be attributable to
the Trust is approximately $250,000.
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, N.A.), as Trustee,
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<PAGE> 16
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
(b) Reports on Form 8-K
The Trust filed a report on Form 8-K on June 30, 2000. In the
report, the Trust reported, under Item 5, that it had announced
the partial settlement of its claims relating to a gas imbalance
with respect to production from mineral properties currently
operated by BROG.
-16-
<PAGE> 17
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, N.A., AS TRUSTEE FOR
THE SAN JUAN BASIN ROYALTY TRUST
By /s/ LEE ANN ANDERSON
----------------------------
Lee Ann Anderson
Vice President
Date: August 14, 2000
(The Trust has no directors or executive officers.)
-17-
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
<S> <C> <C>
(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 **
</TABLE>
* 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.
