<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-10476
-------
Hugoton Royalty Trust
(Exact name of registrant as specified in its charter)
Texas 58-6379215
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Bank of America, N.A., P.O. Box 830650, Dallas, Texas 75283-0650
----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(877) 228-5083
----------------------------------------------------
(Registrant's telephone number, including area code)
NONE
-------------------------------------------------------------------------
(Former name, former address and former fiscal year, if change since last
report)
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
--- ---
Indicate the number of units of beneficial interest outstanding, as of the
latest practicable date:
Outstanding as of November 1, 2000
----------------------------------
40,000,000
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<PAGE>
HUGOTON ROYALTY TRUST
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
GLOSSARY OF TERMS......................................................................... 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements...................................................................... 4
Report of Independent Public Accountants.................................................. 5
Condensed Statements of Assets, Liabilities and Trust Corpus
at September 30, 2000 and December 31, 1999............................................ 6
Condensed Statements of Distributable Income
for the Three and Nine Months Ended September 30, 2000 and 1999........................ 7
Condensed Statements of Changes in Trust Corpus
for the Three and Nine Months Ended September 30, 2000 and 1999........................ 8
Notes to Condensed Financial Statements................................................... 9
Item 2. Trustee's Discussion and Analysis......................................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk................................ 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................................... 16
Signatures................................................................................ 17
</TABLE>
2
<PAGE>
HUGOTON ROYALTY TRUST
GLOSSARY OF TERMS
-----------------
The following are definitions of significant terms used in this Form 10-Q:
Bbl Barrel (of oil)
Mcf Thousand cubic feet (of natural gas)
MMBtu One million British Thermal Units, a common energy
measurement
net profits interest An interest in an oil and gas property measured by net
profits from the sale of production, rather than a
specific portion of production
net proceeds Gross proceeds from sale of production from the
underlying properties, less applicable costs
royalty income Net proceeds, multiplied by the net profits percentage
of 80% and paid to the trust
underlying properties Cross Timbers' interest in certain oil and gas
properties from which the net profits interests were
conveyed. The underlying properties include working
interests in predominantly gas-producing properties
located in Kansas, Oklahoma and Wyoming.
working interest An operating interest in an oil and gas property that
provides the owner a specified share of production that
is subject to all production and development costs
3
<PAGE>
HUGOTON ROYALTY TRUST
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
The condensed financial statements included herein are presented, 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. These condensed financial
statements should be read in conjunction with the trust's financial statements
and the notes thereto included in the trust's 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 Hugoton Royalty Trust at September 30, 2000, and the distributable
income and changes in trust corpus for the three- and nine-month periods ended
September 30, 2000 and 1999, have been included. Distributable income for such
interim periods is not necessarily indicative of the distributable income for
the full year.
4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Bank of America, N.A., as Trustee
for the Hugoton Royalty Trust:
We have reviewed the accompanying condensed statement of assets, liabilities and
trust corpus of the Hugoton Royalty Trust as of September 30, 2000 and the
related condensed statements of distributable income and changes in trust corpus
for the three- and nine-month periods ended September 30, 2000 and 1999. These
financial statements are the responsibility of the trustee.
We conducted our review 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 auditing standards generally accepted in the United States, 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 accounting principles generally accepted in the United States.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with the basis of accounting described in Note 1.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the statement of assets, liabilities and trust
corpus of the Hugoton Royalty Trust as of December 31, 1999 included in the
trust's annual report on Form 10-K, and in our report dated March 1, 2000, we
expressed an unqualified opinion on that statement. 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 included in the trust's financial statements from which it has been
derived.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
October 21, 2000
5
<PAGE>
HUGOTON ROYALTY TRUST
--------------------------------------------------------------------------------
Condensed Statements of Assets, Liabilities and Trust Corpus
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and short-term investments..................................... $ 5,270,040 $ 4,551,840
Net profits interests in oil and gas properties - net............... 222,377,164 233,428,609
--------------- ---------------
$ 227,647,204 $ 237,980,449
=============== ===============
LIABILITIES AND TRUST CORPUS
Distribution payable to unitholders................................ $ 5,270,040 $ 4,551,840
Trust corpus (40,000,000 units of beneficial
interest authorized and outstanding)............................ 222,377,164 233,428,609
--------------- ---------------
$ 227,647,204 $ 237,980,449
=============== ===============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
6
<PAGE>
HUGOTON ROYALTY TRUST
--------------------------------------------------------------------------------
Condensed Statements of Distributable Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Royalty income .................... $ 16,250,348 $ 8,541,670 $ 38,520,674 $ 20,961,736
Interest income ................... 38,398 15,980 83,825 24,516
------------- ------------- ------------- -------------
Total income ...................... 16,288,746 8,557,650 38,604,499 20,986,252
Administration expense ............ 92,306 29,330 204,299 62,403
------------- ------------- ------------- -------------
Distributable income .............. $ 16,196,440 $ 8,528,320 $ 38,400,200 $ 20,923,849
============= ============= ============= =============
Distributable income per unit
(40,000,000 units) .............. $ 0.404911 $ 0.213208 $ 0.960005 $ 0.523098
============= ============= ============= =============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
7
<PAGE>
HUGOTON ROYALTY TRUST
--------------------------------------------------------------------------------
Condensed Statements of Changes in Trust Corpus (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Trust corpus, beginning of period ......... $ 226,089,846 $ 241,540,064 $ 233,428,609 $ 247,067,951
Amortization of net profits interests ..... (3,712,682) (3,644,484) (11,051,445) (9,171,371)
Return of initial contribution
to grantor............................. - - - (1,000)
Distributable income....................... 16,196,440 8,528,320 38,400,200 20,923,849
Distributions declared .................... (16,196,440) (8,528,320) (38,400,200) (20,923,849)
------------- ------------- ------------- -------------
Trust corpus, end of period ............... $ 222,377,164 $ 237,895,580 $ 222,377,164 $ 237,895,580
============= ============= ============= =============
</TABLE>
The accompanying notes to condensed financial statements are an integral part of
these statements.
8
<PAGE>
HUGOTON ROYALTY TRUST
--------------------------------------------------------------------------------
Notes to Condensed Financial Statements (Unaudited)
1. Basis of Accounting
The financial statements of the trust are prepared on the following basis
and are not intended to present financial position and results of operations
in conformity with generally accepted accounting principles ("GAAP"):
- Royalty income recorded for a month is the amount computed and paid
by the interest owner, Cross Timbers Oil Company, to Bank of
America, N.A., as trustee for the trust. Royalty income consists of
net proceeds received by Cross Timbers from the underlying
properties in the prior month, multiplied by a net profits
percentage of 80%.
Costs deducted in the calculation of net proceeds for the 80% net
profits interests generally include applicable taxes,
transportation, marketing and legal costs, production expenses,
development costs, operating charges and other costs. Development
costs may include amounts budgeted under operating agreements or
authorizations for expenditure.
- Royalty income is computed separately for each of three conveyances
under which the net profits interests were conveyed to the trust. If
monthly costs exceed revenues for any conveyance, such excess costs
cannot reduce royalty income from other conveyances, but are carried
forward with accrued interest to be recovered from future net
proceeds of that conveyance.
- Trust expenses are recorded based on liabilities paid and cash
reserves established by the trustee for liabilities and
contingencies.
- Distributions to unitholders are recorded when declared by the
trustee.
The trust's financial statements differ from those prepared in conformity
with GAAP because revenues are recognized when received rather than accrued
in the month of production, expenses are recognized when paid rather than
when incurred and certain cash reserves may be established by the trustee
for certain contingencies which would not be recorded under GAAP.
The initial carrying value of the net profits interests of $247,066,951
represents Cross Timbers' net book value for the interests on December 1,
1998, the date the trust was created. Amortization of the net profits
interests is calculated on a unit-of-production basis and charged directly
to trust corpus. Accumulated amortization was $24,689,787 as of September
30, 2000 and $13,638,342 as of December 31, 1999.
9
<PAGE>
2. Distributions to Unitholders
The trustee determines the amount to be distributed to unitholders each
month by totaling royalty income, interest income and other cash receipts,
and subtracting liabilities paid and adjustments in cash reserves
established by the trustee. The resulting amount is distributed to
unitholders of record generally within ten business days after the monthly
record date, the last business day of the month.
Royalty income received by the trustee is equal to the net proceeds received
in the prior month by Cross Timbers from the underlying properties,
multiplied by 80%. Net proceeds are the gross proceeds received from the
sale of production from the underlying properties, less applicable costs.
Such costs generally include applicable taxes, transportation, legal and
marketing charges, production expenses, development and drilling costs, and
overhead.
For monthly trust distributions declared through March 2000, the related
royalty income was based on gross proceeds equal to the greater of:
- the actual amount received from sales of production, or
- the imputed amount that would be received from sales of production
at a gas price of $2.00 per Mcf.
Subsequent to March 2000, trust royalty income is based on the actual gross
proceeds received from sale of production.
3. Federal Income Taxes
Tax counsel has advised the trust that, under current tax laws, the trust
will be classified as a grantor trust for federal income tax purposes and
therefore is not subject to taxation at the trust level. However, the
opinion of tax counsel is not binding on the Internal Revenue Service.
For federal income tax purposes, unitholders 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 be received or accrued by the unitholders
at the time such income is received or accrued by the trust, rather than
when distributed by the trust.
Cross Timbers has advised the trustee that the trust receives royalty income
from tight sands gas wells. Certain tight sands gas produced and sold
through 2002 qualifies for the federal income tax credit for producing
nonconventional fuels under Section 29 of the Internal Revenue Code. This
tax credit is recalculated annually based on each year's qualifying
production. The 1999 tight sands tax credit was $0.016 per unit. Tight sands
tax credit data for 2000 will be provided to unitholders with year-end tax
information. Unitholders should consult their tax advisors regarding use of
this credit and other trust tax compliance matters.
4. Litigation
Cross Timbers is a defendant in three separate lawsuits that could, if
adversely determined, decrease future trust distributable income. Damages
relating to production prior to the formation of the trust will be borne by
Cross Timbers.
10
<PAGE>
On April 3, 1998, a class action lawsuit, Booth, et al. v. Cross Timbers Oil
Company, was filed in the District Court of Dewey County, Oklahoma by
royalty owners of natural gas wells in Oklahoma. The plaintiffs allege that
since 1991 Cross Timbers has underpaid royalty owners as a result of
reducing royalties for improper charges for production, marketing,
gathering, processing and transportation costs and selling natural gas
through affiliated companies at prices less favorable than those paid by
third parties. Cross Timbers believes that it has strong defenses to this
lawsuit and intends to vigorously defend its position. However, if Cross
Timbers ultimately makes any settlement payments, the trust will bear its
80% share of such settlement related to production from the underlying
properties for periods since December 1, 1998. Additionally, if a judgment
or settlement increases the amount of future payments to royalty owners, the
trust would bear its proportionate share of the increased payments through
reduced net proceeds. The amount of any reduction in net proceeds is not
presently determinable, but, in Cross Timbers management's opinion, is not
currently expected to be material to the trust's annual distributable
income, financial position or liquidity.
A second lawsuit, United States of America ex rel. Grynberg v. Cross Timbers
Oil Company, et al., was filed in the United States District Court for the
Western District of Oklahoma. This action alleges that Cross Timbers
underpaid royalties on natural gas produced from federal leases and lands
owned by Native Americans by at least 20% during the past 10 years as a
result of mismeasuring the volume of natural gas and wrongfully analyzing
its heating content. The suit, which was brought under the qui tam
provisions of the U.S. False Claims Act, seeks treble damages for the unpaid
royalties (with interest), civil penalties between $5,000 and $10,000 for
each violation of the U.S. False Claims Act, and an order for Cross Timbers
to cease the allegedly improper measuring practices. The cases against Cross
Timbers and other defendants have been consolidated in the United States
District Court for Wyoming. Cross Timbers and other defendants have filed a
motion to dismiss the lawsuit. The motion to dismiss has been heard by the
Court and a decision is pending. Cross Timbers believes that the allegations
of this lawsuit are without merit and intends to vigorously defend the
action. However, an order to change measuring practices or a related
settlement could adversely affect the trust by reducing net proceeds in the
future by an amount that is presently not determinable, but, in Cross
Timbers management's opinion, is not expected to be material to the trust's
annual distributable income, financial position or liquidity.
A third lawsuit, Bishop, et al. v. Amoco Production Co., et al., was filed
in May 2000 in the Third Judicial District Court in Lincoln County, Wyoming
by owners of royalty and overriding royalty interests in wells located in
Wyoming. The plaintiffs allege that Cross Timbers and the other producer
defendants have deducted impermissible costs of production from royalty
payments that have been made to the plaintiffs and other similarly situated
persons and have failed to properly inform the plaintiffs and others of the
deductions taken. The action is being brought as a class action on behalf of
all persons who own an interest in wells located in Wyoming as to which the
defendants pay royalties and overriding royalties. The plaintiffs seek a
declaratory judgment that the deductions made are impermissible and seek
damages in the amount of the deductions made together with interest and
attorneys' fees. Cross Timbers believes that the plaintiffs' interpretation
of the Wyoming statute that governs this issue, based upon a 1999 court
decision, is erroneous, and that any deductions made from royalties by Cross
Timbers are permitted by the statute. Cross Timbers intends to vigorously
defend this action. If Cross Timbers does not prevail, however, the trust
will bear its 80% share of any judgment related to production from the
underlying properties for periods since December 1, 1998. Additionally, if
an adverse judgment increases the amount of future payments to royalty
owners, the trust would bear its proportionate share of the increased
payments through reduced net proceeds. Cross Timbers management believes
that any reduction in future distributions will not be material to the
trust's annual distributable income, financial position, or liquidity.
11
<PAGE>
Item 2. Trustee's Discussion and Analysis.
The following discussion should be read in conjunction with the trustee's
discussion and analysis contained in the trust's 1999 annual report, as well as
the condensed financial statements and notes thereto included in this quarterly
report on Form 10-Q.
Distributable Income
For the quarter ended September 30, 2000 royalty income was $16,250,348, as
compared to $8,541,670 for third quarter 1999. This 90% increase in royalty
income is primarily the result of higher oil and gas prices. See "Royalty
Income" below.
Distributable income for the quarter ended September 30, 2000 was $16,196,440,
or $0.404911 per unit of beneficial interest. Distributions for the quarter
were:
<TABLE>
<CAPTION>
Distribution
Record Date Payment Date per Unit
---------------------- ---------------------- -------------
<S> <C> <C>
July 31, 2000 August 14, 2000 $ 0.102685
August 31, 2000 September 15, 2000 0.170475
September 29, 2000 October 16, 2000 0.131751
-------------
$ 0.404911
=============
</TABLE>
For the nine months ended September 30, 2000 royalty income was $38,520,674,
compared with $20,961,736 for the same 1999 period. Higher oil and gas prices in
2000 and the lag effect on cash receipts in the trust's initial accounting
period in 1999 are the primary reasons for this 84% increase in royalty income.
See "Royalty Income" below.
Trust administration expenses were higher in third quarter 2000 primarily
because of the timing of payments related to annual reporting costs.
Administration expenses were generally lower in 1999 because of the lag effect
on cash disbursements in the trust's initial accounting year.
Royalty Income
Royalty income is recorded when received by the trust, which is the month
following receipt by Cross Timbers, and generally two months after oil and gas
production. Royalty income is generally affected by three major factors:
- oil and gas sales volumes,
- oil and gas sales prices, and
- costs deducted in the calculation of royalty income.
12
<PAGE>
The following is a summary of the calculation of royalty income received by the
trust:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 (a) Increase Ended September 30 (a) Increase
---------------------------- -----------------------------
2000 1999 (Decrease) 2000 1999 (Decrease)
------------ ------------ ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales Volumes
Gas (Mcf) (b)
Underlying properties..... 9,050,655 9,515,797 (5%) 27,397,263 24,603,008 11%
Average per day......... 98,377 103,433 (5%) 99,990 101,247 (1%)
Net profits interests..... 4,579,058 4,164,330 10% 13,630,859 10,479,471 30%
Oil (Bbls) (b)
Underlying properties..... 97,602 104,133 (6%) 302,332 285,041 6%
Average per day......... 1,061 1,132 (6%) 1,103 1,173 (6%)
Net profits interests..... 49,445 55,660 (11%) 151,115 138,296 9%
Average Sales Prices
Gas (per Mcf) (c)........... $ 3.57 $ 2.01 78% $ 2.80 $ 2.00 40%
Oil (per Bbl)............... $29.71 $18.18 63% $27.49 $14.66 88%
Revenues
Gas sales................... $ 32,299,570 $ 19,118,253 69% $ 76,699,307 $ 49,292,675 56%
Oil sales................... 2,899,763 1,892,765 53% 8,311,719 4,178,765 99%
------------ ------------ ------------- ------------
Total Revenues............ 35,199,333 21,011,018 68% 85,011,026 53,471,440 59%
------------ ------------ ------------- ------------
Costs
Taxes, transportation
and other................ 3,338,100 2,097,817 59% 8,167,888 5,620,703 45%
Production expense.......... 3,859,271 2,791,131 38% 10,381,693 8,050,046 29%
Development costs........... 5,774,583 3,693,053 56% 12,894,988 8,496,160 52%
Overhead.................... 1,914,444 1,751,680 9% 5,415,615 5,102,111 6%
Excess costs................ - (35,718) - - (35,718) -
Recovery of excess costs
and accrued interest...... - 35,968 - - 35,968 -
------------ ------------ ------------- ------------
Total Costs............... 14,886,398 10,333,931 44% 36,860,184 27,269,270 35%
------------ ------------ ------------- ------------
Net Proceeds................... 20,312,935 10,677,087 90% 48,150,842 26,202,170 84%
Net Profits Percentage......... 80% 80% 80% 80%
------------ ------------ ------------- ------------
Royalty Income................. $ 16,250,348 $ 8,541,670 90% $ 38,520,674 $ 20,961,736 84%
============ ============ ============= ============
</TABLE>
_____________________
(a) Because of the two-month interval between time of production and receipt of
royalty income by the trust, (1) oil and gas sales for the quarter ended
September 30 generally represent production for the period May through July
and (2) oil and gas sales for the nine months ended September 30, 2000
generally represent production for the period November 1999 through July
2000. Oil and gas sales for the nine months ended September 30, 1999
represent production for the period December 1998 (the trust's initial
month) through July 1999.
(b) Oil and gas sales volumes are allocated to the net profits interests based
upon a formula that considers oil and gas prices and the total amount of
production expenses and development costs. Changes in any of these factors
may result in disproportionate fluctuations in volumes allocated to the net
profits interests. Therefore, comparative discussion of oil and gas sales
volumes is based on the underlying properties.
(c) See Note 2 to condensed financial statements.
13
<PAGE>
The following are explanations of significant variances from third quarter 1999
to 2000 and from the first nine months of 1999 to the comparable period in 2000:
Sales Volumes
Gas
Third quarter gas sales volumes declined 5% primarily because of natural
production decline, partially offset by new wells. Gas sales volumes were 11%
higher for the nine-month period, primarily because of the lag effect on cash
receipts in the trust's initial accounting period, which resulted in less than
eight full months of sales volumes in the first nine months of 1999. Average
daily gas sales volumes for the nine-month period declined 1%.
Oil
Third quarter oil sales volumes declined 6% primarily because of natural
production decline, partially offset by new wells. Oil sales volumes were 6%
higher for the nine-month period, primarily because of the lag effect on cash
receipts in the trust's initial accounting period, which resulted in less than
eight full months of sales volumes in the first nine months of 1999. Average
daily oil sales volumes for the nine-month period declined 6% because of natural
production decline.
Sales Prices
Gas
The average gas price increased 78% for the third quarter and 40% for the
nine-month period. The third quarter 1999 average gas price of $2.01 per Mcf
approximated the actual average price before adjustment to provide the $2.00
minimum price contractually provided to unitholders for distributions declared
through March 2000. As of April 2000, there are no longer any minimum price
provisions. See Note 2 to the condensed financial statements. The 1999
year-to-date minimum price of $2.00 per Mcf exceeded the actual average price by
$0.22. The actual average gas price of $1.78 per Mcf for the nine-month period
reflects lower prices caused by high levels of gas in storage remaining from the
abnormally warm winter of 1998-1999. Gas prices began to increase in May 1999
and, after declining briefly at year end, have continued to strengthen in 2000.
Higher gas prices have been supported by both lower gas storage levels and
increased demand for power generation. Prices are expected to remain high as the
winter heating season approaches. On November 3, 2000, the average NYMEX price
for the following twelve months was $4.50 per MMBtu. The trust's recent average
gas price has been approximately $0.40 per MMBtu lower than the NYMEX price.
Oil
Average prices during 1999 reflect abnormally low prices resulting from excess
global supply. After OPEC members and other oil producers agreed to production
cuts in March 1999, oil prices climbed through the remainder of 1999 and first
quarter 2000. Despite OPEC production increases, increased demand has sustained
higher prices. In September 2000, when crude oil prices rose to their highest
level in 10 years, the average West Texas Intermediate ("WTI") posted price was
$30.86 per Bbl. The average WTI posted price for October 2000 was $29.96 per
Bbl. Recent trust oil prices have averaged approximately $2.50 higher than the
WTI posted price.
Costs
Total costs deducted in the calculation of royalty income increased 44% for the
third quarter and 35% for the nine-month period. Increased taxes, transportation
and other are the result of higher oil and gas prices, increased development
costs are related to projects in Oklahoma and Wyoming, and increased production
expense is primarily related to the timing of maintenance projects. Costs were
also lower in the nine-month
14
<PAGE>
1999 period because of the lag effect on cash disbursements in the trust's
initial accounting period, which resulted in the inclusion of only approximately
eight months of costs.
Forward Looking Statements
This report on Form 10-Q includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this Form 10-Q, including,
without limitation, statements contained in this "Trustee's Discussion and
Analysis" regarding the net profits interests and industry conditions, are
forward-looking statements. Although Cross Timbers believes that the
expectations reflected in such forward-looking statements are reasonable,
neither Cross Timbers nor the trustee can give any assurance that such
expectations will prove to be correct.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the trust's market risks, as disclosed in
the trust's Form 10-K for the year ended December 31, 1999.
15
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 5. Not applicable.
Item 6. (a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Number
and Description Page
--------------- ----
<S> <C>
(4) (a) Hugoton Royalty Trust Indenture by and between NationsBank, N.A. (now
Bank of America, N.A.), as trustee and Cross Timbers Oil Company
heretofore filed as Exhibit 4.1 to the trust's Registration Statement No. 333-
68441 on Form S-1 filed with the Securities and Exchange Commission on
December 4, 1998, is incorporated herein by reference.
(b) Net Overriding Royalty Conveyance (Hugoton Royalty Trust, 80% -
Kansas) as amended and restated from Cross Timbers Oil Company to
NationsBank, N.A. (now Bank of America, N.A.), as trustee, dated
December 1, 1998 heretofore filed as Exhibit 10.1.1 to Amendment No. 2
to the trust's Registration Statement No. 333-68441 on Form S-1 filed with
the Securities and Exchange Commission on March 16, 1999, is
incorporated herein by reference.
(c) Net Overriding Royalty Conveyance (Hugoton Royalty Trust, 80% -
Oklahoma) as amended and restated from Cross Timbers Oil Company to
NationsBank, N.A. (now Bank of America, N.A.), as trustee, dated
December 1, 1998, heretofore filed as Exhibit 10.2.1 to Amendment No. 2
to the trust's Registration Statement No. 333-68441 on Form S-1 filed with
the Securities and Exchange Commission on March 16, 1999, is
incorporated herein by reference.
(d) Net Overriding Royalty Conveyance (Hugoton Royalty Trust, 80% -
Wyoming) as amended and restated from Cross Timbers Oil Company to
NationsBank, N.A. (now Bank of America, N.A.), as trustee, dated
December 1, 1998, heretofore filed as Exhibit 10.3.1 to Amendment No. 2
to the trust's Registration Statement No. 333-68441 on Form S-1 filed with
the Securities and Exchange Commission on March 16, 1999, is
incorporated herein by reference.
(15) Awareness letter of Arthur Andersen LLP 18
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
16
<PAGE>
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.
HUGOTON ROYALTY TRUST
By BANK OF AMERICA, N.A., TRUSTEE
By RON E. HOOPER
--------------------------------------
Ron E. Hooper
Vice President
CROSS TIMBERS OIL COMPANY
Date: November 13, 2000 By LOUIS G. BALDWIN
--------------------------------------
Louis G. Baldwin
Executive Vice President and
Chief Financial Officer
17
