UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 15, 2019
HUGOTON ROYALTY TRUST
(Exact Name of Registrant as Specified in Its Charter)
Texas
(State or Other Jurisdiction of Incorporation)
| 1-10476 | 58-6379215 | |
| (Commission File Number) | (IRS Employer Identification No.) | |
| Simmons Bank Trustee 2911 Turtle Creek Blvd, Suite 850 Dallas, Texas |
75219 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(855) 588-7839
(Registrant’s Telephone Number, Including Area Code)
NONE
(Former Name or Former Address, if Changed Since Last Report)
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02. | Results of Operations and Financial Condition. |
On February 15, 2019, the Registrant issued a news release announcing that it will not declare a monthly cash distribution for the month of February 2019. A copy of the news release is furnished as Exhibit 99.1.
The information in this Current Report, including the news release attached hereto, is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities of that Section.
| Item 9.01. | Financial Statements and Exhibits. |
| (d) | Exhibits. |
| Exhibit 99.1 | News Release dated February 15, 2019 |
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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 hereunto duly authorized.
| HUGOTON ROYALTY TRUST
By: SIMMONS BANK, TRUSTEE | ||||||
| Date: February 15, 2019 | By: | /s/ NANCY WILLIS | ||||
| Nancy Willis | ||||||
| Vice President | ||||||
| EXXON MOBIL CORPORATION | ||||||
| By: | /s/ DAVID LEVY | |||||
| David Levy | ||||||
| Vice President – Upstream Business Services | ||||||
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EXHIBIT 99.1
[NEWS RELEASE LETTERHEAD OF HUGOTON ROYALTY TRUST APPEARS HERE]
HUGOTON ROYALTY TRUST
DECLARES NO FEBRUARY CASH DISTRIBUTION
Dallas, Texas, February 15, 2019 – Simmons Bank, as Trustee of the Hugoton Royalty Trust (OTCQX:HGTXU) (the “Trust”), today declared there would not be a cash distribution to the holders of its units of beneficial interest for February 2019 due to the excess cost positions on all three of the Trust’s conveyances of net profits interests. The following table shows underlying gas sales and average prices attributable to the net overriding royalty for both the current month and prior month. Underlying gas sales volumes attributable to the current month were primarily produced in December.
| Underlying Gas Sales Volumes (Mcf) (a) |
Average Gas Price per Mcf |
|||||||||||
| Total | Daily | |||||||||||
| Current Month |
914,000 | 29,000 | $ | 5.50 | ||||||||
| Prior Month |
1,079,000 | 36,000 | $ | 2.74 | ||||||||
| (a) | Sales volumes are recorded in the month the Trust receives the related net profits income. Because of this, sales volumes may fluctuate from month to month based on the timing of cash receipts. |
XTO Energy has advised the Trustee that it has deducted budgeted development costs of $2,825,000, production expense of $820,000 and overhead of $1,000 in determining the royalty calculation for the Trust for the current month.
Litigation and Arbitration Proceedings—Chieftain
As previously disclosed, XTO Energy advised the Trustee that it reached a settlement with the plaintiffs in the Chieftain class action royalty case. On July 27, 2018 the final plan of allocation was approved by the court. Based on the final plan of allocation XTO Energy has advised the Trustee that it believes approximately $24.3 million in additional production costs should be allocated to the Trust. On May 2, 2018, the Trustee submitted a demand for arbitration styled Simmons Bank (successor to Southwest Bank and Bank of America, N.A.) vs. XTO Energy Inc. (the “Arbitration”) through the American Arbitration Association seeking a declaratory judgment that the Chieftain settlement is not a production cost and that XTO Energy is prohibited from charging the settlement as a production cost under the conveyance or otherwise reducing the Trust’s payments now or in the future as a result of the Chieftain litigation. In the Arbitration, the Trustee also made claims for disputed amounts on the computation of the Trust’s net proceeds for 2014 through 2016 in excess of $5 million. The hearing on the claims related to the Chieftain settlement are tentatively scheduled for October 7, 2019, which will allow adequate time to complete discovery. The remaining claims related to the computation of the Trust’s net proceeds were bifurcated and will be heard at a later date, which is still to be determined.
If the approximately $24.3 million allocated portion of the Chieftain settlement results in an adjustment to the Trust’s share of net proceeds, it would result in additional excess costs under the Oklahoma conveyance that would likely result in no distributions under the Oklahoma conveyance for several years while these additional excess costs are recovered.
Excess Costs
XTO Energy has advised the Trustee that $209,000 of excess costs was recovered on properties underlying the Kansas net profits interests primarily due to improved gas prices and lower operating expenses. However, after the partial recovery, there were no remaining proceeds from the properties underlying the Kansas net profits interests to be included in the current month’s distribution. Underlying cumulative excess costs remaining on the Kansas net profits interests total $959,000, including accrued interest of $172,000.
XTO Energy has advised the Trustee that excess costs increased by $449,000 on properties underlying the Oklahoma net profits interests primarily due to budgeted development costs, partially offset by improved gas prices and lower operating expenses. Underlying cumulative excess costs remaining on the Oklahoma net profits interests total $18,202,000, including accrued interest of $0. XTO has advised the Trustee that it has determined not to accrue interest on the Oklahoma excess costs balance at this time.
XTO Energy has advised the Trustee that $1,288,000 of excess costs was recovered on properties underlying the Wyoming net profits interests primarily due to improved gas prices and lower operating expenses. However, after the partial recovery, there were no remaining proceeds from the properties underlying the Wyoming net profits interests to be included in the current month’s distribution. Underlying cumulative excess costs remaining on the Wyoming net profits interests total $147,000, including accrued interest of $38,000.
For more information on the Trust, please visit our web site at www.hgt-hugoton.com.
Statements made in this press release regarding future events or conditions are forward looking statements. Actual future results, including development costs and future net profits, could differ materially due to changes in natural gas prices and other economic conditions affecting the gas industry and other factors described in Part I, Item 1A of the Trust’s Annual Report on Form 10-K for the year ended December 31, 2017 and Part II, Item 1A of the Trust’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.
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| Contact: | Nancy Willis Vice President Simmons Bank, Trustee 855-588-7839 |