Overview of Financial Performance

The Hugoton Royalty Trust (the “Trust”) reported net profits income of $0 in 2024, compared to $11,467,914 in 2023. This significant decline was primarily due to lower oil and gas prices, decreased production volumes, and increased costs.

Revenue and Profit Trends

The Trust’s revenue is derived from its net profits interests in oil and gas properties located in Kansas, Oklahoma, and Wyoming. Key factors affecting the Trust’s net profits income include:

Sales Volumes

• Underlying gas sales volumes decreased 12% from 2023 to 2024 due to timing of cash receipts, increased downtime, and natural production decline.
• Underlying oil sales volumes decreased 11% from 2023 to 2024 due to timing of cash receipts and natural production decline.

Prices

• The average gas price fell 43% from $5.18/Mcf in 2023 to $2.94/Mcf in 2024, driven by lower North American production, reduced demand, and increased storage levels.
• The average oil price decreased 3% from $75.88/Bbl in 2023 to $73.89/Bbl in 2024, reflecting ongoing market volatility.

Costs

• Taxes, transportation and other costs decreased 34% from 2023 to 2024 due to lower production taxes and gas deductions.
• Production expenses increased 14% due to higher labor, settlement, and pipeline costs.
• Development costs decreased 78% due to timing of drilling activities.
• Overhead costs declined 5% due to changes in active well count and drilling activity.

The Trust also recorded $355,110 in other proceeds in 2024 related to interest received on past due payments.

In the fourth quarter of 2024, net profits income was $0, the same as Q4 2023. Key drivers were decreased production volumes, lower prices, and increased development costs, partially offset by reduced costs in other areas.

Strengths and Weaknesses

The Trust’s primary strengths are:

• Diversified portfolio of oil and gas properties across three states
• Ability to pass through costs to the net profits interests
• Experienced operator in XTO Energy

However, the Trust faces several weaknesses:

• Declining production volumes due to natural decline
• Exposure to volatile commodity prices
• Accumulating excess costs that reduce distributable income
• Potential for increased operating costs due to sustainability regulations

Outlook and Going Concern

The Trust’s financial statements raise substantial doubt about its ability to continue as a going concern. The Trustee has projected the Trust’s cash reserves will be depleted in the second quarter of 2025, after which it may be unable to continue SEC reporting, provide audited financials, or make distributions.

Key factors contributing to the Trust’s liquidity challenges include:

• Insufficient net proceeds to cover Trust expenses due to excess costs
• Lower oil and gas prices
• Costs to drill non-operated wells in Oklahoma

The Trustee has reviewed options to address the Trust’s financial situation, including seeking financing, marketing the Trust’s assets for sale, and potentially terminating the Trust. However, the Trustee believes financing is unlikely to be viable, and a sale of assets may not generate enough proceeds to distribute to unitholders after obligations are met.

The Trustee has also notified XTO Energy of a claim for indemnification, but XTO Energy has stated any such claim is premature. XTO Energy has no plans to provide additional financing or credit to the Trust.

Overall, the Trust faces an uncertain future, with the potential for the depletion of its cash reserves and the inability to continue operations in the next year. Unitholders should closely monitor developments and consider the risks in holding Trust units.