Development Costs
Development costs deducted are based on the current level of development expenditures, budgeted future development costs and the cumulative actual costs under
(over) previous deductions. These development costs increased 994% for the second quarter and 517% for the
six-month
period. The monthly development cost deduction will be reevaluated by XTO Energy and revised
as necessary. For further information on development costs, see Note 2 to Condensed Financial Statements.
Overhead
Overhead increased 1% for the quarter and 2% for the
six-month
period. Overhead is charged by XTO Energy for
administrative expenses incurred to support operations of the underlying properties. Overhead fluctuates based on changes in the active well count and drilling activity on the underlying properties, as well as an annual cost level adjustment based
on an industry index.
Excess Costs
If monthly costs
exceed revenues for any conveyance, these excess costs must be recovered, with accrued interest, from future net proceeds of that conveyance and cannot reduce net profits income from another conveyance. Underlying cumulative excess costs for the
Kansas, Oklahoma and Wyoming conveyances remaining as of June 30, 2018 totaled $6.2 million ($4.9 million NPI), including accrued interest of $0.1 million ($0.1 million NPI). For further information on excess costs, see Note
5 to Condensed Financial Statements.
Marketing
XTO
Energy has advised the Trustee that, effective April 1, 2017, Cross Timbers Energy Services, Inc. (CTES), a wholly owned marketing subsidiary of XTO Energy, has assigned all gas sales contracts for production from the underlying
properties to XTO Energy. XTO Energy sells gas directly to third parties. XTO Energy has advised the Trustee that there are no changes to the terms of the contracts related to the assignment and no impact on Trust distributions.
For further information regarding natural gas sales from the underlying properties to affiliates of XTO Energy, see Significant Properties, under Item 2,
Properties and Note 7 to the Financial Statements under Item 8, Financial Statements and Supplementary Data of the Trusts Annual Report on Form
10-K
for the year ended December 31, 2017.
Contingencies
For information on contingencies, see Note
4 to Condensed Financial Statements.
Forward-Looking Statements
Statements in this report relating to future plans, predictions, events, or regulatory or court decisions are forward-looking statements. All statements other
than statements of historical fact included in this Form
10-Q,
including, without limitation, statements regarding the net profits interests, underlying properties, development activities, annual and monthly
development, production and other costs and expenses, monthly development cost deductions, oil and gas prices and differentials to NYMEX prices, supply levels, drilling, workover and
re-stimulation
plans, the
outcome of litigation or settlement discussions and the impact on Trust proceeds, distributions to unitholders, and industry and market conditions, are forward-looking statements that are subject to risks and uncertainties, including those detailed
in Part I, Item 1A of the Trusts Annual Report on Form
10-K
for the year ended December 31, 2017, which is incorporated by this reference as though fully set forth herein. XTO Energy and the Trustee
assume no duty to update these statements as of any future date.
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