Production Expense
Production expense increased 8% for the first quarter primarily because of higher labor costs due to timing of charges, partially offset by decreased repairs
and maintenance due to credits received for material transfers.
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 decreased 99% from the first quarter 2019, primarily due to the decrease in the development budget for the drilling of four horizontal wells in Major County, Oklahoma, completed in 2019. 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 54% for the first
quarter due to timing of charges. Overhead is charged by XTO Energy and other operators 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 March 31, 2020 totaled $28.1 million ($22.5 million NPI), including
accrued interest of $1.4 million ($1.1 million NPI). For further information on excess costs, see Note 5 to Condensed Financial Statements.
Contingencies
For information on contingencies, see Note
4 to Condensed Financial Statements.
Forward-Looking Statements
Statements in this report relating to future plans, predictions, production, excess costs, litigation, arbitration, liquidity, financing, regulatory or court
decisions and the assumed public health necessary to carry out business activities 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, estimated rates of natural production decline, monthly
development cost deductions, oil and gas prices and differentials to NYMEX prices, supply levels, drilling, workover and restimulation 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, 2019, 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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