10-Q: Cross Timbers Royalty Trust Q1 2026 Earnings Decline

Cross Timbers Royalty Trust reports a significant decrease in distributable income for Q1 2026 due to lower production volumes and oil prices, alongside increased operating costs.

Summary

• Cross Timbers Royalty Trust reported a substantial decrease in distributable income for the first quarter ended March 31, 2026, compared to the same period in 2025.
• Net profits income fell by 62% to $774,181 from $2,053,394, primarily driven by decreased oil and gas production and lower oil prices.
• Distributable income for Q1 2026 was $503,406, or $0.083901 per unit, a significant drop from $1,783,938, or $0.297323 per unit in Q1 2025.
• Administration expenses decreased by $47,021 year-over-year.
• The Trust's net profits interests in oil and gas properties were valued at $2,125,206 as of March 31, 2026.
• Cumulative excess costs remaining to be recovered, including accrued interest, totaled $6.7 million for Texas and Oklahoma working interests as of March 31, 2026.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as negative due to the significant decrease in income and distributions, driven by unfavorable commodity prices and production declines, despite some cost efficiencies.

Positives

• Average gas sales price increased by 3% to $4.25 per Mcf.
• Taxes, transportation, and other costs decreased by 36% due to lower severance taxes and gas deductions.
• Development costs decreased significantly by 101% due to the absence of recompletion costs.
• Administration expenses decreased by $47,021 compared to the prior year quarter.
• The Trust is exempt from Texas franchise tax as a passive entity.

Negatives

• Net profits income decreased by 62% to $774,181 from $2,053,394.
• Distributable income per unit dropped to $0.083901 from $0.297323.
• Oil sales volumes decreased by 37%.
• Gas sales volumes decreased by 38%.
• Average oil price decreased by 20% to $56.65 per Bbl.
• Production expense increased by 52% due to higher overhead and power/fuel costs.
• Cumulative excess costs, including interest, to be recovered stand at $6.7 million for Texas and Oklahoma working interests.

Risks

• The markets for crude oil and natural gas have a history of significant price volatility.
• Future financial and operational results may differ materially from expectations due to various risks and uncertainties.
• Potential changes in state regulations could impact tax withholding requirements.
• The Trust's net profits interests are subject to commodity pricing fluctuations and production declines.
• Excess costs on certain conveyances must be recovered from future net proceeds, impacting cash flow.

Future Outlook

The filing does not contain specific forward-looking statements or guidance regarding future financial performance. However, it notes that the rate of natural production decline on the underlying oil and gas properties is estimated to be approximately 6 to 8 percent a year. The Trust also acknowledges the inherent volatility in oil and gas prices and the potential impact of economic downturns, government policy, and alternative energy sources on future operations.

Management Comments

• The Trustee believes that the disclosures are adequate to make the information presented not misleading.
• Distributable income for such interim periods is not necessarily indicative of the distributable income for the full year.
• The Trustee does not view temporarily low prices as an indication of impairment for net profits interests.
• The Trustee concluded that the Trusts disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed.

Industry Context

StockSavvy.ai notes that the significant decline in distributable income for Cross Timbers Royalty Trust is consistent with broader industry trends facing oil and gas royalty trusts, characterized by volatile commodity prices, declining production from mature fields, and increasing operational costs. The trust's reliance on XTO Energy (a subsidiary of ExxonMobil) for operational data and cost deductions highlights the interconnectedness within the energy sector.

Comparison to Industry Standards

• The filing does not provide direct comparisons to specific industry benchmarks or competitor results. However, the reported 6-8% annual natural production decline rate is a common metric for mature oil and gas fields.
• The 20% decrease in average oil prices and 3% increase in average gas prices reflect broader market conditions, though specific comparisons to industry averages for the period are not detailed.
• The increase in production expense (52%) due to overhead and fuel costs, while partially offset by decreased repairs, is a trend observed across the energy sector as operational expenditures rise.

Related Party Transactions

• XTO Energy deducts an overhead charge as reimbursement for costs associated with monitoring the 75% net profits interests, amounting to $53,620 per month as of March 31, 2026.
• XTO Energy deducts a monthly overhead charge for administrative expenses as operator of the Hewitt Unit, one of the properties underlying the Oklahoma 75% net profits interests, amounting to approximately $36,090 per month as of March 31, 2026.

Stakeholder Impact

• Unitholders will experience a significant reduction in distributions for the quarter due to lower net profits income.
• The Trustee's ability to manage administrative functions and meet reporting obligations is supported by administration expenses and the expense reserve.

Next Steps

• Unitholders are encouraged to consult their tax advisors regarding the potential income tax consequences of the One Big Beautiful Bill Act (OBBBA).
• The Trustee will continue to review net profits interests for impairment whenever events or circumstances indicate that the carrying value may not be recoverable.
• The Trust will continue to file required reports with the SEC.

Key Dates

Recommendation

While the results are significantly worse than the prior year, the filing reflects market conditions and operational realities for a mature royalty trust. The current distribution level, though reduced, still provides some income. Investors should monitor commodity prices and production trends. A 'hold' recommendation is appropriate given the lack of significant positive catalysts and the current negative financial performance.

Keywords

Cross Timbers Royalty Trust, 10-Q, Quarterly Report, Net Profits Income, Distributable Income, Oil and Gas, Royalty Trust, XTO Energy, ExxonMobil, Financial Statements, SEC Filing