10-Q: Cross Timbers Royalty Trust Q2 2026 Earnings Decline

Cross Timbers Royalty Trust reports a 16% decrease in net profits income for Q2 2026 compared to Q2 2025, impacting distributable income per unit.

Summary

• Cross Timbers Royalty Trust (CRT) filed its Form 10-Q for the quarterly period ended June 30, 2026.
• Net profits income for the second quarter of 2026 was $1,088,155, a 16% decrease from $1,293,766 in the second quarter of 2025.
• Distributable income for Q2 2026 was $861,180, or $0.143530 per unit, down from $892,548, or $0.148758 per unit in Q2 2025.
• For the first six months of 2026, net profits income decreased by 44% to $1,862,336 compared to $3,347,160 in the same period of 2025.
• Distributable income for the first six months of 2026 was $1,364,586, or $0.227431 per unit, a significant decrease from $2,676,486, or $0.446081 per unit in the first six months of 2025.
• The decrease in net profits income is attributed to net excess costs, lower gas prices, and decreased gas production, partially offset by higher oil prices, decreased production expenses, and increased oil production.
• Cumulative excess costs remaining for Texas and Oklahoma working interest conveyances totaled $6.8 million as of June 30, 2026, including $1.7 million in accrued interest.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative sentiment due to a significant decrease in net profits income and distributable income compared to the prior year, driven by lower production volumes and prices, despite some offsetting factors.

Positives

• Oil sales volumes increased by 2% for the second quarter compared to the prior year, primarily due to the timing of cash receipts.
• Oil prices increased by 7% in the second quarter to $71.54 per Bbl.
• Production expenses decreased by 5% for the second quarter, mainly due to reduced repairs and maintenance.
• The Trust continues to be exempt from Texas franchise tax as a passive entity.

Negatives

• Net profits income for Q2 2026 decreased by 16% to $1,088,155 compared to Q2 2025.
• Distributable income per unit for Q2 2026 decreased to $0.143530 from $0.148758 in Q2 2025.
• Net profits income for the first six months of 2026 decreased by 44% to $1,862,336 compared to the same period in 2025.
• Distributable income per unit for the first six months of 2026 decreased to $0.227431 from $0.446081 in the same period of 2025.
• Gas sales volumes decreased by 10% for the second quarter and 26% for the six-month period.
• Gas prices decreased by 14% for the second quarter and 4% for the six-month period.
• Cumulative excess costs remaining for Texas and Oklahoma working interests, including interest, totaled $6.8 million as of June 30, 2026.

Risks

• The markets for crude oil and natural gas have a history of significant price volatility.
• Future net cash flows are subject to risks including development activities, future production, regulatory and other costs, oil and gas prices, and supply and demand dynamics.
• Inflation and economic downturns could impact economic activity and oil and gas prices.
• Government policy and actions, including environmental and climate policy, could affect operations.
• Competition from alternative energy sources.
• Potential for litigation and political or regulatory matters.
• The estimated rate of natural production decline on the underlying oil and gas properties is approximately 6 to 8 percent a year.

Future Outlook

Forward-looking statements in the filing discuss potential future events and conditions related to the Trust's operations, the underlying properties, and the oil and gas industry. These include projections on development activities, future production, net cash flows, costs, commodity prices, supply and demand, and the impact of economic and geopolitical factors. However, actual results may differ materially from these projections due to various risks and uncertainties.

Management Comments

• The Trustee believes that the disclosures are adequate to make the information presented not misleading.
• 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.

Industry Context

StockSavvy.ai notes that the performance of Cross Timbers Royalty Trust is highly sensitive to fluctuations in oil and gas prices and production volumes, which are characteristic of the upstream oil and gas sector. The reported decline in income reflects broader industry pressures from price volatility and production challenges.

Comparison to Industry Standards

• The filing does not provide direct comparisons to specific industry benchmarks or competitor results.
• The discussion of production decline rates (6-8% annually) is a common metric within the oil and gas industry for mature fields.
• The Trust operates on a modified cash basis, which is a permitted accounting method for royalty trusts by the SEC, differing from the accrual basis typically used by larger, publicly traded oil and gas companies.

Related Party Transactions

• XTO Energy deducts an overhead charge as reimbursement for costs associated with monitoring the 75% net profits interests, which was $53,459 per month as of June 30, 2026.
• XTO Energy also deducted a monthly overhead charge of approximately $35,392 for administrative expenses while it was the operator of the Hewitt Unit.

Stakeholder Impact

• Unitholders will receive lower distributions due to the decrease in distributable income.
• The value of units may be negatively impacted by the decline in financial performance and ongoing excess costs.
• Unitholders may have tax implications related to the One Big Beautiful Bill Act (OBBBA) and state income taxes.

Next Steps

• Continue to monitor net profits income, production volumes, and commodity prices.
• Evaluate the impact of excess costs and accrued interest on future distributions.
• Unitholders are advised to consult their tax advisors regarding the impact of the One Big Beautiful Bill Act (OBBBA) and state tax requirements.

Key Dates

Recommendation

The filing indicates a significant decline in financial performance for the period, with lower net profits income and distributable income per unit. While there are some positive operational metrics like increased oil production and prices in the quarter, the overall trend and persistent excess costs suggest a cautious approach. The recommendation is 'hold' as the current performance is weaker than expected, but the underlying assets and potential for price recovery warrant not selling.

Keywords

Royalty Trust, Net Profits Interests, Oil and Gas, Production, Distributable Income, Commodity Prices, Excess Costs, Trust Corpus