10-K: Cross Timbers Royalty Trust Reports 2025 Decline

Cross Timbers Royalty Trust reports a 13% decrease in 2025 net profits income to $5.74 million, driven by lower oil prices and production, despite higher gas prices.

Summary

• Net profits income for 2025 decreased by 13% to $5,738,240 compared to $6,563,177 in 2024.
• Underlying oil sales volumes decreased by 10% from 164,996 Bbls in 2024 to 148,068 Bbls in 2025.
• Underlying gas sales volumes decreased by 10% from 1,216,905 Mcf in 2024 to 1,099,910 Mcf in 2025.
• The average oil price for 2025 was $65.85 per Bbl, down 13% from $75.68 per Bbl in 2024.
• The average gas price for 2025 was $4.40 per Mcf, up 11% from $3.97 per Mcf in 2024.
• Total costs deducted in the calculation of net profits income decreased by 18% to $8.0 million in 2025 from $9.8 million in 2024.
• Distributable income per unit for 2025 was $0.748474, a decrease from $0.946303 in 2024.
• Cash and short-term investments increased to $2,133,676 at December 31, 2025, from $1,369,379 at December 31, 2024.
• The expense reserve was funded at $1,450,000 as of December 31, 2025, up from $1,000,000 in 2024.
• Remaining cumulative excess costs for the Texas working interest conveyance totaled $5.5 million ($4.1 million net to the Trust) at December 31, 2025.
• Proved reserves for the net profits interests at December 31, 2025, were estimated at 297 MBbls of oil and 9,431 MMCf of gas.
• The average reserve-to-production index for the underlying properties as of December 31, 2025, is approximately nine years.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative report due to significant declines in net profits income, distributable income per unit, and production volumes, despite some cost reductions and higher gas prices. The ongoing excess costs in Texas working interests and the depleting nature of assets add to the cautious outlook.

Positives

• Average gas prices increased by 11% to $4.40 per Mcf in 2025.
• Total costs deducted in net profits income calculation decreased by 18% year-over-year, primarily due to decreased development costs ($1.3 million), taxes, transportation, and other costs ($0.3 million), and production expenses ($0.2 million).
• Cash and short-term investments increased to $2,133,676 at year-end 2025.
• Excess costs on properties underlying the Oklahoma working interest conveyance were fully recovered in 2025.

Negatives

• Net profits income decreased by 13% in 2025 compared to 2024.
• Distributable income per unit decreased significantly from $0.946303 in 2024 to $0.748474 in 2025.
• Underlying oil sales volumes decreased by 10% and underlying gas sales volumes decreased by 10% in 2025.
• Average oil prices decreased by 13% to $65.85 per Bbl in 2025.
• The Texas working interest conveyance has remaining cumulative excess costs of $5.5 million ($4.1 million net to the Trust) at December 31, 2025, including $1.5 million in accrued interest.
• The Trust's assets are depleting, and a portion of each cash distribution should be considered a return of capital, which will ultimately diminish tax benefits and could reduce market value over time.

Risks

• The market price for Trust units may not reflect the value of the net profits interests held by the Trust.
• Current and future oil and natural gas prices fluctuate due to uncontrollable factors, and any decline will adversely affect the net proceeds payable to the Trust and Trust distributions.
• Higher production expense and/or development costs, without concurrent increases in revenue, will directly decrease the net proceeds payable to the Trust from the properties underlying the 75% net profits interests.
• Government action, policies, or regulations designed to discourage production, reduce demand for, or promote alternatives to oil and natural gas could impact prices and distributable income.
• War, terrorism, geopolitical hostilities, and other military actions or political instability could adversely affect Trust distributions or the market price of the Trust units.
• Proved reserve estimates depend on many assumptions that may turn out to be inaccurate, potentially overstating quantities and net present value of reserves.
• Operational risks and hazards associated with the development and operations of the underlying properties may decrease Trust distributions.
• The Trust may be subject to attempted cybersecurity disruptions from a variety of sources, including state-sponsored actors.
• Future net profits may be subject to risks relating to the creditworthiness of third parties (operators, purchasers of crude oil and natural gas).
• Trust unitholders and the Trustee have no influence over the operations on, or future development of, the underlying properties.
• The assets of the Trust represent interests in depleting assets, and if XTO Energy or other operators do not perform additional successful development projects, the assets may deplete faster than expected.
• XTO Energy may transfer its interest in the underlying properties without the consent of the Trust or the Trust unitholders.
• XTO Energy or any other operator of any underlying property may abandon the property, thereby terminating the related net profits interest payable to the Trust.
• The Trust will terminate if it fails to generate gross revenues of at least $1,000,000 per year over any successive two-year period, or if 80% or more of unitholders approve a sale of net profits interests or termination.
• The financial information of the Trust is not prepared in accordance with U.S. GAAP, which may differ from standard financial reporting.
• The limited liability of Trust unitholders is uncertain under Texas law, potentially exposing unitholders to personal liability for Trust liabilities.
• Drilling oil and natural gas wells is a high-risk activity, which can reduce net proceeds and Trust distributions.
• The underlying properties are subject to complex federal, state, and local laws and regulations that could adversely affect net proceeds payable to the Trust and Trust distributions.
• Cash held by the Trustee is not insured by the Federal Deposit Insurance Corporation, posing a risk of loss if the fund becomes insolvent.
• The tax treatment of an investment in Trust units could be affected by recent and potential legislative changes (e.g., TCJA, OBBBA), possibly on a retroactive basis.

Future Outlook

Oil prices are expected to remain volatile, with the average NYMEX price for the following 12 months at March 13, 2026, being $83.43 per Bbl, up from $59.29 per Bbl for November 2025 through January 2026. Natural gas prices are also expected to remain volatile, with the average NYMEX price for the following 12 months at March 13, 2026, being $3.84 per MMBtu, compared to $3.07 per MMBtu for the fourth quarter of 2025. The estimated rate of natural production decline on the underlying oil and gas properties is approximately 6 to 8 percent a year. XTO Energy has no plans to drill in the Hewitt Unit in 2026. Underlying budgeted development costs are projected to be approximately $0.09 million for 2026 and $0.08 million for 2027 ($0.07 million and $0.06 million, respectively, net to the Trust). The Trust expects to continue its exemption from Texas franchise tax as a passive entity, and costs are not expected to exceed revenues from the 90% net profits interests in the future.

Management Comments

• The Trustee has concluded that the Trust's disclosure controls and procedures were effective as of the end of the period covered by this annual report.
• The Trustee concluded that the Trust's internal control over financial reporting was effective as of December 31, 2025.
• XTO Energy has advised the Trustee that it has no plans to drill in 2026 (for the Hewitt Unit).
• XTO Energy has advised the Trustee that it does not believe that the ultimate resolution of these claims (legal proceedings) will have a material effect on the annual distributable income, financial position or liquidity of the Trust.
• XTO Energy has informed the Trustee that it continues to anticipate that sustainability policies will increase the cost of carbon dioxide emissions over time.

Industry Context

StockSavvy.ai notes that the Trust's performance is highly susceptible to commodity price volatility, a common characteristic of royalty trusts and the broader oil and gas industry. The decline in oil prices and production, despite an increase in gas prices, reflects the dynamic and often unpredictable nature of energy markets. The ongoing focus by local, national, and international regulatory bodies on greenhouse gas (GHG) emissions and sustainability regulations presents a long-term challenge for the industry, potentially increasing operating costs for the underlying properties and impacting net proceeds to the Trust.

Comparison to Industry Standards

• The average reserve-to-production index of approximately nine years for the underlying properties provides a benchmark for the longevity of the Trust's income stream, which can be compared to other royalty trusts or exploration and production (E&P) companies to assess relative asset life and depletion rates.
• The decline in oil production and the increasing proportion of net profits income derived from gas sales (51% in 2025 vs. 46% in 2024) suggest a potential shift in the Trust's underlying asset base or market dynamics, which could be compared to broader industry trends in oil vs. gas focus.
• The significant cumulative excess costs in the Texas working interest ($5.5 million underlying, $4.1 million net to Trust) highlight specific operational challenges or higher cost structures in that region, which may be less efficient than other basins or operators in the industry.

Management Changes

Corporate Governance

Legal Proceedings

• Certain of the underlying properties are involved in various lawsuits and governmental proceedings arising in the ordinary course of business. XTO Energy has advised the Trustee that it does not believe the ultimate resolution of these claims will have a material effect on the annual distributable income, financial position, or liquidity of the Trust.

Related Party Transactions

• The underlying properties from which the net profits interests were carved are currently owned by XTO Energy or other affiliated companies of ExxonMobil.
• Approximately 21 of the underlying royalty interests burden working interests in properties operated by XTO Energy.
• XTO Energy operates the Hewitt Unit, which is one of the properties underlying the Oklahoma 75% net profits interests.
• XTO Energy deducts an overhead charge for monitoring the 75% net profits interests, which was approximately $53,620 per month ($40,215 net to the Trust) at December 31, 2025.
• XTO Energy deducts a monthly overhead charge as operator of the Hewitt Unit, which was approximately $37,104 per month ($27,828 net to the Trust) at December 31, 2025.

Stakeholder Impact

• Shareholders (Unitholders): Will experience reduced distributions due to the 13% decrease in net profits income and lower distributable income per unit. They face potential personal liability due to the uncertain limited liability under Texas law and tax implications from recent legislative changes (OBBBA).
• XTO Energy/ExxonMobil: Continues to own and operate the underlying properties, responsible for production and development, and benefits from overhead charges deducted from net proceeds.
• Trustee (Argent Trust Company): Continues to manage the Trust's administrative functions, including distributions and cybersecurity oversight, and is compensated for these services.

Next Steps

• The Trustee will continue to make monthly cash distributions to unitholders, generally within ten business days after the monthly record date.
• Unit operators have reported underlying budgeted development costs of approximately $0.09 million for 2026 and $0.08 million for 2027 ($0.07 million and $0.06 million, respectively, net to the Trust).
• Unitholders are encouraged to consult their own tax advisor regarding the potential income tax consequences of the One Big Beautiful Bill Act (OBBBA), which contains multiple effective dates, with some provisions taking effect in 2025 and others phased in through 2027.

Key Dates

Recommendation

The Trust exhibits a clear pattern of declining net profits income and distributable income per unit, driven by lower oil prices and decreasing production volumes. While gas prices saw a modest increase, the overall trend is negative. The depleting nature of the assets, coupled with significant unrecovered excess costs in the Texas working interest, indicates a diminishing asset base and ongoing operational challenges. The lack of control for unitholders over operations and the inherent volatility of commodity prices further compound the risks. Given these factors, a seasoned investor would likely recommend selling to avoid further capital erosion from a declining asset base and uncertain future distributions.

Keywords

Cross Timbers Royalty Trust, CRT, Oil and Gas, Royalty Trust, Energy, SEC Filing, 10-K, Financial Results, Net Profits Interest, Oil Production, Gas Production, Distributions, XTO Energy, ExxonMobil, Proved Reserves, Texas, Oklahoma, New Mexico, Commodity Prices, Depleting Assets