Company: MTR
Filing Date: 2025-03-31
Form Type: 10-K
Source: 0001104659-25-029944
Chunk: 29

Company: MESA ROYALTY TRUST/TX
Filing Date: 2025-03-31
Form: 10-K
Item: Item 1A
Chunk 29
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 prices. To the extent prices are determined by fixed price contracts, any increases in spot prices may not result in a corresponding increase in Net Proceeds received by the Trust or in the amount of cash available to pay cash distributions to unitholders.

Increased production and development costs for the Royalty have resulted in substantial accumulated excess production costs, which will result in decreased Trust distributions, and in some periods may result in no Trust distributions.

Production and development costs attributable to the Royalty are deducted in the calculation of the Trust’s share of Net Proceeds. Production and development costs are impacted by increases in commodity prices both directly, through commodity-price dependent costs such as electricity, and indirectly, as a result of demand-driven increases in costs of oil field goods and services. Accordingly, higher or lower production and development costs, without concurrent increases in revenues, directly decrease or increase the amount received by the Trust for the Royalty.

If development and production costs of the Royalty exceed the proceeds of production from the Royalty Properties, the Trust will not receive Net Proceeds for those properties until future proceeds from production exceed the total of the excess costs plus accrued interest during the deficit period. Development activities may not generate sufficient additional revenue to repay the costs. Accordingly, there may not be sufficient Net Proceeds to make a particular distribution.

Total excess production costs increased to $793,838 at December 31, 2024 from $260,731 at December 31, 2023, as reported by the Working Interest Owners. Please see Note 5  -   Excess Production Costs in the Notes to Financial Statements under Item 8 of this Form 10-K.

Trust assets are depleting assets and, if the Working Interest Owners or other operators of the Royalty Properties do not perform additional development projects, the assets may deplete faster than expected.

The Net Proceeds payable to the Trust are derived from the sale of depleting assets. Accordingly, the portion of the distributions to unitholders attributable to depletion may be considered a return of capital. Future maintenance and development projects on the Royalty Properties will affect the quantity of proved reserves. The timing and size of any such projects will depend on the market prices of natural gas, and, if undertaken, such projects will result in added costs that will reduce Net Proceeds payable to the Trust. If the Working Interest Owners do not implement additional maintenance and development projects, the future rate of production decline of proved reserves may be higher than the rate currently expected by the Trust. For federal income tax purposes