UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549










FORM 10-Q










x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



for the quarterly period ended March 31,
2020



OR



 ̈ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



for the transition period from                       to

Commission File Number: 001-35160










VOC ENERGY TRUST

(Exact name of registrant as specified in
its charter)



|Delaware                                                       |  | 80-6183103                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|The Bank of New York Mellon Trust Company, N.A., Trustee |  |           
|-------------------------------------------------------- |  | ----------
|Global Corporate Trust                                   |  |           
|601 Travis Street, Floor 16                              |  |           
|Houston, Texas                                           |  | 77002     
|(Address of principal executive offices)                 |  | (Zip Code)



1-512-236-6599

(Registrant’s telephone number, including
area code)










Securities registered pursuant to Section 12(b) of
the Act:



|Title of each class          |  | Trading Symbol(s) |  | Name of each exchange on which registered
|---------------------------- |  | ----------------- |  | -----------------------------------------
|Units of Beneficial Interest |  | VOC               |  | The New York Stock Exchange              



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No  ̈



Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes ̈ No  ̈



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.



|Large accelerated filer ̈ |  | Accelerated filer ̈        
|------------------------ |  | --------------------------
|                         |  |                           
|Non-accelerated filerx   |  | Smaller reporting companyx
|                         |  |                           
|                         |  | Emerging growth company ̈  



If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ̈



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ̈ No x



As of May 11, 2020, 17,000,000 Units
of Beneficial Interest in VOC Energy Trust were outstanding.
























PART I—FINANCIAL INFORMATION



Item 1. Financial Statements.



VOC ENERGY TRUST

CONDENSED STATEMENTS OF DISTRIBUTABLE
INCOME

(Unaudited)



|                                                                                                        |  | Three months ended March 31, |          
|------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------
|                                                                                                        |  | 2020                         |          
|Income from net profits interest                                                                        |  | $                            | 2,073,260
|Cash on hand used for Trust expenses                                                                    |  |                              | 87,198   
|General and administrative expenses (1)                                                                 |  |                              | (290,458 
|Distributable income                                                                                    |  | $                            | 1,870,000
|Distributions per Trust unit (17,000,000 Trust units issued and outstanding at March 31, 2020 and 2019) |  | $                            | 0.110    








| | (1) | Includes $51,320 and $24,675 paid to VOC Brazos Energy Partners, LP (“VOC Brazos”) during the three months ended
March 31, 2020 and 2019, respectively, and $37,500 paid to The Bank of New York Mellon Trust Company, N.A. during each of
the three months ended March 31, 2020 and 2019.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



CONDENSED STATEMENTS OF ASSETS AND TRUST
CORPUS

(Unaudited)



|                                                                                                    |  | March 31, 2020 |              |   | December 31, 2019 |  
|--------------------------------------------------------------------------------------------------- |  | -------------- | ------------ | - | ----------------- | -
|ASSETS                                                                                              |  |                |              |   |                   |  
|Cash and cash equivalents                                                                           |  | $              | 238,934      |   |                   | $
|Investment in net profits interest                                                                  |  |                | 140,591,606  |   |                   |  
|Accumulated amortization and impairment                                                             |  |                | (120,300,922 | ) |                   |  
|Total assets                                                                                        |  | $              | 20,529,618   |   |                   | $
|                                                                                                    |  |                |              |   |                   |  
|TRUST CORPUS                                                                                        |  |                |              |   |                   |  
|Trust corpus, 17,000,000 Trust units issued and outstanding at March 31, 2020 and December 31, 2019 |  | $              | 20,529,618   |   |                   | $



CONDENSED STATEMENTS OF CHANGES IN TRUST
CORPUS

(Unaudited)



|                                                                                          |  | Three months ended March 31, |            
|----------------------------------------------------------------------------------------- |  | ---------------------------- | -----------
|                                                                                          |  | 2020                         |            
|Trust corpus, beginning of period                                                         |  | $                            | 63,345,900 
|Income from net profits interest                                                          |  |                              | 2,073,260  
|Cash distribution                                                                         |  |                              | (1,870,000 
|Trust expenses                                                                            |  |                              | (290,458   
|Amortization of net profits interest (includes impairment expense of $41,261,354 in 2020) |  |                              | (42,729,084
|Trust corpus, end of period                                                               |  | $                            | 20,529,618 



The accompanying notes are an integral part
of these condensed financial statements.





1







VOC ENERGY TRUST



NOTES TO CONDENSED FINANCIAL STATEMENTS



(Unaudited)



Note 1. Organization of the Trust



VOC Energy Trust (the “Trust”)
is a statutory trust formed on November 3, 2010 (capitalized on December 17, 2010), under the Delaware Statutory Trust
Act pursuant to a Trust Agreement dated November 3, 2010 (as amended and restated on May 10, 2011, the “Trust Agreement”)
among VOC Brazos Energy Partners, L.P., a Texas limited partnership (“VOC Brazos”), as trustor, The Bank of New York
Mellon Trust Company, N.A., as Trustee (the “Trustee”), and Wilmington Trust Company, as Delaware Trustee (the “Delaware
Trustee”). The Trust was created to acquire and hold a term net profits interest for the benefit of the Trust unitholders.



VOC Brazos is a privately held limited
partnership engaged in the production and development of oil and natural gas from properties located in Texas. VOC Kansas Energy
Partners, L.L.C., a Kansas limited liability company (“VOC Kansas”), is a privately held limited liability company
engaged in the production and development of oil and natural gas from properties primarily located in Kansas along with a limited
number of Texas properties. In connection with the closing of the initial public offering of units of beneficial interest in the
Trust (“Trust Units”) in May 2011, VOC Brazos acquired all of the membership interests in VOC Kansas in exchange
for newly issued limited partner interests in VOC Brazos pursuant to a Contribution and Exchange Agreement, dated August 30,
2010, as amended, by and between VOC Brazos and VOC Kansas. This resulted in VOC Kansas becoming a wholly-owned subsidiary of VOC
Brazos.



In connection with the May 2011 closing
of the initial public offering and in exchange for 17,000,000 Trust Units, VOC Brazos and VOC Kansas conveyed a term net profits
interest representing the right to receive 80% of the net proceeds (calculated as described below in Note 6) from production from
the underlying properties (as defined below) (the “net profits interest”). The net profits interest consists of net
interests in all of the oil and natural gas properties held by VOC Brazos and VOC Kansas in the states of Kansas and Texas as of
the date of the conveyance of the net profits interest to the Trust. We refer to the properties in which the Trust holds the net
profits interest as the “underlying properties.”



The net profits interest is passive in
nature, and the Trustee has no management control over and no responsibility relating to the operation of the underlying properties.
The net profits interest entitles the Trust to receive 80% of the net proceeds attributable to VOC Brazos’ interest from
the sale of production from the underlying properties during the term of the Trust. The net profits interest will terminate on
the later to occur of (1) December 31, 2030 or (2) the time when 10.6 million barrels of oil equivalent (“MMBoe”)
(which is the equivalent of 8.5 MMBoe in respect of the net profits interest) have been produced from the underlying properties
and sold, and the Trust will soon thereafter wind up its affairs and terminate.



The Trustee can authorize the Trust to
borrow money to pay administrative or incidental expenses of the Trust that exceed cash held by the Trust. The Trustee may authorize
the Trust to borrow from the Trustee or the Delaware Trustee as a lender provided the terms of the loan are similar to the terms
it would grant to a similarly situated commercial customer with whom it did not have a fiduciary relationship. The Trustee may
also deposit funds awaiting distribution in an account with itself and make other short-term investments with the funds distributed
to the Trust.



Note 2. Basis of Presentation



The accompanying Condensed Statements of
Assets and Trust Corpus as of December 31, 2019, which has been derived from audited financial statements, and the unaudited
interim condensed financial statements as of March 31, 2020 and for the three-month periods ended March 31, 2020 and
March 31, 2019, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the
 “SEC”). Accordingly, certain information and note disclosures normally included in annual financial statements have
been condensed or omitted pursuant to those rules and regulations.



The preparation of financial statements
requires the Trust to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. The Trustee believes such information includes all
the disclosures necessary to make the information presented not misleading. The information furnished reflects all adjustments
that are, in the opinion of the Trustee, necessary for a fair presentation of the results of the interim period presented. The
financial information should be read in conjunction with the financial statements and notes thereto included in the Trust’s
Annual Report on Form 10-K for the year ended December 31, 2019.





2







Note 3.Trust Accounting Policies



The Trust uses the modified cash basis
of accounting to report receipts of the term net profits interest and payments of expenses incurred. The term net profits interest
represents the right to receive revenues (oil and natural gas sales), less direct operating expenses (lease operating expenses,
lease maintenance, lease overhead, and production and property taxes) and an adjustment for lease equipment costs and lease development
expenses (which are capitalized in financial statements prepared in accordance with accounting principles generally accepted in
the United States of America (“U.S. GAAP”)) of the underlying properties, times 80%. Actual cash receipts may vary
due to timing delays of actual cash receipts from the property operators or purchasers and due to wellhead and pipeline volume
balancing agreements or practices. The actual cash distributions of the Trust will be made based on the terms of the conveyance
creating the Trust’s net profits interest. Expenses of the Trust, which include accounting, engineering, legal and other
professional fees, Trustee fees, an administrative fee paid to VOC Brazos and out-of-pocket expenses, are recognized when paid.
Under U.S. GAAP, revenues and expenses would be recognized on an accrual basis. Amortization of the investment in net profits interest
is recorded on a unit-of-production method in the period in which the cash is received with respect to such production. Such amortization
does not reduce distributable income, rather it is charged directly to Trust corpus.



This comprehensive basis of accounting
other than U.S. GAAP corresponds to the accounting permitted for royalty trusts by the SEC as specified by Staff Accounting Bulletin
Topic 12:E, Financial Statements of Royalty Trusts.



Investment
in the net profits interest was recorded initially at the historical cost of VOC Brazos and is periodically assessed to determine
whether its aggregate value has been impaired below its total capitalized cost based on the underlying properties. The Trust will
provide a write-down to its investment in the net profits interest if and when total capitalized costs, less accumulated amortization,
exceeds undiscounted future net revenues attributable to the proved oil and gas reserves of the underlying properties. Based on
the substantial decline of the oil future markets at March 31, 2020, the Trust has determined that its aggregate value of the underlying
properties has been impaired, which has resulted in an impairment expense of $41,261,354 during the quarter ended March 31, 2020.
The impairment ischarged directly to Trust corpus and does not affect distributable income.



No new accounting pronouncements have been
adopted or issued during the quarter ended March 31, 2020 that would impact the financial statements of the Trust.



Note 4. Investment in Net Profits Interest



The net profits interest was recorded at
the historical cost of VOC Brazos on May 10, 2011, the date of the conveyance of the net profits interest to the Trust, and
was calculated as follows:



|Oil and gas properties                  |  | $ | 197,270,173 |  
|--------------------------------------- |  | - | ----------- | -
|Accumulated depreciation and depletion  |  |   | (17,681,155 | )
|Hedge liability                         |  |   | (1,717,713  | )
|20-year asset retirement liability      |  |   | (2,131,797  | )
|Net property to be conveyed             |  |   | 175,739,508 |  
|Times 80% net profits interest to Trust |  | $ | 140,591,606 |  



Note 5. Income from Net Profits Interest



|                                                                                               |  | Three months ended March 31, |          
|---------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------
|                                                                                               |  | 2020                         |          
|Excess of revenues over direct operating expenses and lease equipment and development costs(1) |  | $                            | 2,591,575
|Times 80% net profits interest to Trust                                                        |  |                              | 80       
|Income from net profits interest before reserve adjustments                                    |  |                              | 2,073,260
|VOC Brazos reserve for future development, maintenance or operating expenditures(2)            |  |                              | 0        
|Income from net profits interest(3)                                                            |  | $                            | 2,073,260








| | (1) | Excess of revenues over direct operating expenses and lease equipment and development costs reflect expenses and costs incurred
by VOC Brazos during the September through November production period. Pursuant to the terms of the conveyance of the
net profits interest, lease equipment and development costs are to be deducted when calculating the distributable income to the
Trust.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





3







| | (2) | Pursuant to the terms of the conveyance of the net profits interest, VOC Brazos can reserve up to $1.0 million for future development,
maintenance or operating expenditures at any time. During the three months ended March 31, 2020 and 2019, VOC Brazos did not
withhold or release any dollar amounts due to the Trust from the reserve. The reserve balance was $1,000,000 at March 31,
2020 and 2019, respectively.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | The income from net profits interest is based upon the cash receipts from VOC Brazos for the oil and gas production. The revenues
from oil production are typically received by VOC Brazos one month after production; thus, the cash received by the Trust during
the three months ended March 31, 2020 substantially represents production by VOC Brazos from September 2019 through November 2019.
The cash received by the Trust during the three months ended March 31, 2019 substantially represents production by VOC Brazos
from September 2018 through November 2018.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the three months ended March 31,
2020 and 2019, MV Purchasing, LLC, an affiliate of VOC Brazos, purchased a significant portion of the production of the underlying
properties. Sales to MV Purchasing, LLC are under short-term arrangements, ranging from one to six months, using market sensitive
pricing.



Note
6. Income Taxes



The Trust is a Delaware statutory trust
and is not required to pay federal or state income taxes. Accordingly, no provision for federal or state income taxes has been
made.



Note
7. Distributions to Unitholders



VOC Brazos makes quarterly payments of
the net profits interest to the Trust. The Trustee determines for each quarter the amount available for distribution to the Trust
unitholders. This distribution is expected to be made on or before the 45th day following the end of each quarter to the Trust
unitholders of record on the 30th day of the month following the end of each quarter (or the next succeeding business day). Such
amounts will be equal to the excess, if any, of the cash received by the Trust relating to the preceding quarter, over the expenses
of the Trust paid for such quarter, subject to adjustments for changes made by the Trustee during such quarter in any cash reserves
established for future expenses of the Trust.



The first quarterly distribution during 2020
was $1,870,000, or $0.11 per Trust Unit, and was made on February 14, 2020 to Trust unitholders owning Trust Units as of January 30,
2020. Such distribution included the net proceeds of production collected by VOC Brazos from October 1, 2019 through December 31,
2019.



The first quarterly distribution during 2019
was $2,465,000, or $0.145 per Trust Unit, and was made on February 14, 2019 to Trust unitholders owning Trust Units as of January 30,
2019. Such distribution included the net proceeds of production collected by VOC Brazos from October 1, 2018 through December 31,
2018.



Note 8. Advance for Trust Expenses



Under the terms of the Trust Agreement,
the Trustee is allowed to borrow money to pay Trust expenses. During the three months ended March 31, 2020 and 2019, there
were no borrowings or amounts owed for money borrowed in previous quarters. Under the terms of the Trust Agreement, VOC Brazos
has provided a letter of credit in the amount of $1,700,000 to the Trustee to protect the Trust against the risk that it does not
have sufficient cash to pay future expenses.



Note 9. Subsequent Events



On April 17, 2020, the Trust announced
a Trust distribution of net profits for the first quarterly payment period ended March 31, 2020. Unitholders of record on
April 30, 2020 will receive a distribution amounting to $510,000, or $0.03 per Trust Unit, which will be paid on May 15,
2020.



The
West Texas Intermediate spot price of crude oil has dropped sharply since the beginning of 2020,from $61.18 per barrel
on January 2, 2020 to $12.34 per barrel on April 28, 2020, primarily attributable to the economic effects of the COVID-19
pandemic and the dispute over production levels between Russia and the members of the Organization of Petroleum Exporting Countries,
including Saudi Arabia, which resulted in an oversupply of crude oil and exacerbated the decline in crude oil prices. If commodity
prices for crude oil remain at reduced levels, subsequent distributions in 2020 will be substantially lower than historical distributions,
and in certain periods there may be no distribution to unitholders. In light of the current uncertain economic environment, the
Trustee is withholding an amount from the second quarterly distribution that is estimated to be sufficient to pay Trust expenses
over the next twelve months.





4







Item 2. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.



The
following discussion of the Trust’s financial condition and results of operations should be read in conjunction with the
financial statements and notes thereto. The Trust’s purpose is, in general, to hold the net profits interest, to distribute
to the Trust unitholders cash that the Trust receives in respect of the net profits interest and to perform certain administrative
functions in respect of the net profits interest and the Trust Units. The Trust derives substantially all of its income and cash
flows from the net profits interest. All information regarding operations has been provided to the Trustee by VOC Brazos.



Overview



Impact
of COVID-19.The recent outbreak of the novel form of coronavirus known as COVID-19 and its development into a
global pandemic is negatively impacting worldwide economic and commercial activity and financial markets, as well as global
demand for crude oil and natural gas. The West Texas Intermediate spot price of crude oil has dropped sharply since the
beginning of 2020, from $61.18 per barrel on January 2, 2020 to $12.34 per barrel on April 28, 2020, primarily attributable
to the economic effects of the COVID-19 pandemic and the dispute over production levels between Russia and the members of the
Organization of Petroleum Exporting Countries, including Saudi Arabia, which resulted in an oversupply of crude oil and
exacerbated the decline in crude oil prices. COVID-19 and the responses by federal, state and local governmental authorities
to the pandemic have also resulted in significant business and operational disruptions, including business closures, supply
chain disruptions, travel restrictions, stay-at-home orders and limitations on the availability of workforces. The full
impact of COVID-19 is unknown and is rapidly evolving. The extent to which COVID-19 negatively impacts the operators of and
production from the underlying properties will depend on the severity, location and duration of the effects and spread of
COVID-19, the actions undertaken by federal, state and local governments and health officials to contain the virus or treat
its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions
resume. A prolonged period of low crude oil prices would adversely affect the operators of the underlying properties. If
commodity prices for crude oil remain at reduced levels, quarterly cash distributions to unitholders will be substantially
lower than historical distributions, and in certain periods there may be no distribution to unitholders.



Impairment
of Net Profits Interest. Based on the substantial decline of the oil future markets at March 31, 2020, the Trust has
determined that its aggregate value of the underlying properties has been impaired, which has resulted in an impairment expense
of $41,261,354 during the quarter ended March 31, 2020. The impairment is charged directly to Trust corpus and does not affect
distributable income.



Results of Operations



Results
of Operations for the Quarters EndedMarch 31, 2020 and 2019



The following is a summary of income from
net profits interest received by the Trust for the three months ended March 31, 2020 and 2019 consisting of the January distribution
for each respective year:



|                                                                                            |  | Three months ended March 31, |          
|------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------
|                                                                                            |  | 2020                         |          
|Sales volumes:                                                                              |  |                              |          
|Oil (Bbl)                                                                                   |  |                              | 153,775  
|Natural gas (Mcf)                                                                           |  |                              | 90,485   
|Total (BOE)                                                                                 |  |                              | 168,856  
|Average sales prices:                                                                       |  |                              |          
|Oil (per Bbl)                                                                               |  | $                            | 53.22    
|Natural gas (per Mcf)                                                                       |  | $                            | 2.07     
|Gross proceeds:                                                                             |  |                              |          
|Oil sales                                                                                   |  | $                            | 8,183,261
|Natural gas sales                                                                           |  |                              | 186,996  
|Total gross proceeds                                                                        |  |                              | 8,370,257
|Costs:                                                                                      |  |                              |          
|Production and development costs:                                                           |  |                              |          
|Lease operating expenses                                                                    |  |                              | 3,497,526
|Production and property taxes                                                               |  |                              | 894,451  
|Development expenses                                                                        |  |                              | 1,386,705
|Total costs                                                                                 |  |                              | 5,778,682
|                                                                                            |  |                              |          
|Excess of revenues over direct operating expenses and lease equipment and development costs |  |                              | 2,591,575
|Times net profits interest over the term of the Trust                                       |  |                              | 80       
|Income from net profits interest before reserve adjustments                                 |  |                              | 2,073,260
|VOC Brazos reserve for future development, maintenance or operating expenditures            |  |                              | 0        
|Income from net profits interest                                                            |  | $                            | 2,073,260





5







The cash received by the Trust from VOC
Brazos during the quarter ended March 31, 2020 substantially represents the production by VOC Brazos from September 2019
through November 2019. The cash received by the Trust from VOC Brazos during the quarter ended March 31, 2019 substantially
represents the production by VOC Brazos from September 2018 through November 2018. The revenues from oil production are
typically received by VOC Brazos one month after production.



Gross
proceeds. Oil and natural gas sales were $8,370,257 for the three months ended March 31, 2020, an increase of $79,703
or 1.0% from $8,290,554 for the three months ended March 31, 2019. Revenues are a function of oil and natural gas sales prices
and volumes sold. The increase in gross proceeds was due to increases in oil and natural gas sales volumes during the first quarter
of 2020, partially offset by decreases in market prices for oil and natural gas sales prices during the first quarter of 2020.
During the three months ended March 31, 2020, oil sales volumes were 153,775 Bbls for the three months ended March 31,
2020, an increase of 26,694 Bbls or 21.0% from 127,081Bbls for
the three months ended March 31, 2019, while natural gas sales volumes were 90,485 Mcf, an increase of 12,754 Mcf or 16.4%
from 77,731Mcf for the same period in 2019. During the three months
ended March 31, 2020, the average price for oil decreased 15.8% to $53.22 per Bbl and the average price for natural gas decreased
38.6% to $2.07 per Mcf.



Costs.
Lease operating expenses were $3,497,526 for the three months ended March 31, 2020, an increase of $251,725 or 7.8% from $3,245,801
for the three months ended March 31, 2019. Production and property taxes were $894,451 for the three months ended March 31,
2020, an increase of $139,600 or 18.5% from $754,851 for the same period in 2019. Such increase is primarily due to a 19.6% increase
in property taxes. In addition, production taxes increased 15.7% due to higher volumes for oil and gas. Development expenses were
$1,386,705 for the three months ended March 31, 2020, an increase of $359,466 or 35.0% from $1,027,239 for the same period
in 2019. Such increase was primarily due to increased drilling activity and corresponding increased development expenses during
the three months ended March 31, 2020, compared to the three months ended March 31, 2019.



Excess
of revenues over direct operating expenses and lease equipment and development costs. The excess of revenues over direct
operating expenses and lease equipment and development costs from the underlying properties was $2,591,575 for the three months
ended March 31, 2020, a decrease of $671,088 or 20.6% from $3,262,663 for the three months ended March 31, 2019. The
Trust’s 80% net profits interest of these totals were $2,073,260 and $2,610,130, respectively. During the three months ended
March 31, 2020 and 2019, VOC Brazos did not withhold or release any dollar amounts due to the Trust from the previously established
cash reserve for future development, maintenance or operating expenditures, which resulted in income from the net profits interest
of $2,073,260 and $2,610,130 for such periods, respectively. These amounts were reduced by a Trust holdback for future expenses
of $203,260 and $145,130 for the three months ended March 31, 2020 and 2019, respectively. The Trustee paid general and administrative
expenses of $290,458 for the three months ended March 31, 2020, a decrease of $89,311 from $379,769 for the three months ended
March 31, 2019. This decrease was primarily due to the differences in timing of receipt and payment of recurring general and
administrative expenses. These factors resulted in distributable income for the three months ended March 31, 2020 of $1,870,000,
a decrease of $595,000 from $2,465,000 for the three months ended March 31, 2019.



Liquidity and Capital Resources



Other than Trust administrative expenses,
including any reserves established by the Trustee for future liabilities, the Trust’s only use of cash is for distributions
to Trust unitholders. Administrative expenses include payments to the Trustee as well as a quarterly administrative fee to VOC
Brazos pursuant to an administrative services agreement.  Each quarter, the Trustee determines the amount of funds available
for distribution. Available funds are the excess cash, if any, received by the Trust from the net profits interest and other sources
(such as interest earned on any amounts reserved by the Trustee) in that quarter, over the Trust’s expenses paid for that
quarter.  Available funds are reduced by any cash that the Trustee decides to reserve for future development, maintenance
or operating expenses. As of March 31, 2020, $238,934 was held by the Trustee as such a reserve.



The Trustee may cause the Trust to borrow
funds required to pay expenses if the Trustee determines that the cash on hand and the cash to be received are insufficient to
cover the Trust’s expenses.  If the Trust borrows funds, the Trust unitholders will not receive distributions until
the borrowed funds are repaid.  During the three months ended March 31, 2020 and 2019, there were no such borrowings.
VOC Brazos has provided a letter of credit in the amount of $1,700,000 to the Trustee to protect the Trust against the risk that
it does not have sufficient cash to pay future expenses.





6









Income to the Trust from the net profits
interest is based on the calculation and definitions of “gross proceeds” and “net proceeds” contained in
the conveyance.



As substantially all of the underlying
properties are located in mature fields, VOC Brazos does not expect future costs for the underlying properties to change significantly
compared to recent historical costs other than changes due to fluctuations in the general cost of oilfield services.  VOC
Brazos may establish a cash reserve of up to $1.0 million in the aggregate at any given time from the dollar amount otherwise distributable
to the Trust to reduce the impact on distributions of uneven capital expenditure timing. The cash reserve balance was $1,000,000
at March 31, 2020 and 2019, respectively.



In 2018, VOC Brazos entered into a joint
venture agreement with Hawkwood Energy East Texas, LLC (“Hawkwood”). Under the terms of the joint venture agreement,
Hawkwood carried VOC Brazos for its share of drilling and completion costs for four wells in the Lower Woodbine Organic Shale (the
 “Hawkwood Earning Wells”). In exchange, Hawkwood earned a working interest representing 50% of VOC Brazos’ interest
in each Hawkwood Earning Well and up to a 50% interest in VOC Brazos’ acreage in the south half of the Kurten Woodbine Unit.
After the Hawkwood Earning Wells were completed, Hawkwood had the right to propose and drill up to eight wells in the Lower Woodbine
Organic Shale (“LWOS”) in 2019 and twelve LWOS wells in 2020, with no contractual limitation of the number of wells
per year to propose and drill after 2020 (collectively, the “Hawkwood Development Wells”). In 2019, Hawkwood drilled
and completed four Hawkwood Development Wells. VOC Brazos is paying Vess Oil, as the operator, for its share of costs and related
interest in the Hawkwood Development Wells, as net revenue from each of the wells is received, thereby having no current effect
on Trust distributions. The unpaid balance thru March 31, 2020 was $1,301,858.



Note Regarding Forward-Looking Statements



This
Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All
statements other than statements of historical fact included in this Form 10-Q, including without limitation the statements
under “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking
statements. Although VOC Brazos advised the Trust that it believes that the expectations reflected in the forward-looking statements
contained herein are reasonable, no assurance can be given that such expectations will prove to have been correct. Important factors
that could cause actual results to differ materially from expectations (“Cautionary Statements”) are disclosed in this
Form 10-Q,including under the section “Item 1A. Risk Factors” in Part II of this Form 10-Q, and in the
Trust’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “Form 10-K”), including
under the section “Item 1A. Risk Factors”. All subsequent written and oral forward-looking statements attributable
to the Trust or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements.



Item 3. Quantitative and Qualitative Disclosures About Market Risk.



The Trust is a smaller reporting company
as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this Item.



Item 4. Controls and Procedures.



Evaluation
of Disclosure Controls and Procedures.The Trustee maintains disclosure controls and procedures designed to ensure that
information required to be disclosed by the Trust in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and regulations promulgated by the SEC. Disclosure
controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Trust
is accumulated and communicated by VOC Brazos to the Trustee, as trustee of the Trust, and its employees who participate in the
preparation of the Trust’s periodic reports as appropriate to allow timely decisions regarding required disclosure.



As of the end of the period covered by
this report, the Trustee carried out an evaluation of the Trust’s disclosure controls and procedures. A Trust Officer of
the Trustee has concluded that the disclosure controls and procedures of the Trust are effective.



Due to the contractual arrangements of
(i) the Trust Agreement and (ii) the conveyance of the net profits interest, the Trustee relies on (A) information
provided by VOC Brazos, including historical operating data, plans for future operating and capital expenditures, reserve information
and information relating to projected production and (B) conclusions and reports regarding reserves by the Trust’s independent
reserve engineers. See “Risk Factors—Neither the Trust nor the Trust’s unitholders have the ability to influence
VOC Brazos or control the operations or development of the underlying properties” in the Form 10-K.



Changes
in Internal Control over Financial Reporting. During the quarter ended March 31, 2020, there was no change in
the Trust’s internal control over financial reporting that has materially affected, or is reasonably likely to materially
affect, the Trust’s internal control over financial reporting. The Trustee notes for purposes of clarification that it has
no authority over, and makes no statement concerning, the internal control over financial reporting of VOC Brazos.





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PART II—OTHER INFORMATION



Item 1A. Risk Factors.



Except as provided below, there have not
been any material changes from the risk factors previously disclosed in the Trust’s response to Item 1A to Part 1 of
the Form 10-K.



The COVID-19 pandemic could materially adversely affect
proceeds to the Trust and cash distributions to unitholders.



The
recent outbreak of the novel form of coronavirus known as COVID-19 and its development into a global pandemic is negatively
impacting worldwide economic and commercial activity and financial markets, as well as global demand for crude oil and
natural gas. The West Texas Intermediate spot price of crude oil has dropped sharply since the beginning of 2020, from $61.18
per barrel on January 2, 2020 to$12.34 per barrel on April 28, 2020, primarily attributable to the economic effects
of the COVID-19 pandemic and the dispute over production levels between Russia and the members of the Organization of
Petroleum Exporting Countries (“OPEC”), including Saudi Arabia, which resulted in an oversupply of crude oil and
exacerbated the decline in crude oil prices. COVID-19 and the responses by federal, state and local governmental authorities
to the pandemic have also resulted in significant business and operational disruptions, including business closures, supply
chain disruptions, travel restrictions, stay-at-home orders and limitations on the availability of workforces. The full
impact of COVID-19 is unknown and is rapidly evolving. The extent to which COVID-19 negatively impacts the operators of and
production from the underlying properties will depend on the severity, location and duration of the effects and spread of
COVID-19, the actions undertaken by federal, state and local governments and health officials to contain the virus or treat
its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions
resume. A prolonged period of low crude oil prices would adversely affect the operators of the underlying properties. If
commodity prices for crude oil remain at reduced levels, quarterly cash distributions to unitholders will be substantially
lower than historical distributions, and in certain periods there may be no distribution to unitholders. Continued low prices
of oil may ultimately reduce
the amount of oil that is economic to produce from the underlying properties. As a result, the operator of the underlying properties could determine during periods of low commodity prices to shut in or curtail production on the underlying properties. In addition, the operator of the underlying properties could determine during periods of
low commodity prices to plug and abandon marginal wells that otherwise may have been allowed to continue to produce for a
longer period under conditions of higher prices.



To the extent COVID-19 adversely affects
production from the underlying properties or the business, results of operations and financial condition of the operators of the
underlying properties, it may also have the effect of heightening many of the other risks described in the Trust’s 2019 Annual
Report on Form 10-K.



The ability or willingness of OPEC
and other oil exporting nations to set and maintain production levels has a significant impact on oil and natural gas commodity
prices, which could reduce the amount of cash available for distribution to Trust unitholders.



OPEC is an intergovernmental organization
that seeks to manage the price and supply of oil on the global energy market. Actions taken by OPEC members, including those taken
alongside other oil exporting nations, have a significant impact on global oil supply and pricing. For example, OPEC and certain
other oil exporting nations have previously agreed to take measures, including production cuts, to support crude oil prices. In
March 2020, members of OPEC and Russia considered extending and potentially increasing these oil production cuts. However, those
negotiations were unsuccessful. As a result, Saudi Arabia announced an immediate reduction in export prices and Russia announced
that all previously agreed upon oil production cuts would expire on April 1, 2020. These actions led to an immediate and steep
decrease in oil prices, which reached a closing NYMEX price low of negative $37.63 per Bbl of crude oil in April 2020. There
can be no assurance that OPEC members and other oil exporting nations will agree to future production cuts or other actions to
support and stabilize oil prices, nor can there be any assurance that they will not further reduce oil prices or increase production.
Uncertainty regarding future actions to be taken by OPEC members or other oil exporting countries could lead to increased volatility
in the price of oil, which could adversely affect the financial condition and economic performance of the operators of the underlying
properties and may reduce the net proceeds to which the Trust is entitled, which could materially reduce or completely eliminate
the amount of cash available for distribution to Trust unitholders.





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Item 6. Exhibits.



The exhibits listed below are filed or
furnished as part of this Quarterly Report on Form 10-Q.



|Exhibit
Number |  | Description                                                            
|-------------- |  | -----------------------------------------------------------------------
|               |  |                                                                        
|31             |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|               |  |                                                                        
|32             |  | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





9







SIGNATURES



Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



| | VOC ENERGY TRUST
| | ----------------
| |                 
| | By:             
| |                 
| | By:             
| |                 
| |                 



Date: May 11, 2020



The Registrant, VOC Energy Trust, has no
principal executive officer, principal financial officer, board of directors or persons performing similar functions. Accordingly,
no additional signatures are available and none have been provided. In signing the report above, the Trustee does not imply that
it has performed any such function or that such function exists pursuant to the terms of the Trust Agreement under which it serves.





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