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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-Q þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the Quarterly Period Ended June 30, 2004
or o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the transition period from  to Commission File No. 1-8032 SAN JUAN BASIN ROYALTY TRUST 
 Texas
    
    75-6279898(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 TexasBank, Trust Department
2525 Ridgmar Boulevard, Suite 100
Fort Worth, Texas 76116
(Address of principal executive offices)
(Zip Code) Telephone Number: (866) 809-4553
(Registrants telephone number, including area code) 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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes þ No o Number of Units of beneficial interest outstanding at August 9, 2004:
46,608,796




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TABLE OF CONTENTS  PART I FINANCIAL INFORMATIONItem 1. Financial Statements.Item 2. Trustees Discussion and Analysis of Financial Condition and Results of Operations.Item 3. Quantitative and Qualitative Disclosures About Market Risk.Item 4. Controls and Procedures.PART II OTHER INFORMATIONItem 1. Legal Proceedings.Item 6. Exhibits and Reports on Form 8-K.SIGNATURESINDEX TO EXHIBITSCertification Required by Rule 13a-14(a)Certification Required by Rule 13a-14(b)    Table of Contents  SAN JUAN BASIN ROYALTY TRUST 
 PART I
FINANCIAL INFORMATION 
 Item 1. Financial Statements. The condensed financial statements included herein have been prepared without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. In
accordance with Securities and Exchange Commission Staff Accounting Bulletin
No. 47, released September 16, 1982, the financial
statements of the San Juan Basin Royalty Trust (the
Trust) continue to be prepared in a manner that differs from accounting principles
generally accepted in the United States of America (GAAP); this form of
presentation is customary to other royalty trusts. Certain information and
footnote disclosures normally included in annual financial statements have been
condensed or omitted pursuant to Rule 10-01 of Regulation S-X promulgated under
the Securities Exchange Act of 1934, although TexasBank, the Trustee
of the Trust, believes that the disclosures are adequate to make the information presented not misleading.
These condensed financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Trusts Annual
Report on Form 10-K for the year ended December 31, 2003. In the opinion of
the Trustee, all adjustments, consisting only of normal recurring adjustments,
have been included that are necessary to present fairly the assets, liabilities
and trust corpus of the San Juan Basin Royalty Trust at June 30, 2004, and the
distributable income and changes in trust corpus for the three-month periods
and six-month periods ended June 30, 2004 and 2003. The distributable income
for such interim periods is not necessarily indicative of the distributable
income for the full year. 2




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SAN JUAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS June 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCash and short-term investments
    
    $
    9,024,529
    
    
    $
    7,082,284Net overriding royalty interest in producing
oil and gas properties (net of accumulated
amortization of $104,936,618 and $103,452,708
at June 30, 2004 and December 31, 2003, respectively)
    
    
    28,338,910
    
    
    
    29,822,820$
    37,363,439
    
    
    $
    36,905,104LIABILITIES AND TRUST CORPUSDistribution payable to Unit Holders
    
    $
    8,909,671
    
    
    $
    6,967,426Cash reserves
    
    
    114,858
    
    
    
    114,858Trust corpus - 46,608,796 Units of beneficial
interest authorized and outstanding
    
    
    28,338,910
    
    
    
    29,822,820$
    37,363,439
    
    
    $
    36,905,104
 CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Royalty income
    
    $
    25,509,188
    
    
    $
    26,051,389
    
    
    $
    46,705,539
    
    
    $
    45,962,457Interest income
    
    
    11,822
    
    
    
    15,801
    
    
    
    20,514
    
    
    
    23,254Decrease in cash reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,521,010
    
    
    
    26,067,190
    
    
    
    46,726,053
    
    
    
    45,985,711General and
administrative
expenditures
    
    
    529,205
    
    
    
    448,456
    
    
    
    1,042,368
    
    
    
    868,829Distributable income
    
    $
    24,991,805
    
    
    $
    25,618,734
    
    
    $
    45,683,685
    
    
    $
    45,116,882Distributable income per
Unit (46,608,796 Units)
    
    $
    .536204
    
    
    $
    .549655
    
    
    $
    .980152
    
    
    $
    .967992
 The accompanying notes to condensed financial statements are an integral part
of these statements. 3




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SAN JUAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED) Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Trust corpus, beginning of period
    
    $
    29,131,300
    
    
    $
    32,652,361
    
    
    $
    29,822,820
    
    
    $
    33,697,906Amortization of net overriding
royalty interest
    
    
    (792,390
    )
    
    
    (930,001
    )
    
    
    (1,483,910
    )
    
    
    (1,975,546
    )Distributable income
    
    
    24,991,805
    
    
    
    25,618,734
    
    
    
    45,683,685
    
    
    
    45,116,882Distributions declared
    
    
    (24,991,805
    )
    
    
    (25,618,734
    )
    
    
    (45,683,685
    )
    
    
    (45,116,882
    )Total corpus, end of period
    
    $
    28,338,910
    
    
    $
    31,722,360
    
    
    $
    28,338,910
    
    
    $
    31,722,360
 The accompanying notes to condensed financial statements are an integral part
of these statements. 4




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SAN JUAN BASIN ROYALTY TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF ACCOUNTING The San Juan Basin Royalty Trust (the Trust) was established as of
November 1, 1980. The financial statements of the Trust are prepared on
the following basis:  
    
    Royalty income recorded for a month is the amount computed and
paid by the working interest owner, Burlington Resources Oil & Gas
Company LP (BROG), to the Trustee for the Trust. Royalty income
consists of the amounts received by the owner of the interest
burdened by the Trusts 75% net overriding royalty interest (the
Royalty) from the sale of production less accrued production costs,
development and drilling costs, applicable taxes, operating charges,
and other costs and deductions, multiplied by 75%.  
    
    Trust expenses recorded are based on liabilities paid and cash
reserves established from Royalty income for liabilities and
contingencies.  
    
    Distributions to Unit Holders are recorded when declared by the
Trustee.  
    
    The conveyance which transferred the Royalty to the Trust
provides that any excess of production costs over gross proceeds must
be recovered from future net profits before Royalty income is again
paid to the Trust. The financial statements of the Trust differ from financial statements
prepared in accordance with United States generally accepted accounting
principles (GAAP) because revenues are not accrued in the month of
production; certain cash reserves may be established for contingencies
that would not be accrued in financial statements prepared in accordance
with GAAP; and amortization of the Royalty calculated on a
unit-of-production basis is charged directly to trust corpus instead of an
expense. The basis of accounting used by the Trust is widely used by
royalty trusts for financial reporting purposes. 2. FEDERAL INCOME TAXES For federal income tax purposes, the Trust constitutes a fixed investment
trust that is taxed as a grantor trust. A grantor trust is not subject to
tax at the trust level. The Unit Holders are considered to own the
Trusts income and principal as though no trust were in existence. The
income of the Trust is deemed to have been received or accrued by each
Unit Holder at the time such income is received or accrued by the Trust
rather than when distributed by the Trust. The Royalty constitutes an economic interest in oil and gas properties
for federal income tax purposes. Unit Holders must report their share of
the revenues of the Trust as ordinary income from oil and gas royalties
and are entitled to claim depletion with respect to such income. The
Royalty is treated as a single property for depletion purposes. The Trust
has on file technical advice memoranda confirming such tax treatment. Sales of production from coal seam wells drilled prior to January 1, 1993,
qualified for federal income tax credits through 2002. Although both
houses of Congress are presently considering energy legislation, including
provisions to extend or reinstate the Section 29 credit in various ways, 5




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whether such provisions will be enacted into law, and if so, the effect
thereof on the Trust and the Unit Holders is at present unknown. Even
though the Section 29 credit does not apply to qualified fuel sold in
2003 or later, a Section 29 credit (at the rate applicable in 2002) may
apply to proceeds received in 2003 or later for qualified fuel sold in
2002 and earlier years for Unit Holders that utilize the cash method of
tax accounting. The Internal Revenue Service has issued Rev. Proc.
2004-27 to the effect that cash method taxpayers may claim the Section 29
credit in a later year for sales of qualified fuel in 2002 and earlier
years where the proceeds from such sales are received in the later year. To benefit from the credit in 2004, each cash basis Unit Holder must
determine from the tax information the Unit Holder received from the
Trust, its pro rata share of qualifying production of the Trust sold
before January 1, 2003, based upon the number of Units owned during each
month of the year, and the amount of available credit per MMbtu for the
year, and then apply the tax credit against the Unit Holders own income
tax liability, but such credit could not reduce the Unit Holders regular
tax liability (after the foreign tax credit and certain other
nonrefundable credits) below its tentative minimum tax. Section 29 also
provides that any amount of Section 29 credit disallowed for the tax year
solely because of this limitation will increase a taxpayers credit for
prior year minimum tax liability, which may be carried forward
indefinitely as a credit against the taxpayers regular tax liability,
subject, however, to the limitations described in the preceding sentence.
There is no provision for the carryback or carryforward of the Section 29
credit in any other circumstance. BROG has historically provided to the Trust summary Section 29 tax credit
information related to Trust properties. In 1999, the U.S. Court of
Appeals for the 10th Circuit upheld the position of the Internal Revenue
Service and the Tax Credit that nonconventional fuel such as coal seam gas
does not qualify for the Section 29 credit unless the producer has
received an appropriate well category determination from the Federal
Energy Regulatory Commission. Substantially all of the wells burdened by
the Royalty have received the appropriate well category certification.
BROG has informed the Trustee that it will continue to seek certification
of any qualified but not certified wells burdened by the Royalty. The classification of the Trusts income for purposes of the passive loss
rules may be important to a Unit Holder. As a result of the Tax Reform
Act of 1986, royalty income such as that derived through the Trust will
generally be treated as portfolio income and will not reduce passive
losses. 3. CONTINGENCIES See Part II, Item 1 (Legal Proceedings) concerning the status of
litigation matters. 4. SETTLEMENT OF CLAIMS RELATING TO GAS IMBALANCE In June 2000, the Trust and BROG entered into a partial settlement of
claims relating to a gas imbalance with respect to production from mineral
properties currently operated by BROG. Under the terms of the partial
settlement BROG paid the Trust $3,490,000 to settle the imbalance insofar
as it relates to some of the wells located on the subject properties. The
remainder of the imbalance has been addressed by a $243,968 increase in
revenue allocated by BROG to the Trust in July 2004, which
amount is included in the $1,835,500 referenced in Note 6 below. 5. MMS SETTLEMENT As part of a settlement between BROG and the Mineral Management Service of
the United States Department of the Interior relating to the property from
which the Trusts Royalty was carved, $901,776 (the Trusts
75% interest of the total settlement) was deducted by
BROG in calculating the Trusts April 2003 Royalty payment.
 The Trust is in
communication with BROG as to the appropriateness of this allocation. 6




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6.
SUBSEQUENT EVENTS In July 2004,
an aggregate of $1,835,500 was included by BROG in calculating the
Trusts July 2004 Royalty payment. This represents the
Trusts 75% interest in the settlement of certain joint interest
audit issues, including claims related to natural gas liquids, gas
imbalances and interest on other settled claims. Also in July 2004,
BROG adjusted the capital expenditures accrued for the properties to
which the Royalty relates by approximately $1 million, resulting in a
corresponding increase in the Royalty income received by the Trust in
July 2004. 7




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Item 2. Trustees Discussion and Analysis of Financial Condition and Results of Operations. Forward-Looking Information Certain information included in this Quarterly Report on Form 10-Q
contains, and other materials filed or to be filed by the Trust with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Trust) may
contain or include, forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, and Section 27A of the Securities
Act of 1933. Such forward-looking statements may be or may concern, among
other things, capital expenditures, drilling activity, development activities,
production efforts and volumes, hydrocarbon prices and the results thereof, and
regulatory matters. Such forward-looking statements generally are accompanied
by words such as may, will, estimate, expect, predict, project,
anticipate, goal, should, assume, believe, plan, intend, or other
words that convey the uncertainty of future events or outcomes. Such
statements reflect BROGs current view with respect to future events; are based
on an assessment of, and are subject to, a variety of factors deemed relevant
by the Trustee and BROG and involve risks and uncertainties. Should one or
more of these risks or uncertainties occur, actual results may vary materially
and adversely from those anticipated. Business Overview The Trust is an express trust created under the laws of the state of Texas
by the San Juan Basin Royalty Trust Indenture (the Original Indenture)
entered into on November 3, 1980, between Southland Royalty Company (Southland
Royalty) and The Fort Worth National Bank. Effective as of September 30,
2002, the Original Indenture was amended and restated (the Original Indenture,
as amended and restated, the Indenture). The Trustee of the Trust is
TexasBank. On October 23, 1980, the stockholders of Southland Royalty approved and
authorized that companys conveyance of a 75% net overriding royalty interest
(equivalent to a net profits interest) to the Trust for the benefit of the
stockholders of Southland Royalty of record at the close of business on the
date of the conveyance (the Royalty) carved out of that companys oil and gas
leasehold and royalty interests in properties located in the San Juan Basin of
northwestern New Mexico (the Underlying Properties). Pursuant to the Net
Overriding Royalty Conveyance (the Conveyance) the Royalty was transferred to
the Trust on November 3, 1980, effective as to production from and after
November 1, 1980 at 7:00 A.M. The Royalty constitutes the principal asset of the Trust and the
beneficial interests in the Royalty are divided into that number of units of
beneficial interest (the Units) of the Trust equal to the number of shares of
the common stock of Southland Royalty outstanding as of the close of business
on November 3, 1980. Holders of Units are referred to herein as Unit
Holders. Subsequent to the conveyance of the Royalty, through a series of
assignments and mergers, Southland Royaltys successor became BROG. The function of the Trustee is to collect the income attributable to the
Royalty, to pay all expenses and charges of the Trust, and then distribute the
remaining available income to the Unit Holders. The Trust is not empowered to
carry on any business activity and has no employees, all administrative
functions being performed by the Trustee. Three Months Ended June 30, 2004 and 2003 The Trust received Royalty income of $25,509,188 and interest income of
$11,822 during the second quarter of 2004. There was no change in cash
reserves. After deducting administrative expenses of $529,205, distributable
income for the quarter was $24,991,805 ($.536204 per Unit). In the second
quarter of 2003, royalty income was $26,051,389, interest income was $15,801,
there was no change in cash 8




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reserves, administrative expenses were $448,456 and distributable income
was $25,618,734 ($.549655 per Unit). The tax credit relating to production
from coal seam and tight sand wells sold before January 1, 2003, totaled
approximately $.03 per Unit for the second quarter of 2003. For further
information concerning this tax credit, Unit Holders should refer to the
Trusts Annual Report for 2003. Based on 46,608,796 Units outstanding, the per
Unit distributions during the second quarter of 2004 were as follows: April
    
    $
    .164974May
    
    
    .180071June
    
    
    .191159Quarter Total
    
    $
    .536204
 The Royalty income distributed in the second quarter of 2004 was lower
than that distributed in the second quarter of 2003 primarily due to increased
capital expenditures and production costs. Interest earnings for the quarter
ended June 30, 2004, as compared to the quarter ended June 30, 2003, were
lower, primarily due to a decrease in funds available for investment and
slightly lower interest rates. Administrative expenses were higher primarily
as a result of differences in timing in the receipt and payment of these
expenses. BROG has informed the Trustee that the New Mexico Oil and Gas Proceeds
Withholding Tax Act (the Withholding Tax Act) requires remitters who pay
certain oil and gas proceeds from production on New Mexico properties on or
after October 1, 2003, to withhold income taxes from such proceeds in the case
of certain nonresident recipients. The Trustee, on advice of counsel, has
observed that net profits interests, such as the Royalty, and other types of
interests, the extent of which cannot be determined with respect to a specific
share of the oil and gas production, are excluded from the withholding
requirements of the Withholding Tax Act. Unit Holders are reminded to consult
with their tax advisors regarding the applicability of New Mexico income tax to
distributions received from the Trust by a Unit Holder. The capital costs attributable to the Underlying Properties for the second
quarter of 2004 were reported by BROG as approximately $4.6 million. BROGs
capital expenditure budget for the Underlying Properties for 2004 is estimated
at $18.5 million of which approximately $3.3 million has been spent as of June
30, 2004; however, BROG reports that based on its actual capital requirements,
its mix of projects and changes in the price of natural gas, the actual capital
expenditures for 2004 could range from $15 million to $25 million. Capital
expenditures were approximately $2.9 million for the second quarter of 2003.
In 2003, approximately $20.6 million in capital expenditures were deducted in
calculating Royalty income. In February 2004, BROG informed the Trustee that
for 2004 it anticipates 441 projects, including the drilling of 103 new wells
to be operated by BROG and 29 wells to be operated by third parties. Of the
new BROG operated wells, 30 are projected to be conventional wells completed in
the Pictured Cliffs, Mesaverde and/or Dakota formations, and the remaining 73
are projected as coal seam wells completed in the Fruitland Coal formation. A
total of 22 of the wells operated by third parties are projected to be
conventional wells, and the remaining seven are projected to be coal seam
wells. BROG projects approximately $11.7 million to be spent on the new wells,
and $6.8 million to be expended in working over existing wells and in the
maintenance and improvement of production facilities. BROG has indicated that,
principally as a result of the New Mexico Oil Conservation Divisions approval
of reduced, 160-acre spacing in the Fruitland Coal formation, BROGs budget
for 2004 reflects a continued focus on that formation. BROG indicates its budget for 2004 reflects continued, significant
development of conventional formations, including infill drilling to the
Mesaverde and Dakota formations, development of the Fruitland Coal formation
and multiple formation completions. A majority of the new wells for 2004 are
projected to be drilled on Underlying Properties in which the fractional
working interest included in the Underlying 9




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Properties is relatively low, but many of the recompletions and
restimulations are scheduled on properties in which such working interest is
relatively high. BROG has informed the Trust that lease operating expenses and property
taxes were $4,615,886 and $122,700 respectively, for the second quarter of
2004, as compared to $3,902,841 and $135,000, respectively, for the second
quarter of 2003. BROG has reported to the Trustee that during the second quarter of 2004,
21 gross (2.31 net) coal seam wells, one gross (.04 net) miscellaneous coal
seam project, eight gross (0.05 net) conventional wells and four gross (1.70
net) restimulations were completed on the Underlying Properties. Sixty-three gross (8.89 net) coal seam wells, four gross (1.89 net)
recompletions, two gross (.08 net) miscellaneous coal seam projects, 29 gross
(5.40 net) conventional wells, four gross (1.72 net) payadds, 11 gross (6.96
net) recompletions and four gross (3.11 net) restimulations were in progress at
June 30, 2004. There were five gross (2.54 net) conventional wells, 19 gross (0.81 net)
payadds, 13 gross (9.54 net) restimulations and eight gross (2.50 net) coal
seam wells completed on the Underlying Properties as of June 30, 2003.
Fifty-four gross (16.04 net) conventional wells, 19 gross (5.27 net) payadds,
20 gross (5.55 net) recompletions, 18 gross (11.51 net) restimulations, 39
gross (14.25 net) coals seam wells, one gross (.002 net) recavitation and five
gross (.17 net) recompletions were in progress at June 30, 2003. Fifty-four gross (16.04 net) conventional wells, 19 gross (5.27 net)
payadds, 20 gross (5.55 net) recompletions, 18 gross (11.51 net)
restimulations, 39 gross (14.25 net) coal seam wells, one gross (.002 net)
recavitation, and five gross (.17 net) recompletions were in progress at June
30, 2003. Gross acres or wells, for purposes of this discussion, means the entire
ownership interest of all parties in such properties, and BROGs interest
therein is referred to as the net acres or wells. A payadd is the completion
of an additional productive interval in an existing completed zone in a well. Royalty income for the quarter ended June 30, 2004 is associated with
actual gas and oil production during February 2004 through April 2004 from the
Underlying Properties. Gas and oil sales from the Underlying Properties for
the three months ended June 30, 2004 and 2003 were as follows: Three Months EndedJune 30,2004
    
    2003Gas:Total sales (Mcf)
    
    
    10,831,487
    
    
    
    10,454,608Mcf per day
    
    
    120,350
    
    
    
    117,468Average price (per Mcf)
    
    $
    4.38
    
    
    $
    4.48Oil:Total sales (Bbls)
    
    
    23,709
    
    
    
    24,381Bbls per day
    
    
    263
    
    
    
    274Average price (per Bbl)
    
    $
    31.72
    
    
    $
    27.91
 10




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Gas and oil sales attributable to the Royalty for the quarters ended June 30, 2004 and 2003 were as follows: Three Months EndedJune 30,2004
    
    2003Gas sales (Mcf)
    
    
    6,392,963
    
    
    
    6,498,418Oil sales (Bbls)
    
    
    13,986
    
    
    
    15,091
 Sales volumes attributable to the Royalty are determined by dividing the
net profits received by the Trust and attributable to oil and gas,
respectively, by the prices received for sales volumes from the Underlying
Properties, taking into consideration production taxes attributable to the
Underlying Properties. Since the oil and gas sales attributable to the Royalty
are based on an allocation formula that is dependent on such factors as price
and cost, including capital expenditures, the aggregate production volumes from
the Underlying Properties may not provide a meaningful comparison to volumes
attributable to the Royalty. During the second quarter of 2004, average gas prices were $.10 lower than
the average prices reported during the second quarter of 2003. The average
price per barrel of oil during the second quarter of 2004 was $3.81 per barrel
higher than received for the second quarter of 2003 due to increases in oil
prices in world markets generally, including the posted prices applicable to
oil sales attributable to the Royalty. BROG has entered into two contracts for the sale of all volumes of gas
produced from the Underlying Properties. These contracts provide for (i) the
sale of such gas to Duke Energy and Marketing, L.L.C. and PNM Gas Services,
respectively, (ii) the delivery of such gas at various delivery points through
March 31, 2005, and from year-to-year thereafter until terminated by either
party on twelve months notice, and (iii) for the sale of such gas at prices
which fluctuate in accordance with published indices for gas sold in the San
Juan Basin of New Mexico. Effective January 1, 2004, the rights and
obligations of Duke Energy and Marketing L.L.C. were assumed by ConocoPhillips
Company (ConocoPhillips) pursuant to an Assignment and Novation Agreement.
By correspondence dated March 25, 2004, BROG notified ConocoPhillips of BROGs
election to terminate such contract as of March 31, 2005. BROG has prepared a
form of request for proposal that will be circulated to a number of potential
purchasers, including ConocoPhillips, inviting them to bid for the purchase of
the gas currently sold under the contract expiring March 31, 2005. Unit
Holders are referred to Note 6 of the Notes to Financial Statements in the
Trusts 2003 Annual Report for further information concerning the marketing of
gas produced from the Underlying Properties. Confidentiality agreements with purchasers of gas produced from the
Underlying Properties prohibit public disclosure of certain terms and
conditions of gas sales contracts with those entities, including specific
pricing terms and gas receipt points. Such disclosure could compromise the
ability to compete effectively in the marketplace for the sale of gas produced
from the Underlying Properties. Six Months Ended June 30, 2004 and 2003 For the six months ended June 30, 2004, the Trust received Royalty income
of $46,705,539 and interest income of $20,514. There was no change in cash
reserves. After deducting administrative expenses of $1,042,368, distributable
income was $45,683,685 ($.980152 per unit) for the six months ended June 30,
2004. For the six months ended June 30, 2003, the Trust received Royalty
income of $45,962,457 and interest income of $23,254. There was no change in
cash reserves. After deducting administrative expenses of $868,829,
distributable income was $45,116,882 ($.967992 per unit) for the six months
ended June 30, 2003. 11




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The increase in distributable income from 2003 to 2004 resulted primarily
from higher gas prices during the first half of 2004. Interest earnings for
the six months ended June 30, 2004, as compared to the six months ended June
30, 2003 were lower primarily due to the timing of receipt of interest income.
General and administrative expenses were higher for the six months ended June
30, 2004, as compared to the same period in 2003 primarily due to an initiative
to resolve certain outstanding joint interest audit issues with BROG and to
differences in timing of the receipt and payment of these expenses. Capital expenditures incurred by BROG, attributable to the Underlying
Properties, for the first six months of 2004 amounted to approximately $14.0
million. Capital expenditures were approximately $9.4 million for the first
six months of 2003. Lease operating expenses and property taxes totaled
$8,613,941 and $249,500, respectively, for the first six months of 2004 as
compared to $7,824,408 and $271,250, respectively, for the first six months of
2003. BROG has reported to the Trustee that during the six months ended June 30,
2004, 18 gross (6.38 net) conventional wells, three gross (0.007 net) payadds,
one gross (0.44 net) recompletion, eight gross (5.07 net) restimulations, 26
gross (2.48 net) coal seam wells, one gross (0.82 net) coal seam recompletion
and one gross (0.04 net) miscellaneous coal seam capital project were completed
on the Underlying Properties. There were 14 gross (9.10 net) conventional wells, three gross (.94 net)
miscellaneous capital projects, thirty-eight gross (1.73 net) payadds, 18 gross
(12.74 net) restimulations,15 gross (3.37 net) coal seam wells and two gross
(.88 net) coal seam miscellaneous capital projects completed on the Underlying
Properties during the six months ended June 30, 2003. Royalty income for the six months ended June 30, 2004 is associated with
actual gas and oil production during November 2003 through April 2004 from the
Underlying Properties. Gas and oil sales from the Underlying Properties for
the six months ended June 30, 2004 and 2003 were as follows: Six Months EndedJune 30,2004
    
    2003Gas:Total sales (Mcf)
    
    
    21,860,720
    
    
    
    22,092,156Mcf per day
    
    
    120,114
    
    
    
    122,056Average price (per Mcf)
    
    $
    4.27
    
    
    $
    3.97Oil:Total Sales (Bbls)
    
    
    38,564
    
    
    
    40,488Bbls per day
    
    
    212
    
    
    
    224Average price (per Bbl)
    
    $
    30.31
    
    
    $
    26.53
 Gas and oil sales attributable to the Royalty for the six months ended
June 30, 2004 and 2003 were as follows: Six Months EndedJune 30,2004
    
    2003Gas sales (Mcf)
    
    
    11,898,659
    
    
    
    12,649,546Oil sales (Bbls)
    
    
    21,313
    
    
    
    23,430
 12




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##### Table of Contents



During the first six months of 2004, gas and oil prices were higher than
during the first six months of 2003. Since the oil and gas sales attributable
to the Royalty are based on an allocation formula that is dependant on such
factors as price and cost, including capital expenditures, the aggregate sales
amounts from the Underlying Properties may not provide a meaningful comparison
to sales attributable to the Royalty. Calculation of Royalty Income Royalty income received by the Trust for the three months and six months
ended June 30, 2004 and 2003, respectively, was computed as shown in the
following table: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Gross proceeds of sales from the
Underlying Properties:Gas proceeds
    
    $
    47,418,520
    
    
    $
    46,884,002
    
    
    $
    93,439,283
    
    
    $
    87,747,042Oil proceeds
    
    
    752,081
    
    
    
    680,484
    
    
    
    1,168,844
    
    
    
    1,074,147Other
    
    
    
    
    
    
    (1,202,368
    )
    
    
    
    
    
    
    (1,202,368
    )Total
    
    
    48,170,601
    
    
    
    46,362,118
    
    
    
    94,608,127
    
    
    
    87,618,821Less production costs:Severance tax  gas
    
    
    4,714,629
    
    
    
    4,640,748
    
    
    
    9,267,453
    
    
    
    8,678,515Severance tax  oil
    
    
    76,676
    
    
    
    59,305
    
    
    
    120,936
    
    
    
    93,514Lease operating expense and property tax
    
    
    4,738,586
    
    
    
    4,037,841
    
    
    
    8,863,441
    
    
    
    8,095,658Other
    
    
    42,763
    
    
    
    26,850
    
    
    
    42,763
    
    
    
    41,850Capital expenditures
    
    
    4,585,697
    (1)
    
    
    2,862,189
    
    
    
    14,039,482
    (1)
    
    
    9,426,008Total
    
    
    14,158,351
    
    
    
    11,626,933
    
    
    
    32,334,075
    
    
    
    26,335,545Less excess
production costs and interest
from prior year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net profits
    
    
    34,012,250
    
    
    
    34,735,185
    
    
    
    62,274,052
    
    
    
    61,283,276Net overriding royalty interest
    
    
    75
    %
    
    
    75
    %
    
    
    75
    %
    
    
    75
    %Royalty income
    
    $
    25,509,188
    
    
    $
    26,051,389
    
    
    $
    46,705,539
    
    
    $
    45,962,457
 (1)


    In July 2004, BROG adjusted the
capital expenditures accrued for the Underlying Properties for the
month of July by approximately $1 million, resulting in a
corresponding increase in the Royalty income received by the Trust in
July 2004. Such adjustment is not reflected in this table as it
occurred after June 30, 2004.
 Contractual Obligations Under the Indenture governing the Trust, the Trustee is entitled to an
administrative fee for its administrative services and the preparation of
quarterly and annual statements of: (i) 1/20 of 1% of the first $100 million of
the annual gross revenue of the Trust, and 1/30 of 1% of the annual gross
revenue of the Trust in excess of $100 million and (ii) the Trustees standard
hourly rates for time in excess of 300 hours annually. As of January 1, 2003,
the administrative fee due under items (i) and (ii) above will not be less than
$36,000 per year (as adjusted annually to reflect the increase, if any, in the
Producers Price Index as published by the U.S. Department of Labor, Bureau of
Labor Statistics). 13




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Effects of Securities Regulation As a publicly-traded trust listed on the New York Stock Exchange (the
NYSE), the Trust is and will continue to be subject to extensive regulation
under, among others, the Securities Act of 1933, the Securities Exchange Act of
1934, the rules and regulations of the NYSE and the Sarbanes-Oxley Act of 2002.
Issuers failing to comply with such authorities risk serious consequences,
including criminal as well as civil and administrative penalties. In most
instances, these laws, rules and regulations do not specifically address their
applicability to publicly-traded trusts, such as the Trust. In particular, the
Sarbanes-Oxley Act of 2002 provides for the adoption by the Securities and
Exchange Commission (the Commission) and NYSE of certain rules and
regulations that may be impossible for the Trust to literally satisfy because
of its nature as a pass-through trust. For example, the Commission is required
to adopt rules and regulations pursuant to the Sarbanes-Oxley Act of 2002 that
would require a publicly-traded companys board of directors, audit committee
or executive directors (or similar body) to act with respect to certain
corporate governance matters. The Trust does not have, nor does the Indenture
governing the Trust provide for, a board of directors, an audit committee or
any executive officers. Accordingly, the Trust could not literally comply with
such rules and regulations. It is the Trustees intention to follow the
Commissions and NYSEs rulemaking closely, attempt to comply with such rules
and regulations and, where appropriate, request relief from these rules and
regulations. However, if the Trust is unable to comply with such rules and
regulations or to obtain appropriate relief, the Trust may be required to
expend as yet unknown but potentially material costs to amend the Indenture
that governs the Trust to allow for compliance with such rules and regulations. During 2003, the Commission adopted rules implementing legislation
concerning governance matters for publicly-held entities that was passed as
part of the Sarbanes-Oxley Act of 2002. In addition, the NYSE adopted
additional corporate governance rules. Not all of the governance requirements
are applicable to passive entities such as the Trust. Critical Accounting Policies In accordance with the Commissions staff accounting bulletins and
consistent with other royalty trusts, the financial statements of the Trust are
prepared on the following basis:  
    
    Royalty income recorded for a month is the amount
computed and paid by BROG to the Trustee for the Trust.  
    
    Trust expenses recorded are based on liabilities paid and
cash reserves established from Royalty income for liabilities and
contingencies.  
    
    Distributions to Unit Holders are recorded when declared
by the Trustee.  
    
    The Conveyance which transferred the Royalty to the Trust
provides that any excess of production costs applicable to the
Underlying Properties over gross proceeds from such properties
must be recovered from future net profits before Royalty income is
again paid to the Trust. The financial statements of the Trust differ from financial statements
prepared in accordance with GAAP because revenues are not accrued in the month
of production; certain cash reserves may be established for contingencies which
would not be accrued in financial statements prepared in accordance with GAAP;
and amortization of the Royalty calculated on a unit-of-production basis is
charged directly to trust corpus instead of an expense. 14




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Trust invests in no derivative financial instruments and has no
foreign operations or long-term debt instruments. The Trust is a passive
entity and is prohibited from engaging in borrowing transactions, other than
the Trusts ability to borrow money periodically as necessary to pay expenses,
liabilities and obligations of the Trust that cannot be paid out of cash held
by the Trust. The amount of any such permitted borrowings is unlikely to be
material to the Trust. The Trust periodically holds short-term investments
acquired with funds held by the Trust pending distribution to Unit Holders and
funds held in reserve for the payment of Trust expenses and liabilities.
Because of the short-term nature of these borrowings and investments and
certain limitations upon the types of such investments which may be held by the
Trust, the Trustee believes that the Trust is not subject to any material
interest rate risk. The Trust does not engage in transactions in foreign
currencies which could expose the Trust or Unit Holders to any foreign currency
related market risk. The Trust does not market the gas, oil and/or natural gas
liquids from the Underlying Properties. BROG is responsible for such
marketing. 
 Item 4. Controls and Procedures. The Trust maintains a system of disclosure controls and procedures that is
designed to provide reasonable assurance that information required to be
disclosed in the Trusts filings under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the Commissions rules and forms. 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 BROG to the
Trustee and its employees who participate in the preparation of the Trusts
periodic reports to allow timely decisions regarding disclosure. Due to the
pass-through nature of the Trust, BROG provides much of the information
disclosed in this Form 10-Q and the other periodic reports filed by the Trust
with the Commission. The Indenture does not require BROG to update or provide information to
the Trust. Under the Conveyance transferring the Royalty to the Trust, BROG is
obligated to provide the Trust with certain information concerning calculations
of net proceeds owed to the Trust, among other information. Pursuant to the
settlement of litigation in 1996 between the Trust and BROG, BROG agreed to
new, more formal financial reporting and audit procedures as compared to those
provided in the Conveyance. The Trustee receives periodic updates from BROG regarding activities
related to the Trust. Accordingly, the Trusts ability to timely report
certain information required to be disclosed in the Trusts periodic reports is
dependent on BROGs timely delivery of such information to the Trust. In order
to help ensure the accuracy and completeness of the information required to be
disclosed in the Trusts periodic reports, the Trust employs independent public
accountants, joint interest auditors, marketing consultants, attorneys and
petroleum engineers. These outside professionals assist the Trustee in
reviewing and compiling this information for inclusion in this Form 10-Q and
the other periodic reports provided by the Trust to the Commission. The Trustee has evaluated the Trusts disclosure controls and procedures
as of June 30, 2004, and has determined that, subject to BROGs delivery of
timely and accurate information to the Trust, such disclosure controls and
procedures are effective. The Trustee has not reviewed the Trusts disclosure
controls and procedures in concert with management, a board of directors or an
independent audit committee. The Trust does not have, nor does the Indenture
provide for, officers, a board of directors or an independent audit committee. 15




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##### Table of Contents



During the quarter ended June 30, 2004, there were no changes in the
Trusts internal control over financial reporting (as defined in Rule 13a-15(f)
of the Securities Exchange Act of 1934) that materially affected or are
reasonably likely to materially affect the Trusts internal control over
financial reporting. 
 PART II
OTHER INFORMATION 
 Item 1. Legal Proceedings. As discussed above under Part I, Item 4 (Controls and Procedures), due to
the pass-through nature of the Trust, BROG provides much of the information
disclosed in this Form 10-Q and the other periodic reports filed by the Trust
with the Commission. Although the Trustee receives periodic updates from BROG
regarding activities which may relate to the Trust, the Trusts ability to
timely report certain information required to be disclosed in the Trusts
periodic reports is dependent on BROGs timely delivery of the information to
the Trust. The Trust is not aware of any material developments in, or the termination
of, any of the legal proceedings disclosed under Part I, Item 3 of the Trusts
Annual Report on Form 10-K for the year ended December 31, 2003, filed with the
Commission on March 15, 2004 (the Annual Report). The Trust is not named as
a party, nor are its assets subject, to any legal proceedings including,
without limitation, those legal proceedings disclosed in the Annual Report.
Should any such legal proceeding be decided in a manner adverse to BROG, the
amount of Royalty income received by the Trust could materially decrease. The
Trust has not received from BROG any estimate of the amount of any potential
loss in such proceedings, or the portion of any such potential loss that might
be allocated to the Royalty. 
 Item 6. Exhibits and Reports on Form 8-K.  (a)
    
    Exhibits.  4(a)
    
    Amended and Restated Royalty Trust Indenture, dated
September 30, 2002 (the original Royalty Trust Indenture, dated
November 1, 1980 having been entered into between Southland
Royalty Company and The Fort Worth National Bank, as Trustee),
heretofore filed as Exhibit 99.2 to the Trusts Current Report
on Form 8-K filed with the Commission on October 1, 2002, is
incorporated herein by reference.4(b)
    
    Net Overriding Royalty Conveyance from Southland
Royalty Company to the Fort Worth National Bank, as Trustee,
dated November 3, 1980 (without Schedules), heretofore filed as
Exhibit 4(b) to the Trusts Annual Report on Form 10-K filed
with the Commission for the fiscal year ended December 31,
1980, is incorporated herein by reference.4(c)
    
    Assignment of Net Overriding Interest (San Juan
Basin Royalty Trust), dated September 30, 2002, between Bank
One, N.A. and TexasBank, heretofore filed as Exhibit 4(c) to
the Trusts Quarterly Report on Form 10-Q filed with the
Commission for the quarter ended September 30, 2002, is
incorporated herein by reference.31
    
    Certification required by Rule 13a-14(a), dated
August 9, 2004, by Lee Ann Anderson, Vice President and Trust
Officer of TexasBank, the Trustee for the Trust.** 16




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32
    
    Certification required by Rule 13a-14(b), dated
August 9, 2004, by Lee Ann Anderson, Vice President and Trust
Officer of TexasBank, on behalf of TexasBank, the Trustee of
the Trust.** **
    
    Filed herewith.  (b)
    
    Reports on Form 8-K.  The Trust furnished a report on Form 8-K on April 21, 2004. In the
report, the Trust reported, under Item 12, that on April 20, 2004,
it had issued a press release announcing a monthly cash distribution
to Unit Holders.The Trust furnished a report on Form 8-K on May 19, 2004. In the
report, the Trust reported, under Item 12, that on May 18, 2004, it
had issued a press release announcing a monthly cash distribution to
Unit Holders.The Trust furnished a report on Form 8-K on June 21, 2004. In the
report, the Trust reported, under Item 12, that on June 18, 2004, it
had issued a press release announcing a monthly cash distribution to
Unit Holders. 17




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##### Table of Contents



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. TEXASBANK, AS TRUSTEE FOR
THE SAN JUAN BASIN ROYALTY TRUSTBy:
    
    /s/ Lee Ann AndersonLee Ann AndersonDate:  August 9, 2004
    
    
    Vice President and Trust Officer (The Trust has no directors or executive officers.)




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##### Table of Contents



INDEX TO EXHIBITS ExhibitNumber
    
    Exhibit4(a)
    
    Amended and Restated Royalty Trust Indenture, dated September 30,
2002 (the original Royalty Trust Indenture, dated November 1, 1980
having been entered into between Southland Royalty Company and The
Fort Worth National Bank, as Trustee), heretofore filed as Exhibit
99.2 to the Trusts Current Report on Form 8-K filed with the
Commission on October 1, 2002, is incorporated herein by
reference.4(b)
    
    Net Overriding Royalty Conveyance from Southland Royalty Company
to the Fort Worth National Bank, as Trustee, dated November 3,
1980 (without Schedules), heretofore filed as Exhibit 4(b) to the
Trusts Annual Report on Form 10-K filed with the Commission for
the fiscal year ended December 31, 1980, is incorporated herein by
reference.4(c)
    
    Assignment of Net Overriding Interest (San Juan Basin Royalty
Trust), dated September 30, 2002, between Bank One, N.A. and
TexasBank, heretofore filed as Exhibit 4(c) to the Trusts
Quarterly Report on Form 10-Q filed with the Commission for the
quarter ended September 30, 2002, is incorporated herein by
reference.31
    
    Certification required by Rule 13a-14(a), dated August 9, 2004, by
Lee Ann Anderson, Vice President and Trust Officer of TexasBank,
the Trustee for the Trust.**32
    
    Certification required by Rule 13a-14(b), dated August 9, 2004, by
Lee Ann Anderson, Vice President and Trust Officer of TexasBank,
on behalf of TexasBank, the Trustee of the Trust.**
   **
    
    Filed herewith