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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 March 31, 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
(State or other jurisdiction
of incorporation or organization)
    
    75-6279898
(I.R.S. Employer
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) N/A
(Former name, former address and former fiscal year, if changed since last report) 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 o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes x No o Number of Units of beneficial interest outstanding at May 10, 2004: 46,608,796    1




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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 by
the independent accountants for the San Juan Basin Royalty Trust (the Trust),
at the request of TexasBank, the Trustee of the Trust, 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 Trust continues to prepare its
financial statements in a manner that differs from accounting principals
generally accepted in the United States of America (GAAP); such 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 and Exchange Act of 1934, although the Trustee 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 for the year ended December 31, 2003. In the opinion of the Trustee,
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the assets, liabilities and trust corpus of the San Juan Basin
Royalty Trust at March 31, 2004, and the distributable income and changes in
trust corpus for the three-month periods ended March 31, 2004 and 2003 have
been included. 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 
 March 31,
    
    December 31,ASSETS
    
    2004
    
    2003(Unaudited)Cash and short-term investments
    
    $
    9,259,177
    
    
    $
    7,082,284Net overriding royalty interest in producing
oil and gas properties (net of accumulated
amortization of $104,144,228 and $103,452,708
at March 31, 2004 and December 31, 2003, respectively)
    
    
    29,131,300
    
    
    
    29,822,820$
    38,390,477
    
    
    $
    36,905,104LIABILITIES AND TRUST CORPUSDistribution payable to Unit Holders
    
    $
    9,144,319
    
    
    $
    6,967,426Cash reserves
    
    
    114,858
    
    
    
    114,858Trust corpus - 46,608,796 Units of beneficial
interest authorized and outstanding
    
    
    29,131,300
    
    
    
    29,822,820$
    38,390,477
    
    
    $
    36,905,104
 CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) 
 Three Months EndedMarch 31,2004
    
    2003Royalty income
    
    $
    21,196,352
    
    
    $
    19,911,068Interest income
    
    
    8,692
    
    
    
    7,45321,205,044
    
    
    
    19,918,521General and administrative expenditures
    
    
    513,163
    
    
    
    420,374Distributable income
    
    $
    20,691,881
    
    
    $
    19,498,147Distributable income per Unit (46,608,796 Units)
    
    $
    0.443948
    
    
    $
    0.418337
 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 EndedMarch 31,2004
    
    2003Trust corpus, beginning of period
    
    $
    29,822,820
    
    
    $
    33,697,906Amortization of net overriding royalty interest
    
    
    (691,520
    )
    
    
    (1,045,545
    )Distributable income
    
    
    20,691,881
    
    
    
    19,498,147Distributions declared
    
    
    (20,691,881
    )
    
    
    (19,498,147
    )Total corpus, end of period
    
    $
    29,131,300
    
    
    $
    32,652,361
 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 ACCOUNTINGThe 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
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. The basis of accounting used by the Trust is widely used by
royalty trusts for financial reporting purposes.2.
    
    FEDERAL INCOME TAXESFor federal income tax purposes, the Trust constitutes a fixed investment
trust which 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 5




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ways, 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 Revenue Procedure 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.
    
    CONTINGENCIESSee Part II  Item 1, Legal Proceedings concerning the status of
litigation matters.4.
    
    SETTLEMENT OF CLAIMS RELATING TO GAS IMBALANCEIn 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 is to be addressed through
volume adjustments whereby the Trusts net overriding royalty interest
will be applied to 50% of the overproduced parties interest, on a
monthly basis, until the imbalance is corrected. The Trust is in
communication with BROG in order to determine the estimated value of the
volume adjustments and the time during which the remainder of the
imbalance will be corrected. Such volume adjustments will be monitored by
the Trusts consultants. 6




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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, effect 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 March 31, 2004 and 2003 The Trust received Royalty income of $21,196,352 and interest income of
$8,692 during the first quarter of 2004. There was no change in cash reserves.
After deducting administrative expenses of $513,163, distributable income for
the quarter was $20,691,881 ($.443948 per Unit). In the first quarter 7




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of 2003, Royalty income was $19,911,068, interest income was $7,453, there
was no change in cash reserves, administrative expenses were $420,374 and
distributable income was $19,498,147 ($.418337 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 first 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 first quarter of 2004 were as follows: January
    
    $
    .115187February
    
    
    .132568March
    
    
    .196193Quarter Total
    
    $
    .443948
 The Royalty income distributed in the first quarter of 2004 was higher
than that distributed in the first quarter of 2003, primarily due to an
increase in the average gas price from $3.51 per Mcf for the first quarter of
2003 to $4.17 per Mcf for the first quarter of 2004. Interest earnings for the
quarter ended March 31, 2004, as compared to the quarter ended March 31, 2003,
were higher, primarily due to an increase in funds available for investment.
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 first
quarter of 2004 were reported by BROG as approximately $9.45 million. BROGs
capital expenditure budget for the Underlying Properties for 2004 is estimated
at $18.5 million of which approximately $383,000 has been spent; however, BROG
reports that based on its actual capital requirements, its mix of projects and
swings in the price of natural gas, the actual capital expenditures for 2004
could range from $15 million to $25 million. Capital expenditures were
approximately $6.6 million for the first 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 is 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 8




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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 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 Trustee that lease operating expenses and property
taxes were $3,998,055 and $126,800, respectively, for the first quarter of
2004, as compared to $3,921,567 and $136,250, respectively, for the first
quarter of 2003. BROG has
reported to the Trustee that during the first quarter of 2004, five
gross (0.17 net) coal seam wells, one gross (0.82 net) coal seam recompletion,
ten gross (6.33 net) conventional wells, three gross (0.007 net) payadds, one
gross (0.44 net) recompletion, and four gross (3.37 net) restimulations were
completed on the Underlying Properties. Three gross (0.12 net) coal seam miscellaneous projects, 78 gross (11.97
net) coal seam wells, ten gross (0.27 net) conventional wells, five gross (1.77
net) payadds, eight gross (5.86 net) recompletions, and 12 gross (8.06 net)
restimulations were in progress at March 31, 2004. There were two gross (0.88 net) coal seam miscellaneous projects, seven
gross (0.87 net) coal seam wells, three gross (0.94 net) miscellaneous capital
projects, nine gross (6.56 net) conventional wells, 19 gross (0.92 net) payadds
and five gross (3.21 net) restimulations completed on the Underlying Properties
as of March 31, 2003. Twenty-seven gross (9.53 net) coal seam wells, one gross
(0.002 net) recavitation, four gross (0.14 net) recompletions, 25 gross (13.02
net) conventional wells, 27 gross (2.52 net) payadds, 14 gross (4.55 net)
recompletions and 26 gross (17.56 net) restimulations were in progress at March
31, 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 production interval in an existing completed zone
in a well. Royalty income for the quarter ended March 31, 2004, is associated with
actual gas and oil production during November 2003 through January 2004 from
the Underlying Properties. Gas and oil sales from the Underlying Properties
for the quarters ended March 31, 2004 and 2003 were as follows: 2004
    
    2003Gas:Total sales (Mcf)
    
    
    11,029,233
    
    
    
    11,637,548Mcf per day
    
    
    119,883
    
    
    
    126,495Average price (per Mcf)
    
    $
    4.17
    
    
    $
    3.51Oil:Total sales (Bbls)
    
    
    14,855
    
    
    
    16,107Bbls per day
    
    
    161
    
    
    
    175Average price (per Bbl)
    
    $
    28.06
    
    
    $
    24.44Gas and oil
sales attributable to
the Royalty for the
quarters ended March 31, 2004 and 2003 were as follows:Gas sales (Mcf)
    
    
    5,505,696
    
    
    
    6,151,128Oil sales (Bbls)
    
    
    7,327
    
    
    
    8,339
 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 9




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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 first quarter of 2004, average gas prices were $.66 higher than
the average prices reported during the first quarter of 2003. The average
price per barrel of oil during the first quarter of 2004 was $3.62 per barrel
higher than that received for the first 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 is preparing 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. Calculation of Royalty Income Royalty income received by the Trust for the three months ended March 31,
2004 and 2003, respectively, was computed as shown in the following table: 2004
    
    2003Gross proceeds of sales from the Underlying Properties:Gas proceeds
    
    $
    46,020,762
    
    
    $
    40,863,040Oil proceeds
    
    
    416,764
    
    
    
    393,663Total
    
    
    46,437,526
    
    
    
    41,256,703Less production costs:Severance tax  Gas
    
    
    4,552,824
    
    
    
    4,037,766Severance tax  Oil
    
    
    44,260
    
    
    
    34,209Lease operating expense and property tax
    
    
    4,124,855
    
    
    
    4,057,817Other
    
    
    
    
    
    
    15,000Capital expenditures
    
    
    9,453,785
    
    
    
    6,563,820Total
    
    
    18,175,724
    
    
    
    14,708,612Less excess production and interest from prior year
    
    
    
    
    
    
    Net profits
    
    
    28,261,802
    
    
    
    26,548,091Net overriding royalty interest
    
    
    75
    %
    
    
    75
    %Royalty income
    
    $
    21,196,352
    
    
    $
    19,911,068
 10




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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). 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. 11




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
    
    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. 
 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 other than the Trusts ability to periodically borrow money as
necessary to pay expenses, liabilities and obligations of the Trust that cannot
be paid out of cash held by the Trust, the Trust is prohibited from engaging in
borrowing transactions. The amount of any such 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. 12




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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 March 31, 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. During the quarter ended March 31, 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. 13




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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 of the Trusts
Current Report on Form 8-K filed with the SEC 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 SEC 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 SEC for
the quarter ended September 30, 2002, is incorporated herein
by reference.*31
    
    Certification required by Rule 13a-14(a), dated
May 10, 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
May 10, 2004, by Lee Ann Anderson, Vice President and Trust
Officer of TexasBank, on behalf of TexasBank, the Trustee of
the Trust.**
  *
    
    A copy of this Exhibit is available to any Unit Holder (free of charge)
upon written request to the Trustee, TexasBank, 2525 Ridgmar Boulevard,
Suite 100, Fort Worth, Texas 76116.**
    
    Filed herewith.
  (b)
    
    Reports on Form 8-K.The Trust furnished a report on Form 8-K on January 21, 2004. In
the report, the Trust reported, under Items 5 and 12, that on
January 20, 2004, it had issued a press release announcing (a) that
the Trustee intends to conduct a meeting of Unit Holders in 2004 to
amend the Indenture governing the Trust and (b) a monthly cash
distribution to Unit Holders.The Trust filed a report on Form 8-K on February 9, 2004. In the
report, the Trust reported, under Item 5, that on February 6, 2004,
it had issued a press release announcing the capital project plan
for 2004 as delivered to it by BROG as well as revisions to the
2003 capital budget estimate.The Trust furnished a report on Form 8-K on February 18, 2004. In
the report, the Trust reported, under Item 12, that on February 17,
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 March 22, 2004. In the
report, the Trust reported, under Item 12, that on March 19, 2004,
it had issued a press release announcing a monthly cash
distribution to Unit Holders. 14




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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: May 10, 2004
    
    Vice President and Trust Officer (The Trust has no directors or executive officers.)




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INDEX TO EXHIBITS ExhibitNumber
    
    Description(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 of the Trusts Current Report on Form 8-K filed with the SEC
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 SEC 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 with the SEC for the quarter ended
September 30, 2002, is incorporated herein by reference.*31
    
    Certification required by Rule 13a-14(a), dated May 10, 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 May 10, 2004, by
Lee Ann Anderson, Vice President and Trust Officer of TexasBank,
on behalf of TexasBank, the Trustee of the Trust.**
   *
    
    A copy of this Exhibit is available to any Unit Holder (free of charge)
upon written request to the Trustee, TexasBank, 2525 Ridgmar Boulevard,
Suite 100, Fort Worth, Texas 76116.**
    
    Filed herewith.