UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-Q    ☒
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
Quarterly Period Ended September 30, 2023 or  ☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
transition period from  to Commission File No. 001-08032   SAN JUAN BASIN ROYALTY TRUST (Exact name of registrant as specified in the Amended and Restated San Juan Basin Royalty Trust Indenture)    Texas

75-6279898(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.) PNC Bank, National Association PNC Asset Management Group 2200 Post Oak Blvd, Floor 18 Houston, Texas 77056 (Address of principal executive offices) (Zip Code) (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)   Securities
registered pursuant to Section 12(b) of the Act:  Title of each class

Trading
Symbol(s)

Name of each exchange
on which registeredUnits

SJT

New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes  ☒    No  ☐ Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).    Yes  ☐    No  ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of large accelerated filer, accelerated filer, smaller reporting company
and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer

☐

Accelerated filer

☐Non-accelerated filer

☒

Smaller reporting company

☒Emerging growth company

☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).    Yes  ☐    No  ☒ Number of Units of beneficial interest
outstanding at November 14, 2023: 46,608,796




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Table of Contents  PART I. FINANCIAL INFORMATIONItem 1

Financial Statements


1Item 2

Trustees Discussion and Analysis of Financial Condition and Results of Operations


4Item 3

Quantitative and Qualitative Disclosures about Market Risk


10Item 4

Controls and Procedures


11PART II. OTHER INFORMATIONItem 1

Legal Proceedings


11Item 1A

Risk Factors


11Item 2

Unregistered Sales of Equity Securities and Use of Proceeds


11Item 3

Defaults Upon Senior Securities


12Item 4

Mine Safety Disclosures


12Item 5

Other Information


12Item 6

Exhibits


13SIGNATURE




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SAN JUAN BASIN ROYALTY TRUST PART I FINANCIAL INFORMATION  Item 1.
Financial Statements. CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS   September 30,


December 31,2023


2022(Unaudited)


(Audited)ASSETSCash and short-term investments

$
3,507,213


$
5,488,194Net overriding royalty interest in producing oil and gas properties (net of accumulated
amortization of $130,491,750 and $130,306,821 at September 30, 2023 and December 31, 2022, respectively)


2,783,778



2,968,707$
6,290,991


$
8,456,901LIABILITIES AND TRUST CORPUSDistribution payable to Unit Holders

$
2,507,213


$
4,488,194Cash reserves


1,000,000



1,000,000Trust corpus  46,608,796 Units of beneficial interest authorized and outstanding


2,783,778



2,968,707$
6,290,991


$
8,456,901 CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)   Three Months EndedSeptember 30,


Nine Months EndedSeptember 30,2023


2022


2023


2022Royalty income

$
4,320,039


$
21,345,765


$
49,256,075


$
49,959,187Interest income


19,773



12,293



119,075



14,329Total income


4,339,812



21,358,058



49,375,150



49,973,516General and administrative expenses


(392,762
)


(246,581
)


(1,369,320
)


(1,149,770
)Distributable income

$
3,947,050


$
21,111,477


$
48,005,830


$
48,823,746Distributable income per Unit (46,608,796 Units)

$
0.084685


$
0.452950


$
1.029974


$
1.047521   CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)  Three Months EndedSeptember 30,


Nine Months EndedSeptember 30,2023


2022


2023


2022Trust corpus, beginning of period

$
2,812,651


$
3,291,011


$
2,968,707


$
3,690,847Amortization of net overriding royalty interest


(28,873
)


(160,561
)


(184,929
)


(560,397
)Distributable income


3,947,050



21,111,477



48,005,830



48,823,746Distributions declared


(3,947,050
)


(21,111,477
)


(48,005,830
)


(48,823,746
)Trust corpus, end of period

$
2,783,778


$
3,130,450


$
2,783,778


$
3,130,450Distributions declared (per Unit)

$
0.084685


$
0.452950


$
1.029974


$
1.047521   These Condensed Financial Statements should be read in conjunction with the accompanying Notes to Financial Statements included herein.  1




---

1.
Basis of Presentation The preceding condensed statement of assets, liabilities, and trust corpus as of December 31, 2022, which has been derived from audited
financial statements, and the unaudited interim condensed financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). These condensed financial
statements should be read in conjunction with the financial statements and the notes thereto included in San Juan Basin Royalty Trust (the Trust) Annual Report on Form 10-K for the year ended
December 31, 2022. In the opinion of PNC Bank, National Association, the trustee of the Trust (PNC Bank or the Trustee), and based upon information provided to the Trust by Hilcorp San Juan L.P. (Hilcorp),
the present owner of certain oil and gas interests (the Subject Interests) originally owned by Southland Royalty Company (Southland) in properties located in the San Juan Basin of northwestern New Mexico, all adjustments,
consisting only of normal recurring adjustments, have been included that are necessary to fairly present the assets, liabilities and trust corpus of the Trust at September 30, 2023, and the distributable income and changes in trust corpus for
the three-month and nine-month periods ended September 30, 2023 and 2022. The distributable income for such interim periods is not necessarily indicative of the distributable income for the full year. The financial statements of the Trust are prepared on the following basis and are not intended to present the financial position and results
of operations of the Trust in conformity with U.S. generally accepted accounting principles (GAAP):  

The Net Overriding Royalty Conveyance (as amended to date, the Conveyance) conveyed to the Trust a
75% net overriding royalty interest (the Royalty) that burdens the Subject Interests. The Trust receives royalty income (Royalty Income) equal to 75% of the Net Proceeds attributable to the Subject Interests. Net
Proceeds, as used in the Conveyance, means the excess of Gross Proceeds received by Hilcorp during a particular period over Production Costs for such period. Gross Proceeds means the amount received by Hilcorp from the sale of
production attributable to the Subject Interests, subject to certain adjustments (e.g., fuel, gathering and transportation). Production Costs include both capital and non-capital costs incurred by
Hilcorp in operating the Subject Interests including development drilling, production and processing costs, applicable taxes, and operating charges. The calculation of Net Proceeds by Hilcorp for any month may include adjustments to proceeds and
costs for prior months, which will affect the Royalty Income paid to the Trust and the distribution to Unit Holders for that month.  

Although permitted under the Conveyance that transferred the Royalty to the Trust, Hilcorp has informed the Trust
that, for wells operated by Hilcorp, it generally does not intend to accrue lease operating expenses to the Trust.  

Hilcorp has informed the Trust that Gross Proceeds are typically reported to the Trust based on actual volumes
and pricing. Proceeds from production in the first month are generally received by Hilcorp in the second month, the Royalty Income is paid by Hilcorp to the Trustee in the third month, and distribution by the Trustee to the Unit Holders is made in
the fourth month. Net Proceeds for a calendar year are typically based on the actual oil and natural gas production during the period beginning with November of the preceding calendar year through October of the current calendar year.  

Hilcorp has notified the Trust that non-operated revenue is reported to
the Trust based on a three-month lag from operated revenues. Non-operated revenue for a calendar year is typically based on the actual natural gas and oil production during the period beginning with August of
the preceding calendar year through July of the current calendar year.  

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 provides that any excess production costs applicable to the Subject Interests over Gross Proceeds
from such properties must be recovered from future Net Proceeds before Royalty Income is again paid to the Trust. The Trust is not obligated to reimburse Hilcorp for any excess Production Costs if future Gross Proceeds from the Subject Interests are
insufficient to cover such costs.  

Depletion and any impairment are recorded as a reduction in trust corpus instead of an expense. 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 liabilities and contingencies, which would not be accrued in financial statements prepared in accordance with GAAP; expenses are recorded when paid,
instead of when incurred; and amortization of the Royalty is calculated on a unit-of-production basis and is charged directly to the Trust corpus instead of as an
expense. Most accounting pronouncements apply to entities whose financial statements are prepared in accordance with GAAP, directing such entities to accrue or defer revenues and expenses in a period other than when such revenues were received, or
expenses were paid. Because the Trusts financial statements are prepared on the modified cash basis, as described above, most accounting pronouncements are not applicable to the Trusts financial statements. This comprehensive basis of
accounting corresponds to the accounting permitted for royalty trusts by the SEC, as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.  2




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The Trustee routinely reviews the Trusts royalty interests in oil and natural gas
properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If an impairment event occurs and it is determined that the carrying value of the Trusts royalty interests may not
be recoverable, an impairment will be recognized as measured by the amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely be measured by discounting projected cash flows and is
charged directly to the Trust corpus instead of as an expense. There was no impairment of the Trusts assets as of September 30, 2023.  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 Trust is a widely held fixed investment
trust (WHFIT) classified as a non-mortgage widely held fixed investment trust (NMWHFIT) for federal income tax purposes. The Trustee is the representative of the Trust that will provide
tax information in accordance with the applicable U.S. Treasury Regulations governing the information reporting requirements of the Trust as a WHFIT and a NMWHFIT. The Royalty constitutes an economic interest in oil and natural gas properties for federal income tax purposes. Unit Holders must
report their share of the production revenues of the Trust as ordinary income from oil and natural 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. Under present law, the Trusts production and sale of
natural gas from coal seam wells does not qualify for tax credit under Section 45K of the Code (the Section 45 Tax Credit). Congress has at various times since 2002 considered energy legislation, including provisions to
reinstate the Section 45 Tax Credit in various ways and to various extents, but no legislation that would qualify the Trusts current production for such credit has been enacted. No prediction can be made as to what future tax legislation
affecting Section 45K of the Code may be proposed or enacted or, if enacted, its impact, if any, on the Trust and the Unit Holders. The classification of the Trusts income, for purposes of the passive loss rules, may be important to a Unit Holder. Royalty Income, such
as that derived through the Trust, will generally be treated as portfolio income that may not be offset or reduced by passive losses. The
Trustee is of the opinion that the material tax positions taken by the Trust, related to the Trusts pass-through status and state tax positions, would more likely than not be sustained by examination. As of September 30, 2023, the
Trusts tax years 2019 and thereafter remain subject to examination. Each Unit Holder should consult his or her own tax advisor
regarding tax compliance matters related to such Unit Holders interest in the Trust.  3.
Commitments and Contingencies Contingencies related to the Subject Interests that are unfavorably resolved would generally be reflected by the Trust as reductions to future
Royalty Income payments to the Trust with corresponding reductions to cash distributions to Unit Holders. See Note 1 Basis of Presentation, for a summary of the terms of the Conveyance with respect to recovery of costs. Gross Proceeds and Production Cost Estimates. Hilcorp began transitioning to a new accounting system effective with January 2021
production (March 2021 reporting month), and initially reported estimated revenues and severance taxes on the distributions to the Trust. Hilcorp informed the Trust that it completed the transition to its new accounting system and began to report
actual, not estimated, revenue and expenses for operated wells beginning with the June 2021 production month (August 2021 reporting month). Hilcorps process of reconciling actual revenue and severance taxes to the previously reported
estimates, and the reversal and rebooking of the actualized revenues for 2021 production months for non-operated properties, was completed in the February and March 2022 reporting months. During 2022, various adjustments were made for the 2021 and 2022 production periods as a result of Hilcorps process review of the new
accounting system. Hilcorp has informed the Trustee that it has implemented additional controls to enhance the reporting process and reduce the need for future corrections. Hilcorp has indicated that it will coordinate with the Trustee on the timing
of any further adjustments, following which the Trustee will communicate that timing to investors.  3




---

In January 2023, Hilcorp notified the Trust that the accounting project, begun in 2021 to
review the production volume allocations for 2017 through 2020, had been completed. These reallocations affected the volumes for many of the Trust properties and may result in future revisions to previously reported revenues and severance taxes. On
February 17, 2023, Hilcorp presented initial proposed adjustments for 2017 revenues. The Trustee continues to engage with Hilcorp regarding its ongoing accounting and reporting to the Trust, and the Trusts third-party compliance auditors
continue to audit payments made by Hilcorp to the Trust, inclusive of sales revenues, production costs, capital expenditures, adjustments, actualizations, and recoupments. The Trusts auditing process has also included detailed analysis of
Hilcorps pricing and rates charged. As previously disclosed in the Trusts filings, these revenues and costs (along with all costs) are the subject of the Trusts ongoing comprehensive audit process by our professional consultants
and outside counsel to ensure full compliance with all the underlying operative Trust agreements and evaluating all available potential remedies in the event there is evidence of non-compliance. The Biden administration announced in September 2023 that it has moved to shut down future development of oil, gas and mining activity on
approximately 4,200 acres in Sandoval County, New Mexico for the next 50 years. Hilcorp has informed the Trust that the proposed tracts are not within the production area of the Subject Interests or part of any future proposed development plans.  4.
Settlements and Litigation In the course of the most recent audit process by the Trustee, certain exceptions to the several different categories of expenses (specifically
offsite labor, overhead, operator-owned compressors and saltwater disposal facilities) for the years 2017 through 2020 (the 2017-2020 Disputed Expenses) were identified that the Trustee believed resulted in an underpayment of royalties
owed to the Trust for those years. The Trustee engaged in extensive discussions with Hilcorp regarding these exceptions that culminated in Hilcorps payment of the sum of $1,037,093.45, which included the accumulated interest incurred as a
result of the underpayment. The audit settlement payment was included in the September 2023 distribution to Unit Holders.  5.
Subsequent Events On October 20, 2023, the Trust announced a cash distribution of $2,269,587.37 or $0.048694 per Unit, based primarily upon production
during the month of August 2023, which was paid on November 14, 2023.  Item 2.
Trustees Discussion and Analysis of Financial Condition and Results of Operations. Overview The
Trust is an express trust created under the laws of the state of Texas by the San Juan Basin Royalty Trust Indenture entered into on November 1, 1980, between Southland and The Fort Worth National Bank (the Original Indenture). The
Original Indenture was amended and restated on September 30, 2002, and further amended and restated on December 12, 2007, which the Trust refers to as the Indenture in this Quarterly Report on Form 10-Q. As a result of a series of mergers and other transactions, the current Trustee of the Trust is PNC Bank. The
Conveyance and the Royalty Pursuant to the Net Overriding Royalty Conveyance effective November 1, 1980, Southland conveyed the
Royalty that burdens the Subject Interests in properties located in the San Juan Basin of northwestern New Mexico to the Trust. Subsequent to the Conveyance of the Royalty, through a series of sales, assignments and mergers, Southlands
successor became Hilcorp, which acquired the Subject Interests from Burlington Resources Oil & Gas Company LP (Burlington), an indirect wholly-owned subsidiary of ConocoPhillips, on July 31, 2017. The Royalty constitutes the principal asset of the Trust. The beneficial interest in the Royalty is divided into 46,608,796 units (the
Units) representing undivided fractional interests in the beneficial interest of the Trust equal to the number of shares of the common stock of Southland outstanding as of the close of business on November 3, 1980. Each stockholder
of Southland of record at the close of business on November 3, 1980, received one freely tradable Unit for each share of the common stock of Southland then held. Holders of Units in the Trust are referred to herein as Unit Holders. On August 30, 2023, the Trustee entered into a First Amendment to the Conveyance (the Amendment). The Amendment was
entered into (i) pursuant to the terms of the Compromise and Settlement Agreement entered into August 30, 2023, which resolved the 2017-2020 Disputed Expenses by payment to the Trust and (ii) to modify certain terms of the Conveyance
of the Royalty with respect to expenses associated with the operators saltwater disposal facilities.  4




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The Trustee The primary function of the Trustee is to collect Royalty Income, to pay all expenses and charges of the Trust, and to distribute the remaining
available income to the Unit Holders. The amount of income distributable to Unit Holders, which the Trust refers to as Distributable Income, depends on the amount of Royalty Income and interest received by the Trust, as well as the
amount of expenses paid by the Trust and any change in cash reserves. The Trust has no employees, officers, or directors. The Trustee performs all administrative functions of the Trust. Agreement of Conditional Resignation and Special Meeting of Unit Holders On September 12, 2023 the Trustee announced that it entered into an Agreement of Conditional Resignation with Argent Trust Company, a
Tennessee chartered trust company (Argent), pursuant to which the Trustee will be resigning as trustee of the Trust, and will nominate Argent as successor trustee. The Trustees resignation as Trustee, and Argents appointment
as successor trustee, are subject to certain conditions set forth in the Agreement of Conditional Resignation, which include the Unit Holders approval of the appointment of Argent as successor trustee and the approval of an amendment to the
Indenture necessary to permit Argent to serve as successor trustee, together with two additional proposed amendments to the Indenture, at a special meeting of the Unit Holders expected to be held on December 1, 2023. Hilcorp Hilcorp is the principal
operator of the majority of the Subject Interests and is responsible, subject to the terms of a prior agreement with the Trust, for marketing the oil and natural gas production from such properties, either under existing sales contracts or under
future arrangements, at the best prices and on the best terms it shall deem reasonably obtainable under the circumstances. A very high percentage of the Royalty Income is attributable to the production and sale of natural gas, from the Subject
Interests, by Hilcorp. Accordingly, the market price and demand for natural gas produced and sold from the San Juan Basin heavily influences the amount of Royalty Income distributed by the Trust and, by extension, the price of the Units. Natural Gas and Oil.The sale of San Juan Basin assets, including the Subject Interests, from Burlington to Hilcorp closed on
July 31, 2017. Under the terms of the sale, Hilcorp is required to make payments to Burlington if natural gas prices are above a certain price. Hilcorp has confirmed that in accordance with the Conveyance, Hilcorp will not charge the Trust any
portion of such payments. Gross Proceeds and Severance Tax Estimates. Hilcorp began transitioning to a new accounting system
effective with January 2021 production (March 2021 reporting month), and initially reported estimated revenues and severance taxes on the distributions to the Trust. Hilcorp informed the Trust that it completed the transition to its new accounting
system and began to report actual, not estimated, revenue and expenses for operated wells beginning with the June 2021 production month (August 2021 reporting month). Hilcorps process of reconciling actual revenue and severance taxes to the
previously reported estimates, and the reversal and rebooking of the actualized revenues for 2021 production months for non-operated properties, was completed in the February and March 2022 reporting months. During 2022, various adjustments were made for the 2021 and 2022 production periods as a result of Hilcorps process review of the
new accounting system. Hilcorp has informed the Trustee that it has implemented additional controls to enhance the reporting process and reduce the need for future corrections. Hilcorp has indicated that it will coordinate with the Trustee on the
timing of any further adjustments, following which the Trustee will communicate that timing to investors. In January 2023, Hilcorp
notified the Trust that the accounting project, begun in 2021 to review the production volume allocations for 2017 through 2020, had been completed. These reallocations affected the volumes for many of the Trust properties and may result in future
revisions to previously reported revenues and severance taxes. On February 17, 2023, Hilcorp presented initial proposed adjustments for 2017 revenues. The Trustee continues to engage with Hilcorp regarding its ongoing accounting and reporting
to the Trust, and the Trusts third-party compliance auditors continue to audit payments made by Hilcorp to the Trust, inclusive of sales revenues, production costs, capital expenditures, adjustments, actualizations, and recoupments. The
Trusts auditing process has also included detailed analysis of Hilcorps pricing and rates charged. As previously disclosed in the Trusts filings, these revenues and costs (along with all costs) are the subject of the Trusts
ongoing comprehensive audit process by our professional consultants and outside counsel to ensure full compliance with all the underlying operative Trust agreements and evaluating all available remedies in the event there is evidence of non-compliance.  5




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In the course of the most recent audit process by the Trustee, certain exceptions to the
several different categories of expenses (specifically offsite labor, overhead, operator-owned compressors and saltwater disposal facilities) for the years 2017 through 2020 were identified that the Trustee believed resulted in an underpayment of
royalties owed to the Trust for those years. The Trustee engaged in extensive discussions with Hilcorp regarding these exceptions that culminated in Hilcorps payment of the sum of $1,037,093.45, which included the accumulated interest incurred
as a result of the underpayment. The audit settlement payment was included in the September 2023 distribution to Unit Holders. The amount
of Gross Proceeds also depends on the volumes of natural gas and oil produced from the Subject Interests. Under the terms of the Indenture, the Trust cannot acquire new natural gas and oil assets, and as a result, Royalty Income is dependent on the
natural gas and oil volumes attributable to the Subject Interests. Although Hilcorp and other operators of the Subject Interests may conduct drilling operations or well recompletions in the near term, the Subject Interests are depleting assets;
Hilcorp has informed the Trust that it is unable to estimate the productive life of the Subject Interests. The reduction in proved reserve quantities is a common measure of depletion. Hilcorps (or a future operators) capital investments
in the Subject Interests will affect the quantity of proved reserves and can offset any reduction in proved reserves. Lower commodity prices may also reduce the volume of natural gas and oil produced from the Subject Interests by Hilcorp. On February 17, 2023, the Trust announced that Hilcorp had provided the Trust with its 2023 capital project plan for the Subject
Interests (the 2023 Plan), and Hilcorp has estimated its 2023 capital expenditures for the Subject Interests to be $4.4 million. Hilcorp informed the Trust that its 2023 Plan will allocate approximately $3.7 million of the 2023
Plans budget toward 25 well recompletions and workovers scheduled to be completed in the Mesaverde, Pictured Cliffs and Fruitland Coal formations. Approximately $0.5 million of the 2023 Plans budget will be allocated to facilities
projects related to natural gas compression, and approximately $0.2 million will be spent for permitting costs for potential future new drill projects. Hilcorp further informed the Trust that its planned project status for 2023 is subject to
revision if Hilcorp revises its assumptions underlying the 2023 Plan, and actual capital costs may vary from these estimates. Under the
terms of the Conveyance, production costs are deducted from Gross Proceeds in calculating Net Proceeds, which is multiplied by 75% to calculate Royalty Income. Production Costs generally means costs incurred on an accrual basis by
Hilcorp in operating the Subject Interests, including both capital and non-capital costs. For example, these costs include development drilling, production and processing costs, applicable taxes and operating
charges. However, Hilcorp informed the Trust that for wells operated by Hilcorp it did not intend to accrue lease operating expenses to the Trust. If production costs exceed Gross Proceeds in any month, the excess is recovered out of future Gross
Proceeds prior to the making of further payments to the Trust. However, the Trust is not otherwise liable for any Production Costs or other costs or liabilities attributable to the Subject Interests or the minerals produced therefrom. If at any time
the Trust receives more than the amount due under the Royalty, it is not obligated to return such overpayment, but the amounts payable to it for any subsequent period are reduced by such amount, plus interest, at a rate specified in the Conveyance.
The Trust and the Trustee have very limited authority to control the amount and timing of Production Costs. The Trustee continues to
engage with Hilcorp regarding its ongoing accounting and reporting to the Trust, and the Trusts third-party compliance auditors continue to audit all payments made by Hilcorp to the Trust, including adjustments,
true-ups, and recoupments. In addition, the Trustee continues to consult with outside counsel to review the rights of the Trust with respect to these matters and to evaluate any available potential legal
remedies. Factors that Affect Net Proceeds.Generally, Net Proceeds are affected by (a) disruptions caused by weather,
particularly winter storms that disrupt access to the production fields, (b) the timing and size of Hilcorps capital expenditures, and (c) commodity prices. Weather. Hilcorp has advised the Trust that it is possible for it to experience disruptions during the winter months that could impact
Hilcorps ability to access fields and maintain production. Capital Expenditures. The timing and size of capital expenditures
by Hilcorp may impact Net Proceeds. Hilcorps capital expenditures increased approximately $290,196, or 194.53%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, and increased
approximately $259,917, or 77.51% for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. The increases in capital costs in the three-month and nine-month periods were primarily attributable to a
higher capital project spending budget for 2023 as compared to 2022, and to differences in timing of the payment for these expenditures along with capital expenditures attributable to the prior years budget. Commodity Prices. The Trusts income and monthly distributions from the Subject Interests are heavily influenced by the price of
natural gas and oil. These prices may fluctuate widely in response to relatively minor changes in the supply of and demand for natural gas and oil based on market uncertainty or a variety of additional factors that are beyond the Trustees
control. Hilcorp has multiple gas purchase agreements that set forth the prices it will receive for the natural gas and oil produced from
the Subject Interests. There is a differential in the prices reflected in the market indices and the prices received and reported because the prices received and reported vary by purchase agreement, and they are determined after deducting gathering,
processing, and marketing costs for both gas and natural gas liquids. These purchase agreements and costs are subject to a comprehensive audit process by professional accountants and consultants.  6




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Results of Operations  for the Three and Nine Months Ended September 2023 and 2022 Royalty Income.Royalty Income consists of 75% of the monthly Net Proceeds attributable to the Royalty. Royalty Income for the three and
nine months ended September 30, 2023, and 2022 was determined as shown in the following table:  Three Months EndedSeptember 30,


Nine Months EndedSeptember 30,2023


2022


2023


2022Gross proceeds from the Subject Interests:Natural gas

$
12,221,864


$
38,125,266


$
94,688,225


$
95,537,859Oil


1,072,190



1,270,206



2,068,949



2,432,832Other


1,382,791
(1)


274,130
(2)


1,492,304
(1)(3)


1,369,829
(2)(4)Total


14,676,845



39,669,602



98,249,478



99,340,520Production Costs:Severance tax  gas


1,835,573



4,740,258



11,238,501



12,129,688Severance tax  oil


116,995



147,870



224,060



283,567Lease operating expense and property tax


6,524,847



6,171,272



20,516,908



19,979,690Capital expenditures


439,378



149,182



595,242



335,325Total


8,916,793



11,208,582



32,574,711



32,728,270Net profits


5,760,052



28,461,020



65,674,767



66,612,250Net overriding royalty interest


75
%


75
%


75
%


75
%Royalty Income

$
4,320,039


$
21,345,765


$
49,256,075


$
49,959,187  (1)
Revenue comprised of an audit settlement payment and related interest for the 2017 through 2020 disputed
expenses audit. (2)
Revenue with interest related to granted audit exceptions. (3)
Revenue related to a February 2023 true-up for documented October 2022
revenues missing from the January 2023 revenue distribution, plus interest. (4)
Revenue of $97,895 for prior period non-operated revenue true-ups and related interest, $29,826 related to granted audit exceptions and interest, estimated revenue related to audit exceptions and interest, and from non-operated
properties offset by Hilcorps true-ups and adjustments of non-operated revenue for the production months November 2020 through October 2021. The Royalty Income distributed to the Trust for both the three-month and nine-month periods ended September 30, 2023, was lower than that
distributed during the same periods of 2022, due primarily to lower production quantities and lower natural gas prices. The average natural gas price decreased from $6.32 per Mcf for the three months ended September 30, 2022, to $2.04 per Mcf
for the three months ended September 30, 2023. The average natural gas price increased from $5.21 per Mcf for the nine months ended September 30, 2022, to $5.42 per Mcf for the nine months ended September 30, 2023. The slight average
natural gas price increase in the nine-month period was due to higher natural gas pricing in the first quarter of 2023. Production of natural gas from the Subject Interests decreased from 6,032,747 Mcf for the three months ended September 30,
2022, to 5,989,625 Mcf for the three months ended September 30, 2023, and decreased from 18,337,706 Mcf for the nine months ended September 30, 2022, to 17,466,457 Mcf for the nine months ended September 30, 2023. Gross Proceeds from Subject Interests.Total Gross Proceeds decreased approximately $25.0 million, or 63.00%,for the three
months ended September 30, 2023, compared to the three months ended September 30, 2022, and decreased approximately $1.09 million, or 1.10%, for the nine months ended September 30, 2023, compared to the nine months ended
September 30, 2022. The decrease was primarily due to lower production quantities and lower natural gas prices. Capital
Expenditures. On February 17, 2023, the Trust announced that Hilcorp had provided the Trust with its 2023 capital project plan for the Subject Interests (the 2023 Plan), and Hilcorp has estimated its 2023 capital expenditures
for the Subject Interests to be $4.4 million. Hilcorp informed the Trust that its 2023 Plan will allocate approximately $3.7 million of the 2023 Plans budget toward 25 well recompletions and workovers scheduled to be completed in the
Mesaverde, Pictured Cliffs and Fruitland Coal formations. Approximately $0.5 million of the 2023 Plans budget will be allocated to facilities projects related to natural gas compression, and approximately $0.2 million will be spent
for permitting costs for potential future new drill projects. Hilcorp further informed the Trust that its planned project status for 2023 is subject to revision if Hilcorp revises its assumptions underlying the 2023 Plan, and actual capital costs
may vary from these estimates. The timing and size of capital expenditures by Hilcorp may impact Net Proceeds. Hilcorps capital
expenditures increased approximately $290,196, or 194.52%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, and increased approximately $259,917, or 77.51%, for the nine months ended
September 30, 2023 compared to the nine months ended September 30, 2022. The variances in capital costs in the three-month and nine-month periods were primarily due to a higher capital project spending budget for 2023 as compared to 2022
and to differences in timing of the payment for these expenditures along with capital expenditures attributable to the prior years budget.  7




---

Severance Taxes.Aggregate severance taxes decreased approximately
$2.94 million, or 60.05%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Severance taxes decreased approximately $0.95 million, or 7.66%, for the nine months ended
September 30, 2023 compared to the nine months ended September 30, 2022. The decrease in both periods was primarily attributable to lower Gross Proceeds. Severance taxes represented approximately 13.30% of Gross Proceeds for the three
months ended September 30, 2023 compared to approximately 12.32% for the same period of 2022. Severance taxes represented approximately 11.67% of Gross Proceeds for the nine months ended September 30, 2023 compared to approximately 12.50%
for the same period of 2022. Lease Operating Expenses and Property Taxes. Lease operating expenses and property taxes increased
$353,575, or 5.73%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Lease operating expenses and property taxes increased $537,218, or 2.69%, for the nine months ended September 30,
2023 compared to the nine months ended September 30, 2022. Monthly leaseoperating expenses for the Subject Interests, including property taxes, for the three months ended September 30, 2023, averaged approximately
$2.18 million compared to $2.06 million for the three months ended September 30, 2022. Monthly lease operating expenses of the Subject Interests, including property taxes, for the nine-month period ended September 30, 2023
averaged $2.28 million compared to $2.22 million for the nine-month period ended September 30, 2022. Distributable
Income.Distributable Income for the three and nine months ended September 30, 2023, and 2022 was determined as shown in the following table:  Three Months EndedSeptember 30,


Nine Months EndedSeptember 30,2023


2022


2023


2022Royalty income

$
4,320,039


$
21,345,765


$
49,256,075


$
49,959,187Interest income


19,773



12,293



119,075



14,329Total income


4,339,812



21,358,058



49,375,150



49,973,516General and administrative expenses


(392,762
)


(246,581
)


(1,369,320
)


(1,149,770
)Distributable income

$
3,947,050


$
21,111,477


$
48,005,830


$
48,823,746Distributable income per Unit (46,608,796 Units)

$
0.084685


$
0.452950


$
1.029974


$
1.047521 Distributable Income decreased approximately 81.30% from $21.1 million ($0.452950 per Unit) for the three
months ended September 30, 2022, to $3.9 million ($0.084685 per Unit) for the three months ended September 30, 2023. Distributable Income decreased approximately 1.68% from $48.8 million ($1.047521 per Unit) for the nine months
ended September 30, 2022 to $48.0 million ($1.029974 per Unit) for the nine months ended September 30, 2023. The decreases in Distributable Income were primarily attributable to lower production quantities, exacerbated by lower
natural gas prices. Based on 46,608,796 Units outstanding, the per-Unit distributions during the
third quarter of 2023 were as follows:  July

$
0.010201August


0.020691September


0.053793Quarter Total

$
0.084685 Interest Income.Interest income was higher for the three-month and nine-month periods ended
September 30, 2023, as compared to the same periods in 2022 primarily due to higher yields on short-term investments. General& Administrative Expenses. General and administrative expenses increased approximately 59.28% for
the three months ended September 30, 2023 compared to the three months ended September 30, 2022 and increased approximately 19.10% for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.
The changes for both periods were primarily attributable to differences in timing in the receipt and payment of certain expenses by the Trust. Cash Reserves. Total cash reserves were $1.0 million as of September 30, 2023. The Trustee is authorized to determine,
in its discretion, the amount of cash reserves needed to pay liabilities and contingencies of the Trust. The Trustee does not anticipate increasing or decreasing the established amount of cash reserves in 2023, although it cannot predict whether it
will need to utilize some portion of those cash reserves during 2023.  8




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Liquidity and Capital Resources The Trusts principal source of liquidity and capital is Royalty Income. The Trusts distribution of income to Unit Holders is funded
by Royalty Income after payment of Trust expenses. The Trust is not liable for any Production Costs or liabilities attributable to the Royalty. If at any time the Trust receives more than the amount due under the Royalty, it is not obligated to
return such overpayment, but the amounts payable to it for any subsequent period are reduced by such amount, plus interest, at a rate specified in the Conveyance. If the Trustee determines that the Trust does not have sufficient funds to pay its
liabilities, the Trustee may borrow funds on behalf of the Trust, in which case no distributions will be made to Unit Holders until such borrowings are repaid in full. The Trustee may not sell or dispose of any part of the assets of the Trust
without the affirmative vote of the Unit Holders of 75% of all of the Units outstanding; however, the Trustee may sell up to 1% of the value of the Royalty (as determined pursuant to the Indenture) during
any 12-month period without the consent of the Unit Holders. In the event the Trust
does not receive Royalty Income from Hilcorp sufficient to pay its liabilities, the Trust believes it has sufficient capacity to draw upon the cash reserve amount or borrow funds against the Royalty to cover the Trusts operating expenses until
its cash reserve can be replenished from subsequent Royalty Income payments from Hilcorp. Natural Gas and Oil Production The natural gas volumes reported to the Trust by Hilcorp are based on plant residue gas volumes plus equivalent volumes for natural gas
liquids. Hilcorp converts one barrel of natural gas liquids to six Mcf of natural gas using industry standards. Royalty Income for
the three months ended September 30, 2023, is associated with natural gas and oil production during May through July 2023 from the Subject Interests. Production of natural gas and oil and related average sales prices attributable to each of the Subject Interests and the Royalty for the three
months ended September 30, 2023, and 2022 were as follows:  For the Three Months Ended September 30,2023


2022Natural Gas(Mcf)


Oil andCondensate(Bbls)


Natural Gas(Mcf)


Oil andCondensate(Bbls)ProductionSubject Interests


5,989,625



17,292



6,032,747



12,971Royalty


1,426,197



12,025



3,660,384



9,181Average Price (per Mcf/Bbl)

$
2.04


$
62.00


$
6.32


$
97.93 Production of natural gas and oil and related average sales prices attributable to each of the Subject
Interests and the Royalty for the nine months ended September 30, 2023, and 2022 were as follows:  For the Nine Months Ended September 30,2023


2022Natural Gas(Mcf)


Oil andCondensate(Bbls)


Natural Gas(Mcf)


Oil andCondensate(Bbls)ProductionSubject Interests


17,466,457



32,001



18,337,706



27,261Royalty


7,373,169



21,299



10,284,428



18,292Average Price (per Mcf/Bbl)

$
5.42


$
64.65


$
5.21


$
89.24 Based on Hilcorps reporting methodology, the Trust recognizes production during the month in which the
related Royalty Income is paid to the Trust. Royalty Income for a calendar year is based on the actual natural gas and oil production during the period beginning with November of the preceding calendar year through October of the current calendar
year. Sales volumes attributable to the Royalty are determined by dividing the net profits by the Trust from the sale of natural gas and oil, respectively, by the prices received for sales of such volumes from the Subject Interests, taking into
consideration production taxes attributable to the Subject Interests. Because the natural gas and oil sales attributable to the Royalty are based upon an allocation formula dependent on such factors as price and cost, including capital expenditures,
the aggregate sales amounts from the Subject Interests may not provide a meaningful comparison to sales attributable to the Royalty. The
fluctuations in natural gas production that have occurred during the three-month periods ended September 30, 2023, and 2022, respectively, generally resulted from changes in the demand for natural gas during that time, market conditions, and
variances in capital spending to generate production from new and existing wells, as offset by the natural production decline curve. Also, production from the Subject Interests is influenced by the line pressure of the natural gas gathering
systems in the San Juan Basin. As noted above, natural gas and oil sales attributable to the Royalty are based on an allocation formula dependent on many factors, including natural gas and oil prices and capital expenditures.  9




---

Marketing There were no changes to the contracts pursuant to which Hilcorp sells production from the Subject Interests and for the gathering and
processing of production during the three months ended September 30, 2023. Off-Balance Sheet
Arrangements None. Critical
Accounting Policies and Estimates For a discussion of significant accounting policies and estimates that impact the Trusts
financial statements, see Part I, Item 1. Unaudited Financial Statements, Note 1 Basis of Presentation and Part II, Item 8. Financial Statements and Supplemental Data contained in the Trusts Annual Report on Form
10-K for the year ended December 31, 2022. Information Regarding 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 SEC (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, as amended (the Exchange Act) and Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements may involve or may concern, among other things, the amount and variability in
capital expenditures by Hilcorp, drilling activity, development activities, production efforts and volumes, hydrocarbon prices, estimated future net revenues, estimates of reserves, the results of the Trusts activities, the differences between
Hilcorps estimated revenue and actual revenue, and regulatory matters. Such forward-looking statements generally are accompanied by words such as may, will, based, estimate, expect,
predict, project, anticipate, believe, plan, intend, or other words that convey the uncertainty of future events or outcomes. Such statements are based on certain assumptions of
the Trustee and by Hilcorp, 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 Hilcorp; and involve risks and uncertainties. However, whether actual results and
developments will conform with such expectations and predictions is subject to a number of risks and uncertainties which could affect the future results of the energy industry in general, and the Trust and Hilcorp in particular, and could cause
those results to differ materially from those expressed in such forward-looking statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to, or
effects on, Hilcorps business and the Trust. Such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in such forward-looking statements. The Trust undertakes no
obligation to publicly update or revise any forward-looking statements, except as required by applicable law. Hilcorp Information As a holder of a net overriding royalty interest, the Trusts reporting of financial information is reliant upon Hilcorp to accurately and
timely report information regarding Hilcorp and its affiliates; the Subject Interests, including the operations, acreage, well and completion count, working interests, production volumes, sales revenues, capital expenditures, operating expenses,
reserves, drilling plans, drilling results and leasehold terms related to the Subject Interests, and factors and circumstances that have or may affect the foregoing. See Part I, Item 4. Controls and Procedures. For information on the Trusts exposure to market risk, please see Part II, Item 7A, Quantitative and Qualitative Disclosures About
Market Risk contained in the Trusts Annual Report on Form 10-K for the year ended December 31, 2022.  Item 3.
Quantitative and Qualitative Disclosures about Market Risk. None.  10




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Item 4.
Controls and Procedures. The Trust maintains a system of internal disclosure controls and procedures that is designed to ensure that the information required to be
disclosed in the Trusts filings under the Exchange Act is recorded, processed, summarized, and reported within the times specified in the SECs rules and forms. In its evaluation of its disclosure controls and procedures, the Trustee has
relied, to the extent considered reasonable, on information provided by Hilcorp, the owner of the properties. Consequently, the Trusts ability to timely and accurately disclose relevant information in its periodic reports is dependent upon
Hilcorps timely delivery of accurate oil and gas revenue and production cost information and, therefore, the Royalty Income owed to the Trust. The Conveyance that transferred the royalty to the Trust obligates Hilcorp to provide the Trust with certain financial and operational
information, including information concerning calculations of Royalty Income owed to the Trust. Once the Trust receives the financial information from Hilcorp, the Trust engages independent public accountants, compliance auditors, attorneys, and
petroleum engineers in order to assist the Trustee to ensure the accuracy and completeness of the information required to be disclosed in the Trusts periodic reports. These outside professionals advise the Trustee in its review and compilation
of this information for inclusion in this Quarterly Report on Form 10-Q and the other periodic reports provided by the Trust to the SEC. During 2022, various adjustments were made for 2021 and 2022 production periods as a result of Hilcorps process review of the new
accounting system. Hilcorp has informed the Trustee that it has implemented additional controls to enhance the reporting process and reduce the need for future corrections. Hilcorp has indicated that it will coordinate with the Trustee on the timing
of any further adjustments and will communicate that timing to investors. The Trustee continues to engage with Hilcorp regarding its
ongoing accounting and reporting to the Trust, and the Trusts third-party compliance auditors continue to audit payments made by Hilcorp to the Trust, inclusive of sales revenues, production costs, capital expenditures, adjustments,
actualizations, and recoupments. The Trusts auditing process has also included detailed analysis of Hilcorps pricing and rates charged. As previously disclosed in the Trusts filings, these revenues and costs (along with all costs)
are the subject of the Trusts ongoing comprehensive audit process by our professional consultants and outside counsel to ensure full compliance with all the underlying operative Trust agreements and evaluating all available potential remedies
in the event there is evidence of non-compliance. The Trustee has evaluated the Trusts
internal disclosure controls and procedures as of September 30, 2023, and has concluded that such disclosure controls and procedures are effective, at the reasonable assurance level (as such term is used in Rule 13a-15(f) of the Exchange Act), to ensure that material information received from Hilcorp is gathered on a timely basis to be included in the Trusts periodic reports and recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms. Additionally, during the three months ended
September 30, 2023, there were no changes in the Trusts internal control over financial reporting (as such term is used in Rule 13a-15(f) of the Exchange Act) that materially affected, or are
reasonably likely to materially affect, the Trusts internal control over financial reporting. Because the Trust does not have, nor does the Indenture provide for, officers, a board of directors or an independent audit committee, the Trustee
has reviewed neither the Trusts disclosure controls and procedures nor the Trusts internal control over financial reporting in concert with management, a board of directors or an independent audit committee. PART II OTHER INFORMATION  Item 1.
Legal Proceedings. None.  Item 1A.
Risk Factors. Not required.  Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds. None.  11




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Item 3.
Defaults Upon Senior Securities. None.  Item 4.
Mine Safety Disclosures. Not applicable.  Item 5.
Other Information. None.  12




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Item 6.
Exhibits.  ExhibitNumber

Description(4)(a)

San Juan Basin Amended and Restated Royalty Trust Indenture, dated December 
12, 2007, filed as Exhibit 99.2 to the Trusts Current Report on Form 8-K filed with the SEC on December 14, 2007, and incorporated herein by reference. *(4)(b)

Net Overriding Royalty Conveyance from Southland Royalty Company to The Fort Worth National Bank, as Trustee, dated November 
1, 1980 (without Schedules), filed as Exhibit 4(b) to the Trusts Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2006, on March 
1, 2007, and 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 Texas Bank, 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, and incorporated herein by reference. *(4)(e)

First Amendment to the Conveyance, effective as of August 
30, 2023, by and between PNC Bank, N.A., in its capacity as Trustee of the San Juan Basin Royalty Trust, and Hilcorp San Juan, L.P., filed as Exhibit 4(e) to the Trusts Current Report on Form 8-K filed with
 the SEC on August 30, 2023, and incorporated herein by reference. *(10)(b)

Compromise and Settlement Agreement, effective as of August 
30, 2023, by and between PNC Bank, N.A., in its capacity as Trustee of the San Juan Basin Royalty Trust, and Hilcorp San Juan, L.P., filed as Exhibit 10(b) to the Trusts Current Report on Form 8-K filed with
 the SEC on August 30, 2023, and incorporated herein by reference. *31

Certification required by Rule 13a-14(a), dated November 
14, 2023, by Ross C. Durr, RPL, Senior Vice President, Mineral Interest Director of the Trustee of the Trust**32

Certification required by Rule 13a-14(b), dated November 
14, 2023, by Ross C. Durr, RPL, Senior Vice President, Mineral Interest Director of 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,
PNC Bank, National Association, 2200 Post Oak Blvd., Floor 18, Houston, Texas 77056. **
Filed herewith. ***
Furnished herewith.  13




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SIGNATURE 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.  PNC BANK, NATIONAL ASSOCIATION, AS TRUSTEE OF THE
SAN JUAN BASIN ROYALTY TRUSTBy:

/s/ Ross C. DurrRoss C. Durr, RPL Senior Vice President
Mineral Interest Director
 Date: November 14, 2023 (The Trust has no directors or executive officers.)  14