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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, 2007
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File No. 1-8032
 SAN JUAN BASIN ROYALTY TRUST
   Texas
    
    75-6279898(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 
 
 
 þ o
  þ o o
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TABLE OF CONTENTS  PART IItem 1. Financial StatementsItem 2. Trustees Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART IIItem 1. Legal ProceedingsItem 6. ExhibitsSIGNATURESINDEX TO EXHIBITSCertification Required by Rule 13a-14(a) - Lee Ann AndersonCertification Required by Rule 13a-14(b) - Lee Ann Anderson    Table of Contents  SAN JUAN BASIN ROYALTY TRUST
 
 PART I
 FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
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SAN JUAN BASIN ROYALTY TRUST
 CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCash and short-term investments
    
    $
    5,525,326
    
    
    $
    4,657,886Net overriding royalty interest in producing
oil and gas properties (net of accumulated
amortization of $111,826,852 and $111,452,138
at March 31, 2007 and December 31, 2006, respectively)
    
    
    21,448,676
    
    
    
    21,823,390$
    26,974,002
    
    
    $
    26,481,276LIABILITIES AND TRUST CORPUSDistribution payable to Unit Holders
    
    $
    5,410,468
    
    
    $
    4,543,028Cash reserves
    
    
    114,858
    
    
    
    114,858Trust corpus - 46,608,796 Units of beneficial
interest authorized and outstanding
    
    
    21,448,676
    
    
    
    21,823,390$
    26,974,002
    
    
    $
    26,481,276
 CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
 Three Months EndedMarch 31,2007
    
    
    2006Royalty income
    
    $
    23,948,749
    
    
    $
    50,481,086Interest income
    
    
    624,781
    
    
    
    491,66024,573,530
    
    
    
    50,972,746General and administrative expenditures
    
    
    565,648
    
    
    
    482,550Distributable income
    
    $
    24,007,882
    
    
    $
    50,490,196Distributable income per Unit (46,608,796 Units)
    
    $
    0.515094
    
    
    $
    1.083276
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SAN JUAN BASIN ROYALTY TRUST
 CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
 Three Months EndedMarch 31,2007
    
    
    2006Trust corpus, beginning of period
    
    $
    21,823,390
    
    
    $
    23,881,494Amortization of net overriding royalty interest
    
    
    (374,714
    )
    
    
    (603,557
    )Distributable income
    
    
    24,007,882
    
    
    
    50,490,196Distributions declared
    
    
    (24,007,882
    )
    
    
    (50,490,196
    )Total corpus, end of period
    
    $
    21,448,676
    
    
    $
    23,277,937
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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 with respect to
the Trusts 75% net overriding royalty interest (the Royalty) in certain oil and gas
leasehold and royalty interests (the Underlying Properties) by Burlington Resources
Oil & Gas Company LP (BROG), the present owner of the Underlying Properties, to the
Trustee for the Trust. Royalty income consists of the net proceeds received by BROG
from the sale of production from the Underlying Properties less accrued production
costs, development and drilling costs, applicable taxes, operating charges, and other
costs and deductions, multiplied by 75%. The calculation of net proceeds by BROG for
any month includes adjustments to proceeds and costs for prior months and impacts the
Royalty income paid to the Trust and the distribution to Unit Holders for that month.
    
    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 proceeds before Royalty income is
again paid to the Trust.
 The Trusts financial statements for the quarterly period ended June 30, 2006 reflect the
reclassification to interest income of $393,923 previously reported
as Royalty income for the quarterly period ended March 31, 2006.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; expenses are recorded when paid instead of when incurred; 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 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.
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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 issued by the Internal Revenue Service confirming such
tax treatment.Sales of gas production from certain coal seam wells drilled prior to January 1, 1993,
qualified for federal income tax credits under Section 29 (now Section 45K) of the Internal
Revenue Code of 1986, as amended (the Code), through 2002, but not thereafter.
Accordingly, under present law, the Trusts production and sale of gas from coal seam wells
does not qualify for tax credit under Section 45K of the Code (the Section 45K Tax
Credit). Congress has at various times since 2002 considered energy legislation, including
provisions to reinstate the Section 45K 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. For example, on August 8, 2005, new energy tax legislation was enacted which,
among other things, modified the Section 45K Tax Credit in several respects, but did not
extend the credit for production from coal seam wells. 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. 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
be subject to reduction by a Unit Holders passive losses.3.
    
    CONTINGENCIESSee Part II  Item 1, Legal Proceedings concerning the status of litigation matters.4.
    
    SETTLEMENTS AND LITIGATIONAs part of a settlement between BROG and the Mineral Management Service of the United States
Department of the Interior, $901,776 was deducted from the Trusts April 2003 royalty
payment. This represents the Trusts 75% interest of the total settlement. The Trust
reviewed the propriety of this deduction with its consultants and it became one of the
issues submitted to the arbitration described below in this Note 4.During 2006, as part of the ongoing negotiations between the Trust and BROG concerning a
number of revenue and expense audit issues, an aggregate of $1,981,933 was included in
calculating net proceeds paid to the Trust, together with interest of $1,124,063, in
settlement of certain of those audit issues.During the first quarter of 2007, in connection with the resolution of certain audit
exceptions, $576,052 was paid to the Trust by BROG as interest on the late payment of gross
proceeds.On November 11, 2005, an Arbitration Award was issued in favor of the Trust in the aggregate
amount of $7,683,699 in arbitration styled San Juan Basin Royalty Trust vs. Burlington
Resources Oil & Gas Company LP. The purpose of the arbitration was to resolve certain joint
interest audit issues as between the parties to the arbitration. On November 21, 2005, BROG
filed its Original Petition to Vacate or to Modify or Correct Arbitration Award in the cause
styled Burlington Resources Oil & Gas Company LP vs. San Juan Basin Royalty Trust,No.
2005-74370, in the District Court of Harris County, Texas, 281st Judicial District. In this
litigation,
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BROG alleged that the award in favor of the Trust should be vacated or modified because one
of the issues decided was beyond the scope of the matters agreed to be arbitrated, the award
was issued in manifest disregard of applicable law, and a portion of the award is barred by
limitations. BROG also sought to recover its attorneys fees. The Trust filed an answer
and counterclaim in the litigation filed by BROG denying those allegations and asking that
the arbitrators award be confirmed. On April 20, 2006, the Court entered an Order denying
BROGs motion to vacate and granting the Trusts application to confirm the Arbitration
Award and on June 6, 2006, rendered a final judgment in favor of the Trust. However, on May
22, 2006, BROG filed a Notice of Appeal indicating its desire to appeal the Order and any
final judgment confirming the Arbitration Award and on July 5, 2006, filed a Motion for New
Trial in the District Court of Harris County, Texas, urging substantially similar arguments
made at the hearing. The Trust responded to the Motion for New Trial and served BROG with
post-judgment discovery requests. BROGs Motion for New Trial was overruled on August 4,
2006. BROGs distribution to the Trust for July 2006 included $1,534,182 representing a
portion of the Arbitration Award, plus accrued interest. Of this amount, $1,325,826 (the
equivalent of $994,270 grossed up to account for the Trusts 75% net overriding royalty
interest) was included in calculating the net proceeds paid to the Trust, and the accrued
interest thereon was $539,812. The balance of the Arbitration Award is pending BROGs
appeal, which has been assigned No. 01-06-00485-CV in the First Court of Appeals in Houston,
Texas. On August 24, 2006, BROG filed its Supersedeas Bond to secure payment of the balance
of the Arbitration Award, plus interest, if the appeal is dismissed or BROG does not perform
the adverse judgment which becomes final on appeal. The briefs of the parties have been
filed in the First Court of Appeals and oral arguments were heard on April 24, 2007. The
parties will prepare and file letter briefs in support of the positions argued on April 24,
2007 and will then await a ruling on the merits of the appeal. No reliable estimate can be
given as to when the First Court of Appeals will act and it should be noted that the ruling
of the Court on the merits of the appeal will itself be subject to possible discretionary
review by the Texas Supreme Court.
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Item 2. Trustees Discussion and Analysis of Financial Condition and Results of Operations.
 Forward-Looking Information
  Business Overview
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Three Months Ended March 31, 2007 and 2006
  January
    
    $
    .181827February
    
    
    .217184March
    
    
    .116083Quarter Total
    
    $
    .515094
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2007
    
    2006Gas:Total sales (Mcf)
    
    
    8,943,584
    
    
    
    10,830,512Mcf per day
    
    
    97,213
    
    
    
    117,723Average price (per Mcf)
    
    $
    6.04
    
    
    $
    8.44Oil:Total sales (Bbls)
    
    
    18,382
    
    
    
    18,598Bbls per day
    
    
    200
    
    
    
    202Average price (per Bbl)
    
    $
    54.76
    
    
    $
    56.54
  2007
    
    2006Gas sales (Mcf)
    
    
    4,278,905
    
    
    
    6,532,486Oil sales
(Bbls)
    
    
    8,908
    
    
    
    11,153
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Calculation of Royalty Income
  2007
    
    
    2006Gross proceeds of sales from the Underlying Properties:Gas proceeds
    
    $
    53,976,801
    
    
    $
    91,455,578Oil proceeds
    
    
    1,006,513
    
    
    
    1,051,494Total
    
    
    54,983,314
    
    
    
    92,507,072Less production costs:Severance tax  Gas
    
    
    5,288,138
    
    
    
    8,778,228Severance tax  Oil
    
    
    91,501
    
    
    
    104,921Lease operating expense and property tax
    
    
    6,737,076
    
    
    
    5,157,521Other
    
    
    
    
    
    
    Capital expenditures
    
    
    10,934,934
    
    
    
    11,158,287Total
    
    
    23,051,649
    
    
    
    25,198,957Less excess production and interest from prior year
    
    
    
    
    
    
    Net profits
    
    
    31,931,665
    
    
    
    67,308,115Net overriding royalty interest
    
    
    75
    %
    
    
    75
    %Royalty income
    
    $
    23,948,749
    
    
    $
    50,481,086
 Contractual Obligations
  Effects of Securities Regulation
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Critical Accounting Policies
  
    
    Royalty income recorded for a month is the amount computed and paid by BROG to
the Trustee for the Trust. Royalty income consists of the proceeds received by
BROG from the sale of production from the Underlying Properties less accrued
production costs, development and drilling costs, applicable taxes, operating
charges, and other costs and deductions, multiplied by 75%. The calculation of net
proceeds by BROG for any month includes adjustments to proceeds and costs for prior
months and impacts the Royalty income paid to the Trust and the distribution to
Unit Holders for that month.
    
    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.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
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PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings.
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San Juan Basin Royalty Trust vs. Burlington Resources
Oil & Gas Company LP Burlington
Resources Oil & Gas Company LP vs. San Juan Basin Royalty Trust,
  
 Item 6. 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
Commission on October 1, 2002, is incorporated herein by reference.*(4)(b)
    
    Net Overriding Royalty Conveyance from Southland Royalty Company to The Fort Worth
National Bank, as Trustee, dated November 3, 1980 (without Schedules), heretofore filed
as Exhibit 4(b) to the Trusts Annual Report on Form 10-K filed with the Commission for
the fiscal year ended December 31, 2006, is incorporated herein by reference.*
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(4)(c)
    
    Assignment of Net Overriding Interest (San Juan Basin Royalty Trust), dated September
30, 2002, between Bank One, N.A. and TexasBank, heretofore filed as Exhibit 4(c) to the
Trusts Quarterly Report on Form 10-Q filed with the Commission for the quarter ended
September 30, 2002, is incorporated herein by reference.*31
    
    Certification required by Rule 13a-14(a), dated May 10, 2007, by Lee Ann
Anderson, Vice President and Senior Trust Officer of Compass Bank, the Trustee of the
Trust.**32
    
    Certification required by Rule 13a-14(b), dated May 10, 2007 by Lee Ann
Anderson, Vice President and Senior Trust Officer of Compass Bank, on behalf of Compass
Bank, 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, Compass Bank, 2525 Ridgmar Boulevard, Suite 100, Fort Worth, Texas 76116.**
    
    Filed herewith.***
    
    Furnished herewith. 17




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SIGNATURES
  COMPASS BANK, AS TRUSTEE OF THE
SAN JUAN BASIN ROYALTY TRUSTBy:
    /s/ Lee Ann AndersonLee Ann AndersonVice President and Senior Trust Officer




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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
Commission on October 1, 2002, is incorporated herein by
reference.*(4)(b)
    
    Net Overriding Royalty Conveyance from Southland Royalty Company
to The Fort Worth National Bank, as Trustee, dated November 3,
1980 (without Schedules), heretofore filed as Exhibit 4(b) to the
Trusts Annual Report on Form 10-K filed with the Commission for
the fiscal year ended December 31, 2006, 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 Commission for the quarter
ended September 30, 2002, is incorporated herein by reference.*31
    
    Certification required by Rule 13a-14(a), dated May 10, 2007, by
Lee Ann Anderson, Vice President and Senior Trust Officer of
Compass Bank, the Trustee of the Trust.**32
    
    Certification required by Rule 13a-14(b), dated May 10, 2007 by
Lee Ann Anderson, Vice President and Senior Trust Officer of
Compass Bank, on behalf of Compass Bank, 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, Compass Bank, 2525 Ridgmar Boulevard, Suite 100, Fort Worth, Texas
76116.**
    
    Filed herewith.***
    
    Furnished herewith.