# TO OUR UNIT HOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_SJT_2019/NYSE_SJT_2019.mmd` · pages 2-8_

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TO OUR UNIT HOLDERS

We are pleased to present the 2019 Annual Report of the San Juan Basin Royalty Trust (the "Trust"). The report includes a copy of the Trust's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "Commission") for the year ended December 31, 2019, without exhibits. The Form 10-K contains important information concerning the Subject Interests, as defined below, including the oil and gas reserves attributable to the 75% net overriding royalty interest owned by the Trust. Production figures and other information relating to the Subject Interests in this letter and in the accompanying Annual Report on Form 10-K are based on information provided to the Trust by Hilcorp San Juan L.P. ("Hilcorp"), the present owner of certain oil and gas interests originally owned by Southland Royalty Company ("Southland").

The Trust was established in November 1980 by Southland. Pursuant to the Indenture that governs the operations of the Trust, Southland conveyed to the Trust a 75% net overriding royalty interest (similar to a net profits interest) (the "Royalty") that burdens certain oil and natural gas interests (the "Subject Interests") in properties in the San Juan Basin of northwestern New Mexico.

The Royalty constitutes the principal asset of the Trust. The beneficial interest of the Royalty is divided into 46,608,796 units (the "Units") representing undivided fractional interests in the beneficial interests of the Trust. Holders of Units are referred to herein as "Unit Holders." Under the Indenture governing the Trust, the function of BBVA USA, as Trustee ("Trustee"), is to collect the net proceeds attributable to the Royalty ("Royalty Income"), to pay all expenses and charges of the Trust, and to distribute the remaining available income to the Unit Holders. Distributable income for 2019 consisted of Royalty Income and interest income of approximately \(9.9 million, less administrative expenses of \)1.8 million. As a result, income distributed to Unit Holders in 2019 was approximately $8.1 million or $0.173594 per Unit.
The Subject Interests consist of working interests, royalty interests, overriding royalty interests and other contractual rights in 151,900 gross (119,000 net) producing acres in the San Juan, Rio Arriba and Sandoval Counties of northwestern New Mexico. According to the information provided by Hilcorp, there were, as of December 31, 2019, 4,332 gross (826.3 net) wells on the properties underlying the Subject Interests, calculated on a well bore basis and not including multiple completions as separate wells, of which approximately 996 gross (287 net) wells were multiple completion wells, resulting in a total of 5,402 gross (1,145.1 net) completions.

The Subject Interests consist of working interests, royalty interests, overriding royalty interests and other contractual rights in 151,900 gross (119,000 net) producing acres in the San Juan, Rio Arriba and Sandoval Counties of northwestern New Mexico.

Hilcorp has informed the Trust that all of the subject acreage is held by production, and even though it has not been fully developed in every formation, Hilcorp has classified all of such acreage as developed. Production from conventional natural gas wells is primarily from the Pictured Cliffs, Mesaverde and Dakota formations, ranging in depth from 1,500 to 8,000 feet. Additional production is attributable to coal seam reserves in the Fruitland Coal formation.

Approximately 95% of the gross proceeds from the Subject Interests in 2019 was attributable to the production and sale of natural gas by Hilcorp as well as other proceeds. During 2019, the prices of natural gas decreased from an

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average price of \(1.89 per Mcf in 2018 to \)1.79 per Mcf in 2019. The price for oil decreased from an average price of \(52.23 per Bbl in 2018 to \)45.11 per Bbl in 2019. Natural gas production from the Subject Interests decreased from 32,501,962 Mcf in 2018 to 27,603,430 Mcf in 2019. Hilcorp's reporting of natural gas volumes differs from the reporting of gas volumes by Burlington and ConocoPhillips. Such differences could significantly affect the comparison of reported natural gas volumes and average pricing in 2018 and 2019 to those from prior years. For further information on natural gas and oil prices, production volumes, and volume calculated methodology see "Trustee's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of the accompanying Annual Report on Form 10-K.

As of December 31, 2019, proved reserves were estimated by independent engineers to be 49,334 MMcf of natural gas and 172 MBbls of crude oil and condensate.

Hilcorp has informed the Trust that its current 2020 budget for capital expenditures for the Subject Interests (the "2020 Plan") is estimated to be $0.3 million. Hilcorp also informed the Trust that the 2020 Plan will focus on facility projects primarily related to natural gas compression. Due to the current low prices for natural gas, Hilcorp has not planned to conduct any new drill projects or recompletions within the Subject Interests in 2020. However, Hilcorp advised the Trust that the 2020 Plan is subject to revision depending upon changes in prices of natural gas.

Certain Royalty Income is generally considered portfolio income under the passive loss rules of the Internal Revenue Code of 1986, as amended. Therefore, Unit Holders should generally not consider the taxable income from the Trust to be passive income in determining net passive income or loss. Unit Holders should consult their tax advisors for further information. Unit Holders of record will receive an annual individualized tax information letter and a Form 1099 for the year ending December 31, 2019. Unit Holders owning Units in nominee name may obtain monthly tax information from the Trust's website or from the Trustee upon request. Please visit our website at www.sjbrt.com to access news releases, reports, Commission filings and tax information.

BBVA USA, Trustee

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By: Joshua R. Peterson
Head of Trust Real Assets & Mineral Resources
Senior Vice President

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