# TO OUR UNIT HOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/energy-oil-gas-e-p/NYSE_SJT_2021/NYSE_SJT_2021.mmd` · pages 1-7_

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TO OUR UNIT HOLDERS

We are pleased to present the 2021 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, 2021, without exhibits. The Form 10-K contains important information concerning the operations of the Trust and certain oil and gas reserves (the "Subject Interests") burdened by and attributable to the 75% net overriding royalty interest (similar to a net profits interest) (the "Royalty") 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 (including those comprising the Subject 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 (the "Indenture"), Southland conveyed to the Trust the Royalty that burdens 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 interest of the Royalty. Holders of Units are referred to herein as "Unit Holders." Under the Indenture, the function of PNC Bank, National Association, the trustee of the Trust ("PNC Bank" or the "Trustee"), is to receive royalty income ("Royalty Income") equal to 75% of the Net Proceeds attributable to the Subject Interests, to pay all expenses and charges of the Trust, and to distribute the remaining available income to the Unit Holders. Distributable income for 2021 consisted of Royalty Income and interest income of approximately $37.6 million, less administrative expenses of $1.65 million. As a result, income distributed to Unit Holders in 2021 was approximately $36 million or $0.771744 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, 2021, 4,322 gross (824.1 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 991 gross (283.7 net) wells were Multiple Completion Wells, resulting in a total of 5,390 gross (1,140.0 net) completions.

# INCOME DISTRIBUTED TO
UNIT HOLDERS IN 2021
WAS APPROXIMATELY
$36 MILLION OR $0.77I744
PER UNIT.

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, Measverde 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 98% of the gross proceeds from the Subject Interests in 2021 was attributable to the production and sale of natural gas by Hilcorp as well as other proceeds. During 2021, the prices of natural gas increased from an average price of \(1.51 in 2020 to \)3.20 per Mcf in 2021. The price for oil increased from an average price of \(31.47 per Bbl in 2020 to \)54.72 in 2021. Natural gas production from the Subject Interests decreased from 25,778,912 Mcf in 2020 to 24,209,889 in 2021.

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As of December 31, 2021, proved reserves were estimated by independent engineers to be 84,142 MMcf of natural gas and 234 MBbls of crude oil and condensate.

APPROXIMATELY 98% OF
THE GROSS PROCEEDS
FROM THE SUBJECT
INTERESTS IN 2021 WAS
ATTRIBUTABLE TO THE
PRODUCTION AND SALE
OF NATURAL GAS BY
HILCORP AS WELL AS
OTHER PROCEEDS.

Hilcorp has informed the Trust that its current 2022 budget for capital expenditures for the Subject Interests (the "2022 Plan") is estimated to be \(1.9 million. Hilcorp also informed the Trust that the 2022 Plan will allocate approximately \)1.5 million of the 2022 Plan's budget towards 24 well recompletions and workovers scheduled to be completed in the Mesaverde, Pictured Cliffs and Fruitland Coal formations. Approximately \(300,000 of the 2022 Plan's budget will be allocated to facilities projects related to natural gas compression, and approximately \)100,000 will be spent for permitting and surveying costs for future new drill projects that are being considered for 2023 and 2024. Hilcorp further informed the Trust that its planned project status for 2022 is subject to revision if Hilcorp revises its assumptions underlying the 2022 Plan, and that actual capital costs may vary from these estimates.
THE BENEFICIAL INTEREST OF THE ROYALTY IS DIVIDED INTO 46,608,796 UNITS (THE "UNITS") REPRESENTING UNDIVIDED FRACTIONAL INTERESTS IN THE BENEFICIAL INTEREST OF THE ROYALTY.

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, 2021. 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.

PNC Bank, National Association, Trustee

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BY: JAMES R. WILHARM
Senior Vice President
Director of Trust Real Estate Services