San Juan Basin Royalty is an express trust created under the laws of the state of Texas by the San Juan Basin Royalty Trust Indenture. The Trustee Bank One Texas N.A. has the primary function of collecting monthly net proceeds attributable to the Royalty and making the monthly distributions to the unit holders after deducting administrative expenses and any amounts necessary for cash reserves. San Juan Basin Royalty Trust has a market cap of $649.73 million; its shares were traded at around $13.94 with and P/S ratio of 4.49. The dividend yield of San Juan Basin Royalty Trust stocks is 3.05%. San Juan Basin Royalty Trust had an annual average earning growth of 16% over the past 10 years. GuruFocus rated San Juan Basin Royalty Trust the business predictability rank of 2.5-star. Highlight of Business Operations: The Trust received Royalty income of $2,474,109 and interest income of $806 during the second quarter of 2009. There was no change in cash reserves. After deducting administrative expenses of $686,688, distributable income for the quarter was $1,788,227 ($0.038367 per Unit). In the second quarter of 2008, Royalty income was $35,612,146, interest income was $19,733, there was no change in cash reserves, administrative expenses were $592,778 and distributable income was $35,039,101 ($0.751770 per Unit). Based on 46,608,796 Units outstanding, the per-Unit distributions during the second quarter of 2009 were as follows:
The capital costs attributable to the Underlying Properties for the second quarter of 2009 and deducted by BROG in calculating Royalty income were approximately $11 million. BROG has informed the Trust that the 2009 budget for capital expenditures for the Underlying Properties is $25.2 million. In addition, BROG estimates that during 2009 it will incur capital expenses in the amount of approximately $12.1 million attributable to the capital budgets for 2008 and prior years. Approximately 12% of the planned expenditures attributable to the 2009 budget will be on Fruitland Coal formation projects with the remainder to be spent on conventional projects. BROG reports that based on its actual capital requirements, the pace of regulatory approvals, the mix of projects and swings in the price of natural gas, the actual capital expenditures for 2009 could range from $10 million to $45 million.
BROG anticipates 431 projects in 2009 at an estimated cost of $25.2 million. Approximately $6 million of that budget is allocable to 49 new wells, including 39 wells scheduled to be dually completed in the Mesaverde and Dakota formations and four wells projected to be drilled to formations producing coal seam gas. Approximately $7.1 million will be spent on workovers and facilities projects. Of the $12.1 million attributable to the budgets for prior years, approximately $6.9 million is allocable to new wells, and the $5.2 million balance will be applied to miscellaneous capital projects such as workovers and operated facility projects. BROG also anticipates that the possible implementation of new rules minimizing surface disturbances, requiring the implementation of closed-loop systems for the disposal of drilling fluids and cuttings, and restricting the use of open reserve pits could reduce the number of projects due to increased compliance costs.
BROG has informed the Trust that lease operating expenses and property taxes were $7,813,298 and $213,289, respectively, for the second quarter of 2009, as compared to $7,736,102 and $276,732, respectively, for the second quarter of 2008. BROG reports that lease operating expenses were higher in the second quarter of 2009 compared to the second quarter of 2008 primarily because demand-related increases in the cost of contract services and materials have not yet been mitigated by the decline in natural gas sales prices. New drilling results in increases in salt water disposal as well as compression and other operating costs. In addition, many joint operating agreements call for the increase or decrease in rates charged for the drilling and operation of wells based upon an overhead adjustment factor published annually by the Council for Petroleum Accountants Societies. That factor was set at +7.5% effective as of April 1, 2009.
For the six months ended June 30, 2009, the Trust received Royalty income of $12,024,685 and interest income of $3,411. There was no change in cash reserves. After deducting administrative expenses of $1,270,433, distributable income was $10,757,663 ($0.230807 per Unit) for the six months ended June 30, 2009. For the six months ended June 30, 2008, the Trust received Royalty income of $61,188,564 and interest income of $184,112. There was no change in cash reserves. After deducting administrative expenses of $1,202,852, distributable income was $60,169,824 ($1.290954 per Unit) for the six months ended June 30, 2008.
Capital expenditures incurred by BROG, attributable to the Underlying Properties, for the first six months of 2009 amounted to approximately $20.9 million. Capital expenditures were approximately $12.3 million for the first six months of 2008. For the first six months of 2009, lease operating expenses and property taxes totaled $16,806,125 and $490,021, respectively, as compared to $15,820,090 and $522,028, respectively, for the first six months of 2008.
Read the The complete ReportSJT is in the portfolios of Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.