San Juan Basin Trust halts August cash distribution

DALLAS - San Juan Basin Royalty Trust (NYSE: SJT) announced today it will not issue a monthly cash distribution for August to its unit holders due to June's excess production costs and subdued natural gas prices. The Trust, managed by Argent Trust Company, cited significant lease operating expenses and capital expenditures from Hilcorp San Juan L.P.'s 2024 capital project plan as primary reasons for the shortfall.

Hilcorp's total revenue from the Trust's subject interests for June 2024 was reported at $2,851,950, with gas revenues of $2,577,981 and oil revenues of $273,969. However, production costs for the same period amounted to $6,419,934, leading to excess production costs of approximately $8,456,506 gross—$6,342,379 net to the Trust. These costs will be charged to the next month's distribution, and no cash distributions will be made until future net proceeds can cover current liabilities and replenish cash reserves.

The Trust also reported an increase in administrative expenses totaling $187,698 for the month, attributed to the timing of receipt and payment of certain expenses. Interest income of $6,302 will partially cover these expenses, with the remainder paid from cash reserves, reducing the reserve balance to $1,239,141.

Gas volumes for June were recorded at 1,828,685 Mcf, down from May's 1,970,451 Mcf. The average gas price for June was $1.41 per Mcf, a slight increase from May's $1.14 per Mcf.

The Trustee has previously bolstered cash reserves in March and April 2024, reaching $1.8 million as of April 30, 2024, to cover expenses during revenue shortfalls. The Trust plans to continue increasing the cash reserves to $2.0 million before future distributions are made to unit holders.

The Trust's third-party compliance auditors continue to audit Hilcorp's payments, including sales revenues, production costs, capital expenditures, and other financial adjustments. The auditing process ensures compliance with the underlying operative Trust agreements and evaluates potential remedies in cases of suspected non-compliance.

The information provided is based on a press release statement, and the Trust cautions that forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

InvestingPro Insights

San Juan Basin Royalty Trust's (NYSE: SJT) recent announcement regarding the suspension of its August cash distribution reflects the impact of high production costs and fluctuating natural gas prices on its financial health. For investors considering SJT's current position and future potential, several metrics and InvestingPro Tips offer a deeper insight into the company's performance and stability.

Firstly, SJT's market capitalization stands at $180.84 million, with a Price to Earnings (P/E) ratio of 9.13, indicating how much investors are willing to pay for a dollar of earnings. This is slightly above the adjusted P/E ratio for the last twelve months as of Q1 2024, which is 9.15. The company's Price to Book (P/B) ratio for the same period is notably high at 66.89, suggesting a significant premium over the company's book value.

Despite recent challenges, SJT boasts a strong history of dividend payments, having maintained them for 44 consecutive years. This is underscored by the current dividend yield of 7.07%, which remains attractive to income-focused investors. However, it's important to note that there has been a significant dividend growth decline of -94.42% over the last twelve months as of Q1 2024, reflective of the recent financial pressures.

As an InvestingPro Tip, it's worth mentioning that SJT holds more cash than debt on its balance sheet, which can be a sign of financial prudence and resilience in challenging times. Additionally, the company's liquid assets exceed short-term obligations, providing a cushion against immediate financial stresses.

For investors interested in a comprehensive analysis, there are 7 additional InvestingPro Tips available on the InvestingPro platform for San Juan Basin Royalty Trust, which can provide more nuanced guidance on the trust's investment potential. The InvestingPro Fair Value is currently calculated at $4.88 USD, suggesting a potential undervaluation at the previous close price of $3.88 USD.

These insights, coupled with the Trust's plans to build cash reserves to $2.0 million before resuming distributions, may influence investor decisions in both the short and long term. As always, potential investors are encouraged to consider the full range of data and expert analysis available through InvestingPro to make informed investment choices.

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