production efforts and volumes, hydrocarbon prices, estimated future net revenues, estimates of reserves, the results of the Trusts activities, the differences between Hilcorps
estimated revenue and actual revenue, and regulatory matters. Such forward-looking statements generally are accompanied by words such as may, will, based, estimate, expect,
predict, project, anticipate, believe, plan, intend, or other words that convey the uncertainty of future events or outcomes. Such statements are based on certain assumptions of
the Trustee and by Hilcorp, with respect to future events; are based on an assessment of, and are subject to, a variety of factors deemed relevant by the Trustee and Hilcorp; and involve risks and uncertainties. However, whether actual results and
developments will conform with such expectations and predictions is subject to a number of risks and uncertainties which could affect the future results of the energy industry in general, and the Trust and Hilcorp in particular, and could cause
those results to differ materially from those expressed in such forward-looking statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to, or
effects on, Hilcorps business and the Trust. Such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in such forward-looking statements. The Trust undertakes no
obligation to publicly update or revise any forward-looking statements, except as required by applicable law.
Hilcorp Information
As a holder of a net overriding royalty interest, the Trusts reporting of financial information is reliant upon Hilcorp to accurately and
timely report information regarding Hilcorp and its affiliates; the Subject Interests, including the operations, acreage, well and completion count, working interests, production volumes, sales revenues, capital expenditures, operating expenses,
reserves, drilling plans, drilling results and leasehold terms related to the Subject Interests, and factors and circumstances that have or may affect the foregoing. See Part I, Item 4. Controls and Procedures.
For information on the Trusts exposure to market risk, please see Part II, Item 7A, Quantitative and Qualitative Disclosures About
Market Risk contained in the Trusts Annual Report on Form 10-K for the year ended December 31, 2022.
Item 3. |
Quantitative and Qualitative Disclosures about Market Risk. |
None.
Item 4. |
Controls and Procedures. |
The Trust maintains a system of internal disclosure controls and procedures that is designed to ensure that the information required to be
disclosed in the Trusts filings under the Exchange Act is recorded, processed, summarized, and reported within the times specified in the SECs rules and forms. In its evaluation of its disclosure controls and procedures, the Trustee has
relied, to the extent considered reasonable, on information provided by Hilcorp, the owner of the properties. Consequently, the Trusts ability to timely and accurately disclose relevant information in its periodic reports is dependent upon
Hilcorps timely delivery of accurate oil and gas revenue and production cost information and, therefore, the Royalty Income owed to the Trust.
The Conveyance that transferred the royalty to the Trust obligates Hilcorp to provide the Trust with certain financial and operational
information, including information concerning calculations of Royalty Income owed to the Trust. Once the Trust receives the financial information from Hilcorp, the Trust engages independent public accountants, compliance auditors, attorneys, and
petroleum engineers in order to assist the Trustee to ensure the accuracy and completeness of the information required to be disclosed in the Trusts periodic reports. These outside professionals advise the Trustee in its review and compilation
of this information for inclusion in this Quarterly Report on Form 10-Q and the other periodic reports provided by the Trust to the SEC.
During 2022, various adjustments were made for 2021 and 2022 production periods as a result of Hilcorps process review of the new
accounting system. Hilcorp has informed the Trustee that it has implemented additional controls to enhance the reporting process and reduce the need for future corrections. Hilcorp has indicated that it will coordinate with the Trustee on the timing
of any further adjustments and will communicate that timing to investors.
The Trustee continues to engage with Hilcorp regarding its
ongoing accounting and reporting to the Trust, and the Trusts third-party compliance auditors continue to audit payments made by Hilcorp to the Trust, inclusive of sales revenues, production costs, capital expenditures, adjustments,
actualizations, and recoupments. The Trusts auditing process has also included detailed analysis of Hilcorps pricing and rates charged. As previously disclosed in the Trusts filings, these revenues and costs (along with all costs)
are the subject of the Trusts ongoing comprehensive audit process by our professional consultants and outside counsel to ensure full compliance with all the underlying operative Trust agreements and evaluating all available potential remedies
in the event there is evidence of non-compliance.
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