Royalty and Other Income. The Trust’s Royalty and other income was $552,994 for the nine months ended September 30, 2024, as compared to $2,982,346 for the nine months ended September 30, 2023. All of the Royalty income received in the nine months ended September 30, 2024 and the majority of the Royalty income received in the nine months ended September 30, 2023 was from Hilcorp. The decrease in Royalty income was primarily a result of decreases in pricing for natural gas and natural gas liquids, decreases in net production volumes for natural gas, natural gas liquids and oil and condensate, increases in capital expense for natural gas, natural gas liquids and oil and condensate and increases in operating expense for natural gas liquids and oil and condensate, for Hilcorp, partially offset by an increase in pricing for oil and condensate and a decrease in operating expense for natural gas for Hilcorp, in the quarter ended September 30, 2024 as compared to the quarter ended September 30, 2023.
Interest Income. The Trust’s interest income for the nine months ended September 30, 2024 and 2023 was $74,532 and $75,351, respectively. In accordance with the Trust Indenture and as explained below, interest on cash on hand was paid at a rate equivalent to a 7.00% annualized return from January 1, 2024 through September 18, 2024 and a 6.50% annualized return from September 19, 2024 through September 30, 2024.
General and Administrative Expense. General and administrative expense was $157,587 and $151,479 for the nine months ended September 30, 2024 and 2023, respectively. The Trustee’s fees are included in general and administrative expense.
For the nine months ended September 30, 2024, the Trustee was due $356,250 for its services. The Trust paid $324,865 of this amount to the Trustee, and $31,385 was allocated to offset against interest due to the Trust under the Trust Indenture. The Trust Indenture requires that cash being held by the Trustee earn interest at 1.5% below the prime rate, which would have yielded the Trust a 7.00% annualized return from January 1, 2024 through September 18, 2024 and a 6.50% annualized return from September 19, 2024 through September 30, 2024. However, due to the current interest rate environment, the Trustee was unable to obtain an account in which such an interest rate was available. In the event such an interest rate is unavailable in the future, the Trustee intends to allocate certain of its fees due to the Trust to meet the minimum interest rate payable under the Trust Indenture. In future periods, the Trustee will continue to allocate a portion of the fees earned for its services to the Trust until all remaining interest due to the Trust is fully offset.
Unreimbursed Expenses and the Contingent Reserve. The Working Interest Owners partially reimburse the Trust each quarter for amounts paid in connection with the Trustee’s services. For the nine months ended September 30, 2024, the Trustee’s fees were $324,865 and the Working Interest Owners reimbursed a sum of $287,691 to the Trustee, which was the same amount reimbursed for the nine months ended September 30, 2023. As of each of the nine-month periods ended September 30, 2024 and 2023, there were $0 and $0, respectively, of unreimbursed expenses.
The terms of the Trust Indenture provide, among other things, that the Trustee may establish cash reserves and borrow funds to pay liabilities of the Trust, and may pledge assets of the Trust to secure payment of the borrowings in accordance with the Trust Indenture. At any given time, the amount reserved for such future unknown contingent liabilities and expenses (such cumulative withholding being the “Contingent Reserve”) is included in cash and short-term investments. The Trustee utilizes the Contingent Reserve in its discretion in accordance with the Conveyance, and adjusts the balance of the Contingent Reserve as necessary when funds are added or removed. The net effects of such adjustments for the nine months ended September 30, 2024 resulted in the balance of the Contingent Reserve being equal to $1,644,560 as of September 30, 2023 and equal to $1,867,792 as of September 30, 2024. The Trustee intends to increase the Contingent Reserve to a total of $2.0 million.