Hugoton Royalty Trust: Form 10-Q/A for the period ended Sep 30, 2025

The following discussion should be read in conjunction with the Trustee’s discussion and analysis contained in the Trust’s 2024 Annual Report on Form 10-K, as well as the condensed financial statements and notes thereto included in this Quarterly Report on Form 10-Q. The Trust’s Annual Report on Form 10-K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8-K and all amendments to those reports are available on the Trust’s website at www.hgt-hugoton.com (http://www.hgt-hugoton.com).

Recent Updates

Change In Trading Markets

In June 2025, due to the Trust's inability to file its quarterly report on Form 10-Q for the quarter ended March 31, 2025 and resulting non-compliance with SEC regulations, Trust units were de-listed from the OTCQB and began to be quoted on the OTC Pink Market (“OTC Pink”), which is maintained by the OTC Mark Group, Inc. Once the quarterly reports on Form 10-Q for both the first and second quarters were filed, the Trustee applied for and was granted the ability to re-list on the OTCQB. The units still trade under the symbol “HGTXU”.

Results of Operations

Distributable Income

Quarter

For the quarter ended September 30, 2025, net profits income was $0 compared to $0 for third quarter 2024. This was primarily the result of decreased oil and gas production ($3.6 million), increased overhead ($0.7 million), lower oil prices ($.6 million) and increased taxes, transportation and other costs ($0.1 million), partially offset by lower production expense and development cost ($1.8 million), net excess costs activity ($1.5 million), higher gas prices ($1.6 million) and decreased development costs ($0.2 million). See “Net Profits Income” below.

After adding interest income of $4,628, deducting administration expense of $107,037, and utilizing $102,409 of the cash reserve for the payment of Trust expenses, distributable income for the quarter ended September 30, 2025, was $0 or $0.000000 per unit of beneficial interest. Administration expense for the quarter decreased $64,618 compared to the prior year quarter, primarily related to the timing of receipt and payment of Trust expenses and terms of professional services. Changes in interest income are attributable to fluctuations in net profits income, cash reserve and interest rates. For third quarter 2024, distributable income was $0 or $0.000000 per unit.

Distributions to unitholders for the quarter ended September 30, 2025, were:

Nine Months

For the nine months ended September 30, 2025, net profits income was $0 compared with $0 for the same 2024 period primarily due to decreased oil and gas production ($3.1 million), increased development costs ($2.7 million), increased taxes, transportation, and other costs ($1.1 million), lower oil prices ($1.0 million), increased overhead ($0.9 million), partially offset by higher natural gas prices ($3.8 million), net excess costs activity ($3.2 million), and decreased production expense ($1.8 million). See “Net Profits Income” below.

After adding interest income of $9,499 and deducting administration expense of $383,046, and utilizing $373,547 of the cash reserve for the payment of Trust expenses, distributable income for the nine months ended September 30, 2025, was $0 or $0.000000 per unit of beneficial interest. Administration expense for the nine months ended September 30, 2025, decreased $130,755 as compared to the same 2024 period, primarily related to the timing of receipt and payment of Trust expenses and terms of professional services. Changes in interest income are attributable to fluctuations in net profits income, cash reserve and interest rates. For the nine months ended September 30, 2024, distributable income was $0 or $0.000000 per unit.

Based on current excess costs, the Trustee does not foresee any distributions in the near term.

Net Profits Income

Net profits income is recorded when received by the Trust, which is the month following receipt by XTO Energy and Mach, and generally two months after oil and gas production for XTO Energy and three months after oil and gas production for Mach. Net profits income is generally affected by three major factors:

1. oil and gas sales volumes,

2. oil and gas sales prices, and

3. costs deducted in the calculation of net profits income.

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The following is a summary of the calculation of net profits income received by the Trust:

(a) Because of the two-month interval between time of production and receipt of net profits income by the Trust, (1) gas and oil sales for the quarter ended September 30, 2025, generally represent production for the period May and June, and for the quarter ended September 30, 2024, generally represent production for the period May through July, respectively, and (2) gas and oil sales for the nine months ended September 30, 2025, generally represent production for the period November through June, and for the nine months ended September 30, 2024, generally represent production for the period November through July, respectively.

(b) Gas and oil sales volumes are allocated to the net profits interests by dividing Trust net cash inflows by average sales prices. As gas and oil prices change, the Trust’s allocated production volumes are impacted as the quantity of production necessary to cover expenses changes inversely with price. As such, the underlying property production volume changes may not correlate with the Trust’s allocated production volumes in any given period. Therefore, comparative discussion of gas and oil sales volumes is based on the underlying properties.

(c) See Note 4 to Condensed Financial Statements.

The following are explanations of significant variances on the underlying properties from third quarter 2024 to third quarter 2025 and from the first nine months of 2024 to the comparable period in 2025:

Sales Volumes

Gas

Gas sales volumes decreased 41 percent for third quarter 2025 and decreased 13 percent for the nine-month period as compared with the same 2024 periods primarily because of change in the timing of oil and gas sales relating to the Mach acquisition of the Trust’s underlying properties, along with cash receipts and natural production decline, partially offset by the timing of cash receipts.

Oil

Oil sales volumes decreased 48 percent for third quarter 2025 and decreased 11 percent for the nine-month period as compared with the same 2024 periods primarily because of change in the timing of oil and gas sales relating to the Mach acquisition of the Trust’s underlying properties along with natural production decline, partially offset by timing of cash receipts.

The estimated rate of natural production decline on the underlying oil and gas properties is approximately six to eight percent a year.

Sales Prices

Gas

The third quarter 2025 average gas price was $3.32 per Mcf, a 38 percent increase from the third quarter 2024 average gas price of $2.40 per Mcf. For the nine-month period, the average gas price increased 27 percent to $3.65 per Mcf in 2025 from $2.87 per Mcf in 2024.

Oil

The third quarter 2025 average oil price was $61.99 per Bbl, an 18 percent decrease from the third quarter 2024 average oil price of $75.84 per Bbl. The year-to-date average oil price decreased 12 percent to $65.53 per Bbl in 2025 from $74.78 per Bbl in 2024.

Costs

Taxes, Transportation and Other

Taxes, transportation and other costs increased eight percent and 23 percent for third quarter and for the nine-month periods in 2025, respectively, as compared with the same 2024 periods primarily because of the change in accounting period from a three-month lag to a two-month lag due to the change in operator to Mach, partially offset by decreased gas production taxes and gas deductions due to lower revenues.

Production Expense

Production expense decreased 32 percent for third quarter 2025 primarily because of the Chieftain Settlement in 2024, partially offset by the change in accounting period from a three month lag to a two-month lag due to the change in operator to Mach. Production expense decreased 13 percent for the nine-month period as compared with the same 2024 period primarily because of increased labor costs, the change in accounting period from a three month lag to a two-month lag due to the change in operator to Mach, partially offset by the absence of the Chieftain Settlement.

Development Costs

Development costs decreased 54 percent for third quarter 2025 and increased 191 percent for the nine-month period primarily due to the timing of drilling costs related to non-operated wells in Major County, Oklahoma. Changes in oil or natural gas prices could impact future development plans on the underlying properties.

As previously disclosed, XTO Energy advised the Trustee that it elected to participate in the development of four non-operated wells in Major County, Oklahoma. XTO Energy advised the Trustee that the total development costs for the four non-operated wells was anticipated to be approximately $10 million underlying ($8 million net to the Trust). Two wells were completed in second quarter of 2024, the third was completed in fourth quarter 2024, and the fourth was completed in first quarter 2025. No assurances can be made as to the estimated costs of the non-operated wells or timing of receipt of costs for completing the wells.

Mach has advised the Trustee that it does not have a development budget finalized for the properties underlying the Hugoton Royalty Trust at this time.

Overhead

Overhead increased 29 percent for third quarter 2025 and increased 12 percent for the nine-month period, mainly due to the change in accounting period from a three month lag to a two-month lag due to the change in operator to Mach. Overhead is charged by XTO Energy, Mach and other operators for administrative expenses incurred to support operations of the underlying properties. Overhead fluctuates based on changes in the active well count and drilling activity on the underlying properties, as well as an annual cost level adjustment based on an industry index.

Excess Costs

If monthly costs exceed revenues for any conveyance, these excess costs must be recovered, with accrued interest, from future net proceeds of that conveyance and cannot reduce net profits income from another conveyance. Underlying cumulative excess costs for the Kansas, Oklahoma and Wyoming conveyances remaining as of September 30, 2025, totaled $21.7 million ($17.4 million net to the Trust), including accrued interest of $1.7 million ($1.4 million net to the Trust). For further information on excess costs, see Note 4 to Condensed Financial Statements.

Other Proceeds

The calculation of net profits income for the nine months ended September 30, 2025, included $18,242 ($14,594 net to the Trust) from XTO Energy due to interest received on past due payments. The calculation of net profits income for the quarter and nine-month period ended September 30, 2024, included $25,677 ($20,542 net to the Trust) from XTO Energy due to interest received on past due payments.

Contingencies

For information on contingencies, see Note 3 to Condensed Financial Statements.

Forward-Looking Statements

Certain information included in this Quarterly Report and other materials filed, or to be filed, by the Trust with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by XTO Energy, Mach or the Trustee) contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, relating to the Trust, operations of the underlying properties and the oil and gas industry. Such forward-looking statements may concern, among other things, excess costs, continuation of the Trust as a going-concern, or alternatives to a going-concern, listing of the Trust units reserve-to-production ratios, future production, development activities and associated operating expenses, future development plans by area, increased density drilling, maintenance projects, development, production, regulatory and other costs, oil and gas prices and expectations for future demand, the impact of inflation and economic downturns on economic activity, government policy and its impact on oil and gas prices and future demand, the development and competitiveness of alternative energy sources, pricing differentials, proved reserves, future net cash flows, production levels, expense reserve budgets, availability of financing, arbitration, litigation, liquidity, financing, political and regulatory matters, such as tax and environmental policy, climate policy, trade barriers, sanctions, tariffs, competition, war and other political or security disturbances. Such forward-looking statements are based on XTO Energy’s, Mach and the Trustee’s current plans, expectations, assumptions, projections and estimates and are identified by words such as “may,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “should,” “could,” “would,” and similar words that convey the uncertainty of future events. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, including those detailed in Part I, Item 1A of the Trust’s Annual Report on Form 10-K for the year ended December 31, 2024, which is incorporated by this reference as though fully set forth herein. Therefore, actual financial and operational results may differ materially from expectations, estimates or assumptions expressed in, implied in, or forecasted in such forward-looking statements. XTO Energy, Mach and the Trustee assume no duty to update these statements as of any future date.

As of the end of the period covered by this report, the Trustee carried out an evaluation of the effectiveness of the Trust’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Trustee concluded that the Trust’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934 and are effective in ensuring that information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Trustee to allow timely decisions regarding required disclosure. In its evaluation of disclosure controls and procedures, the Trustee has relied, to the extent considered reasonable, on information provided by XTO Energy and Mach. There has not been any change in the Trust’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.

Except as set forth below, there have been no material changes in the risk factors disclosed under Part I, Item 1A of the Trust’s Annual Report on Form 10-K for the year ended December 31, 2024.

The Trust may not have sufficient cash to meet its obligations during the one-year period after the date that the financial statements are issued, and the Trustee has reviewed and intends to continue to review alternatives to the Trust continuing as a going concern.

All three of the Trust’s conveyances are in excess costs resulting in no net proceeds to the Trust and a reduction in the Trust’s expense reserve, which have resulted in no unitholder distributions since July 2023. As a result of these conditions, substantial doubt exists about the Trust’s ability to continue as a going concern as the Trust may not have sufficient cash to meet its obligations during the one-year period after the date the financial statements are issued. The Trust’s financial statements do not include any adjustments that might result from the outcome of this uncertainty. Pursuant to the Settlement Agreement, XTO Energy has advanced $500,000 to the Trust and pursuant to the Advance Distribution Agreement, XTO Energy has advanced an additional $500,000 to the Trust (which advances may be recouped by Mach, who has assumed the right to recoup this advance following the conveyance of XTO Energy’s interest on April 30, 2025, together with interest from what would otherwise be distributable net profits under any of the three conveyances; provided, however, that such recoupment does not leave the Trust with less than $250,000 of available cash). There are no assurances that even with such advances, the Trust will receive net profits income sufficient to pay its obligations during the one-year period after the date the financial statements are issued. The Trustee has sought sources of financing, but currently believes that financing in an amount sufficient to satisfy the Trust's long-term liquidity needs is unlikely to be a viable option for the Trust moving forward. Nothing in the Trust Indenture obligates the Trustee to pay for the Trust’s expenses if the Trust’s cash reserves were to be completely depleted, and the Trustee currently does not intend to advance funds to the Trust. As a result, the Trustee has reviewed and intends to continue to review options for the Trust, which may include alternatives to the Trust continuing as a going concern such as seeking to terminate the Trust or marketing the Trust’s interests (which are net profits interests burdened by excess costs) for a potential sale. The Trustee has reached out to potential third parties regarding interest in the Trust’s assets, but no interest has resulted from such discussions. As a result, the Trustee believes a potential sale of the Trust’s assets may be unlikely in the near term; however, it will continue to consider any and all viable options. Even if a sale of the Trust assets were to occur, there is no assurance that the proceeds would result in funds to distribute to unitholders after all financial obligations of the Trust are met. Any material sale of assets and/or termination of the Trust requires unitholder approval by at least 80 percent of all outstanding units. Once the Trust's cash reserves are depleted, the Trust will likely be unable to continue to make SEC filings, provide reporting to unitholders, or provide audited financial statements or third-party reserve reports. As a result, the unitholders and potential investors may have limited or no information on which to base investment decisions, which could have a negative impact on the market price for the Trust units. If the Trust is unable to continue as a going concern, unitholders could incur significant losses on their investment in the Trust or lose their entire investment in the Trust altogether. For further information see Notes to Condensed Financial Statements - 1. Basis of Accounting – Liquidity and Going Concern.

Items 2-4. Not applicable.