San Juan Basin Royalty Trust (SJT) risk factors, FY2024 10-K

BUSINESS AND OPERATING RISKS

1. 01Oil and gas prices fluctuate due to a number of factors, and lower prices will reduce net proceeds to the Trust and distributions to Unit Holders
2. 02Trust reserve estimates depend on many assumptions that may prove to be inaccurate, which could cause both estimated reserves and estimated future revenues to be too high
3. 03assumptions about future commodity price adjustments, production and development costs, severance and excise taxes, and capital expenditures
4. 04Operating risks for Hilcorp and other operators of the properties underlying the Subject Interests can adversely affect Trust distributions
5. 05A bankruptcy of Hilcorp or any third-party operator could adversely affect the operation of the wells and the development of the proved undeveloped reserves and interrupt or decrease distributions to Trust Unit Holders

FINANCIAL RISKS

1. 06Mineral properties, such as the properties underlying the Subject Interests, are depleting assets and, if Hilcorp or other operators of the properties underlying the Subject Interests do not perform additional development projects, the assets may deplete faster than expected
2. 07Increased costs of production and development will result in decreased Trust distributions
3. 08War, military invasions, terrorism and continued geopolitical hostilities could adversely affect the Trust’s distributions to its Unit Holders or the market price of its Units

RISKS RELATED TO THE STRUCTURE OF THE TRUST

1. 09The Royalty can be sold and the Trust can be terminated in certain circumstances
2. 10None of the Trustee, the Trust nor the Unit Holders control the operation or development of the properties underlying the Subject Interests
3. 11Unit Holders have limited voting rights

RISKS RELATED TO OWNERSHIP OF THE TRUST UNITS

1. 12If the Trust cannot meet the New York Stock Exchange continued listing requirements, the NYSE may delist the Trust Units
2. 13The market price for the Trust Units may not reflect the value of the Royalty held by the Trust
3. 14The limited liability of Trust Unit Holders is uncertain

LEGAL, ENVIRONMENTAL, AND REGULATORY RISKS

1. 15The operators of the properties underlying the Subject Interests are subject to extensive governmental regulation
2. 16Government action, policies or regulations designed to discourage production, reduce demand for, or promote alternatives to oil and natural gas could impact the price of oil and natural gas produced on the properties underlying the Trust’s Subject Interests, directly as intended or through unintended consequences
3. 17Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in Hilcorp incurring increased costs, additional operating restrictions or delays and fewer potential drilling locations

CYBERSECURITY RISKS

1. 18The Trustee may be subject to attempted cybersecurity disruptions from a variety of sources
2. 19Trust Unit Holders are required to pay U.S. federal income taxes on their share of the Trust’s income, even if they do not receive any cash distributions from the Trust
3. 20The tax treatment of an investment in Trust Units could be affected by recent and potential legislative changes, possibly on a retroactive basis
4. 21A portion of any gain recognized on the disposition of the Trust Units could be taxed as ordinary income
5. 22The Trust generally allocates its items of income, gain, loss and deduction between transferors and transferees of the Trust Units based upon the monthly record date. The IRS may challenge this treatment
6. 23subject to more complex and costly tax reporting requirements that could reduce the amount of cash available for distribution to Trust Unit Holders