VOC Energy Trust (VOC) risk factors, FY2024 10-K

Other

1. 01Prices of oil and natural gas fluctuate, and lower prices could reduce proceeds to the Trust and cash distributions to Trust unitholders
2. 02Actual reserves and future production may be less than current estimates of proved reserves, which could reduce cash distributions by the Trust and the value of the Trust Units
3. 03Changes in these assumptions and amounts of actual production and development costs could materially decrease reserve estimates
4. 04The processes of drilling and completing wells are high risk activities
5. 05oil or natural gas property title problems
6. 06Risks associated with the production, gathering, transportation and sale of oil and natural gas could adversely affect cash distributions by the Trust
7. 07The ability or willingness of OPEC and other oil exporting nations to set and maintain production levels has a significant impact on oil and natural gas commodity prices, which could reduce the amount of cash available for distribution to Trust unitholders
8. 08Production of oil and natural gas on the Underlying Properties could be materially and adversely affected by severe or unseasonable weather
9. 09weather-related damage to pipelines and other transportation facilities
10. 10VOC Brazos does not have any long-term contracts related to the sale of production of oil and natural gas from the Underlying Properties and may be unable to find purchasers
11. 11Shortages or increases in costs of equipment, services and qualified personnel could result in a reduction in the amount of cash available for distribution to the Trust unitholders
12. 12Due to lack of geographic diversification of the Underlying Properties, adverse developments in Kansas or Texas could adversely impact the results of operations and cash flows of the Underlying Properties and reduce the amount of cash available for distributions to Trust unitholders

Financial Risks

1. 13The reserves attributable to the Underlying Properties are depleting assets and production from those properties will diminish over time. Furthermore, the Trust is precluded from acquiring other oil and natural gas properties or net profits interests to replace the depleting assets and production
2. 14The Trust Units may lose value as a result of title deficiencies with respect to the Underlying Properties
3. 15The amount of cash available for distribution by the Trust will be reduced by the amount of any costs and expenses related to the Underlying Properties and other costs and expenses incurred by the Trust
4. 16The Trust has established a cash reserve for contingent liabilities and to pay expenses in accordance with the Trust Agreement, which would reduce net profits payable to the Trust and distributions to Trust unitholders
5. 17A purchaser’s failure to pay VOC Brazos for purchased production could have a significant adverse impact on VOC Brazos, which in turn could result in VOC Brazos not having sufficient net proceeds attributable to the Net Profits Interest for VOC Brazos to distribute cash to the Trust
6. 18The bankruptcy of VOC Brazos or any operator of the Underlying Properties could impede the operation of the wells and the development of the proved undeveloped reserves

Risks Related to the Structure of the Trust

1. 19Neither the Trust nor the Trust’s unitholders have the ability to influence VOC Brazos or control the operations or development of the Underlying Properties
2. 20VOC Brazos may transfer all or a portion of the Underlying Properties at any time without Trust unitholder consent, subject to specified limitations
3. 21The Trustee may, under certain circumstances, sell the net profits interest and dissolve the Trust prior to the expected termination of the Trust. As a result, Trust unitholders may not recover their investment
4. 22Conflicts of interest could arise between VOC Brazos and its affiliates, on the one hand, and the Trust and the Trust unitholders, on the other hand
5. 23The Trust is managed by a Trustee who cannot be replaced except by a vote of the Trust unitholders holding a majority of the Trust Units at a special meeting, which may make it difficult for Trust unitholders to remove or replace the Trustee
6. 24Financial information of the Trust is not prepared in accordance with GAAP
7. 25month of production and cash reserves may be established for specified contingencies and deducted which could not be accrued in GAAP financial statements

Risks Related to Ownership of the Trust Units

1. 26The disposal by an affiliate of VOC Brazos of its remaining Trust Units may reduce the market price of the Trust Units
2. 27exchanging them for interests in oil and natural gas properties or securities of oil and natural gas companies
3. 28The market price for the Trust Units may not reflect the value of the net profits interest held by the Trust
4. 29Trust unitholders have limited ability to enforce provisions of the net profits interest, and VOC Brazos’ liability to the Trust is limited
5. 30Courts outside of Delaware may not recognize the limited liability of the Trust unitholders provided under Delaware law

Legal, Environmental and Regulatory Risks

1. 31The operations of the Underlying Properties are subject to environmental laws and regulations that may result in significant costs and liabilities, which could reduce the amount of cash available for distribution to Trust unitholders
2. 32impair VOC Brazos’ ability to produce oil and natural gas commercially from the Underlying Properties, which would reduce proceeds attributable to the net profits interest
3. 33Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays as well as adversely affect VOC Brazos’ services
4. 34Tax Risks Related to the Trust Units
5. 35If the net profits interest were not treated as a production payment (and thus would fail to qualify as a debt instrument for federal income tax purposes) the amount, timing and character of income, gain, or loss in respect of an investment in the Trust could be affected

Cybersecurity Risks

1. 36Cyber-attacks or other failures in telecommunications or information technology systems could result in information theft, data corruption and significant disruption of the business operations of VOC Brazos and its VOC Operators
2. 37Cyber-attacks or other failures in telecommunications or IT systems could result in information theft, data corruption and significant disruption of the Trustee’s operations