Trust Overview

The Mesa Royalty Trust (the “Trust”) was created in 1979 and owns an overriding royalty interest in certain oil and gas properties located in the Hugoton field of Kansas and the San Juan Basin field of New Mexico and Colorado. The Trust is a passive entity that converts its royalty interests into cash and distributes the proceeds to unitholders, after deducting expenses.

Liquidity and Capital Resources

The Trust’s primary source of cash is the royalty income received from its share of the net proceeds from the royalty properties. The Trust has no other sources of liquidity or capital resources besides this royalty income and interest earned on cash holdings. The Trust does not undertake any capital projects or make capital expenditures, as these are controlled and paid for by the working interest owners.

The Trust maintains a contingent reserve that the Trustee can use to pay liabilities. As of December 31, 2024, the contingent reserve balance was $1.87 million, and the Trustee intends to increase it to $2 million, which will reduce the net proceeds available for distribution to unitholders.

Financial Review

Royalty and Other Income:

• Royalty income decreased from $3.28 million in 2023 to $649,164 in 2024, primarily due to lower commodity prices and production volumes.
• Interest income was $96,855 in 2024 compared to $99,057 in 2023.

Expenses:

• General and administrative expenses, including the Trustee’s fees, were $196,399 in 2024 and $186,843 in 2023.
• The Trust did not have any unreimbursed expenses in 2024 or 2023.

Distributable Income:

• Distributable income available for distribution was $462,956 in 2024 compared to $2.86 million in 2023.
• Distributable income per unit was $0.2484 in 2024 compared to $1.5330 in 2023.

Operational Review

Hugoton Royalty Properties:

• Royalty income was $0 in both 2024 and 2023 due to expenses exceeding revenues.
• Operating costs increased 8% to $1.83 million in 2024, while capital expenditures decreased 97% to $3,508.

San Juan Basin Royalty Properties:

• Royalty income from the Colorado properties was $35,115 in 2024 compared to $65,082 in 2023, due to a deficit position with the operator.
• Royalty income from the New Mexico properties decreased from $3.21 million in 2023 to $614,049 in 2024 due to lower commodity prices and production.
• Operating costs for the New Mexico properties decreased 19% to $970,450, while capital expenditures increased 29% to $142,351.

Outlook

Commodity prices and production volumes remain the key drivers of the Trust’s royalty income and distributions to unitholders. If prices or production decline further, future distributions could be substantially reduced or eliminated. The Trust continues to work with the working interest owners to review past and current net proceeds.