Frequently Asked Questions
How long has the Trust been in existence?
The Trust was established in November 1980 by Trust Indenture between Southland Royalty Company and The Fort Worth National Bank. Compass Bank is the successor to The Fort Worth National Bank as Trustee of the Trust.
Who owns and operates the properties?
Burlington Resources Oil & Gas Company LP, a subsidiary of ConocoPhillips, is the current owner and operator of most of the Underlying Properties and the successor, through a series of assignments and mergers, to Southland Royalty Company.
Is this a master limited partnership?
No. The Trust is a grantor trust.
Can the Trust acquire additional properties?
No. Unlike actively managed trusts where a management team is empowered to grow the trust's assets through new acquisitions, the Trustee is not empowered to engage in any business or commercial activity, nor can the Trustee use any portion of the Trust Estate to acquire additional properties.
Burlington, as the owner of most of the working interests and other leasehold interests comprising the Underlying Properties, receives revenue monthly from the natural gas purchasers. Burlington deducts its production and development costs (including applicable lease operating expenses, capital expenses and taxes) and wires the Trust 75% of the remaining net profits. The Trustee adds investment income, deducts administrative expenses, and then distributes all remaining funds, net of a small reserve.
How often are distributions paid?
Royalty distributions are paid monthly to Unit holders who hold Units on the Record Date, the last business day of the month. The distributions are paid ten business days following the Record Date.
What is the estimated life of the Trust?
We don't know. Independent petroleum engineers retained by the Trust estimate, conservatively, that the Trust is likely to run at least another 10-15 years.
Is there a termination date for the Trust? How will the Trust end?
The Trust does not have a specific termination date. However, some events that could cause the Trust to terminate include:
- the Royalty fails to generate net revenue for the Trust of at least $1,000,000 per year over any consecutive two-year period; or
- the holders of 75% or more of the Units vote to terminate.
Once the decision has been made to terminate the Trust, the properties will be sold for market value and the cash received from the sale less any applicable administrative costs will be distributed to the Unit holders of record at that time.
What percentage of production is natural gas vs. oil?
The Underlying Properties are primarily gas producing properties, and well over 90% of production is natural gas.
Units – Why are Units not called Shares?
Because Units of beneficial interest are not shares of stock and the legal rights of a royalty trust owner differ from those of a stockholder. However, the Units of the Trust are traded on the NYSE just like shares of stocks of other companies, and one Unit is in many ways comparable to one share of stock.
May I purchase or sell the Units directly from the Trustee?
No. The Trustee is not permitted to buy or sell Units. The purchase of Units is generally transacted through a stock broker or online trading service.
Is there a minimum number of Units I have to purchase?
No. That is a decision you should make in conjunction with your financial advisor or broker.
Do you have a DRIP (distribution reinvestment program)?
No. If you wish to purchase additional Units, you will need to make arrangements with your broker. Note: You should review the tax information posted on the Trust's website prior to reinvesting. For example, if there are frequent changes in the number of Units held, the calculations at tax time would be more time-consuming.
My address information is incorrect or has changed. Can you please update your records?
No. The Trustee does not maintain any Unit holder records. You will want to contact your investment broker if you are a beneficial holder, or the Transfer Agent if you have a registered account, to make sure they have the correct address in their records.
Who is the Transfer Agent / Paying Agent / Registrar?
Computershare Investor Services, LLC. Customer Service: (312) 360-5154, Broker hotline: (781) 575-3839, Website: www.computershare.com
When will the tax information be available?
Although the deadline imposed by the IRS is not until April 1st, the tax information booklet is usually posted to the website by the end of January, and mailed in February.
Why aren't you providing me with a K-1?
The Trust is a grantor trust, not a partnership, and we do not have the same reporting requirements as a partnership. Certificated holders receive individualized tax letters at year-end. Street-name holders should receive a copy of Form 1099 MISC and Form 1099 INT from their broker and a tax information booklet which allows those holders to make the appropriate calculations from the tax schedules.
Why did I receive a tax booklet?
The Trustee does not maintain any Unit holder records, including payment records. The tax booklet sets out the tax consequences for one Unit, which allows the Unit holder to make the appropriate calculations from the tax schedules.
Are the distribution payments I receive from the Trust qualified dividends?
No. The distributions are considered royalty income and are ordinary income, taxed at your marginal rate.
Are the distribution payments taxed at the 15% rate?
No. The distributions are considered ordinary income, taxed at your marginal rate.
The 1099-MISC I received from my broker shows an amount that is different from what I calculate using the tax booklet. Why?
Since the income of the Trust is deemed to have been received by each Unit holder at the time the Trust receives the income on the last business day of each month, rather than when the income is actually paid to Unit holders in the following month, it is likely a timing difference. The income to be reported is associated with amounts distributed in February of one year through January of the next year. Although a 1099-MISC should report income taxable in January through December (but received in February through the following January), in most cases, it does not. Holders should use the tax booklet to report the income from the Trust correctly.
How much of the distributions are a return of capital?
The distribution itself is not a return of capital. However, Unit holders are entitled to a recovery of their capital investment via a sale of Units and through cost depletion deductions. The depletion allowance may be considered a return of capital.
I own my units in an IRA/tax-deferred account. Do I need to report this information on my tax return?
No. You do not report trust income in an IRA or other tax-deferred account.
What do I do with Form 1099 MISC and Form 1099 INT that I received, and which report Trust income to the IRS?
The amounts on the Form 1099's should be reported to the IRS, but make sure that you do not report the amounts twice. If you accurately report the tax information contained in the tax information booklet, you should not also report the amounts set forth on the Form 1099's since such amounts are already provided in the tax information booklet.
What is the definition of "cost basis?"
The cost basis is the total purchase price of the Units, plus any commissions paid.
Can you tell me what the cost basis for my Units is?
No. Since we don't maintain any Unit holder records, you should consult your broker or review your files for that information.
I purchased more than one block of Units. Can I input the basis for all of those Units at one time?
No. You will need to calculate the depletion for each block of units purchased separately.
Do I have to take the full cost depletion amount?
No. You do not have to take the full cost depletion amount on your tax return. HOWEVER, you must reduce your cost basis by the full amount allowable.
Cost Depletion or Percentage Depletion: which one do I use?
Percentage depletion is an alternate method of calculating the depletion allowance for mineral property and some oil or gas wells. The allowance is a percentage (usually 15% for oil and gas) of the gross income from the property during the year. For Units purchased after 10-11-90, a taxpayer is allowed the greater of cost or percentage depletion. In either case, you must reduce your cost basis by the full amount allowable.