Mesa Royalty Trust Sees Q3 Royalty Income Double, But YTD Declines

TL;DR

**MTR's Q3 royalty income surge is a head fake; the ongoing Simcoe deficit and YTD decline signal underlying instability for this passive trust.**

AI Summary

Mesa Royalty Trust (MTR) reported a significant increase in royalty income for the three months ended September 30, 2025, reaching $128,993, up from $63,966 in the prior year, representing a 101.6% increase. However, for the nine months ended September 30, 2025, royalty income decreased to $460,810 from $552,994 in 2024, a 16.7% decline. Distributable income for the quarter rose to $88,894 from $54,942, while distributable income per unit increased to $0.0477 from $0.0295. General and administrative expenses increased to $61,255 for the quarter, up from $52,258 in 2024. A key business change is the ongoing deficit position with Simcoe, an operator of the San Juan Basin—Colorado Properties, which resulted in no royalty income from Simcoe for the quarter due to true-up adjustments for joint interest billing and other amounts from 2020-2024. Cash and short-term investments increased to $1,999,792 as of September 30, 2025, from $1,930,126 at December 31, 2024. The Trust remains a passive entity, with its primary risk tied to commodity pricing and the operational performance and accounting practices of its Working Interest Owners, particularly the ongoing true-up issues with Simcoe.

Why It Matters

Mesa Royalty Trust's Q3 performance, marked by a 101.6% jump in quarterly royalty income, offers a glimmer of hope for investors seeking higher distributions, yet the 16.7% year-to-date decline in royalty income and the ongoing deficit with Simcoe highlight persistent operational risks. This mixed financial picture, especially the reliance on Working Interest Owners for accurate reporting and payments, directly impacts unitholder distributions and the Trust's long-term viability. In a competitive energy market, transparency and consistent revenue streams are crucial, and MTR's challenges with true-up adjustments could deter new investors and pressure existing ones, especially given its passive structure and inability to control operations.

Risk Assessment

Risk Level: medium — The risk level is medium due to the significant reliance on Working Interest Owners and the ongoing accounting issues. Specifically, the Trust remains in a "deficit position with Simcoe" as of September 30, 2025, resulting in "no royalty income was received by the Trust from Simcoe for the three months ended September 30, 2025." This directly impacts distributable income and highlights a lack of control over revenue streams.

Analyst Insight

Investors should exercise caution and closely monitor future filings for resolution of the Simcoe deficit and consistent royalty income from all Working Interest Owners. Consider MTR a speculative income play, as its passive nature and dependence on third-party operators introduce significant uncertainty to its distribution stability.

Financial Highlights

debt To Equity

N/A

revenue

$128,993

operating Margin

N/A

total Assets

$3,222,233

total Debt

$0

net Income

$88,894

eps

$0.0477

gross Margin

N/A

cash Position

$1,999,792

revenue Growth

+101.6%

Revenue Breakdown

Key Numbers

• $128,993 — Royalty income for Q3 2025 (Increased 101.6% from $63,966 in Q3 2024)
• $460,810 — Royalty income for YTD Q3 2025 (Decreased 16.7% from $552,994 in YTD Q3 2024)
• $88,894 — Distributable income for Q3 2025 (Increased from $54,942 in Q3 2024)
• $0.0477 — Distributable income per unit for Q3 2025 (Increased from $0.0295 in Q3 2024)
• $61,255 — General and administrative expense for Q3 2025 (Increased from $52,258 in Q3 2024)
• $1,999,792 — Cash and short-term investments as of Sep 30, 2025 (Increased from $1,930,126 at Dec 31, 2024)
• 1,863,590 — Units of Beneficial Interest outstanding (Consistent across all periods presented)
• 11.44% — Trust's overriding royalty interest (Percentage of 90% of Net Proceeds attributable to specified interests)
• $250,000 — Annual royalty income threshold for Trust termination (If royalty income is below this for two successive years, the Trust terminates)
• 6.00% — Annualized return for cash held by Trustee (Jan 1 - Sep 17, 2025) (Required interest rate under Trust Indenture, partially offset by Trustee fees)

Key Players & Entities

• Mesa Royalty Trust (company) — registrant of the 10-Q filing
• The Bank of New York Mellon Trust Company, N.A. (company) — Trustee for Mesa Royalty Trust
• Scout Energy Group V, LP (company) — operator of the Hugoton Royalty Properties
• SIMCOE LLC (company) — co-operator of the San Juan Basin—Colorado Properties, currently in a deficit position with the Trust
• Red Willow Production Company (company) — co-operator of the San Juan Basin—Colorado Properties
• Hilcorp San Juan LP (company) — operator of the San Juan Basin—New Mexico Properties
• New York Stock Exchange (regulator) — exchange where MTR Units of Beneficial Interest are registered
• Mesa Petroleum Co. (company) — predecessor to Mesa Limited Partnership, which created the Trust
• Conoco, Inc. (company) — former operator of San Juan Basin Royalty Properties
• BP Amoco Company (company) — former operator of San Juan Basin—Colorado Properties

FAQ

Risk Factors

• Simcoe Operator Issues [high — operational]: The Trust experienced no royalty income from Simcoe for Q3 2025 due to true-up adjustments for joint interest billing and other amounts from 2020-2024. This ongoing deficit position with Simcoe, an operator of the San Juan Basin—Colorado Properties, poses a significant operational and financial risk.
• Commodity Price Volatility [medium — market]: As a passive entity, the Trust's primary risk is tied to commodity pricing. Fluctuations in oil and gas prices directly impact the value of the royalty income generated from the Trust's properties.
• Working Interest Owner Performance [medium — operational]: The Trust's performance is dependent on the operational performance and accounting practices of its Working Interest Owners. Issues with operators, such as the ongoing true-up problems with Simcoe, can directly affect royalty income.
• Trust Termination Clause [low — regulatory]: The Trust is subject to termination if royalty income falls below $250,000 for two successive years. This creates a risk of the Trust's dissolution if revenue generation falters significantly.

Industry Context

The oil and gas royalty trust sector is characterized by its passive nature, relying heavily on commodity prices and the operational efficiency of third-party operators. Companies in this space face challenges related to production declines, regulatory changes, and the accuracy of accounting from operators. Recent trends show a focus on managing operational costs and ensuring transparent reporting from working interest owners.

Regulatory Implications

The Trust's passive structure means it is less exposed to direct regulatory changes affecting exploration and production. However, the Trust's termination clause, triggered by sustained low royalty income below $250,000 annually, represents a significant regulatory-like constraint on its long-term viability.

What Investors Should Do

1. Monitor Simcoe's true-up adjustments and their resolution.
2. Track commodity price trends for oil and natural gas.
3. Evaluate the Trust's ability to maintain royalty income above the $250,000 annual threshold.
4. Review the operational performance and accounting practices of other key working interest owners.

Key Dates

• 2025-09-30: End of Q3 2025 — Reported royalty income of $128,993 and distributable income of $88,894, with distributable income per unit at $0.0477.
• 2024-09-30: End of Q3 2024 — Reported royalty income of $63,966 and distributable income of $54,942, with distributable income per unit at $0.0295.
• 2025-12-31: End of Fiscal Year 2024 — Cash and short-term investments stood at $1,930,126.
• 2025-09-30: End of Q3 2025 — Cash and short-term investments increased to $1,999,792.
• 1979-11-01: Trust Creation and Conveyance — Established the Trust and its overriding royalty interest in oil and gas properties.

Glossary

Net Proceeds

The revenue generated from oil and gas properties after deducting specified costs and expenses, as defined in the Conveyance. (Determines the basis for calculating the Trust's royalty income.)

Overriding Royalty Interest (ORRI)

A non-operating interest in the gross production of oil and gas, free of the costs of production, that terminates when the underlying royalty interest is depleted. (This is the primary asset of the Trust, generating its royalty income.)

Trust Corpus

The principal assets and value of the Trust, which is comprised of the net overriding royalty interest and related accumulated amortization. (Represents the underlying value of the Trust's assets.)

Distributable Income

Income available for distribution to unitholders after accounting for Trust expenses and any cash reserves withheld. (Directly impacts the distributions received by unitholders.)

Joint Interest Billing (JIB)

A process where costs incurred for jointly owned oil and gas properties are allocated and billed to the respective working interest owners. (Issues with JIB true-up adjustments with Simcoe have directly impacted the Trust's royalty income.)

Year-Over-Year Comparison

Mesa Royalty Trust (MTR) reported a significant 101.6% increase in royalty income for the three months ended September 30, 2025, to $128,993, a strong rebound from the prior year. However, year-to-date royalty income declined 16.7% to $460,810, indicating a mixed performance trend. Distributable income per unit saw a substantial rise to $0.0477 from $0.0295 in the quarter, reflecting improved short-term earnings. A key concern remains the operational issues with Simcoe, which resulted in zero royalty income from that segment for the quarter due to accounting true-ups, highlighting a significant risk to overall revenue stability.

Key Financial Figures

• $250,000 — e for two successive years is less than $250,000 per year or (ii) a vote by the unithold
• $118,750 — September 30, 2025, the Trustee was due $118,750 for its services. The Trust paid $108,2
• $108,288 — 18,750 for its services. The Trust paid $108,288 of this amount to the Trustee, and $10,
• $10,462 — ,288 of this amount to the Trustee, and $10,462 was allocated to offset against interes
• $95,897 — ing Interest Owners reimbursed a sum of $95,897 to the Trustee, which was the same amou

Filing Documents

• tm2524878-1_10q.htm (10-Q) — 591KB
• tm2524878d2_ex31.htm (EX-31) — 9KB
• tm2524878d2_ex32.htm (EX-32) — 5KB
• 0001104659-25-111306.txt ( ) — 606KB

—FINANCIAL INFORMATION

PART I—FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements. MESA ROYALTY TRUST (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Royalty income $ 128,993 $ 63,966 $ 460,810 $ 552,994 Other income — 17,347 (432 ) 2,683 Interest income 21,156 25,887 61,764 74,532 General and administrative expense (61,255 ) (52,258 ) (156,433 ) (157,587 ) Income available for distribution prior to cash reserves withheld for Trust expenses 88,894 54,942 365,709 472,622 Cash reserves withheld for Trust expenses — — — (72,000 ) Distributable income $ 88,894 $ 54,942 $ 365,709 $ 400,622 Distributable income per unit $ 0.0477 $ 0.0295 $ 0.1962 $ 0.2150 Units outstanding 1,863,590 1,863,590 1,863,590 1,863,590 September 30, 2025 December 31, 2024 (Unaudited) ASSETS Cash and short-term investments $ 1,999,792 $ 1,930,126 Net overriding royalty interest in oil and gas properties 42,498,034 42,498,034 Accumulated amortization (41,275,593 ) (41,240,185 ) Total assets $ 3,222,233 $ 3,187,975 LIABILITIES AND TRUST CORPUS Distributions payable $ 72,000 $ 58,101 Trust corpus (1,863,590 units of beneficial interest authorized, issued and outstanding) 3,150,233 3,129,874 Total liabilities and Trust corpus $ 3,222,233 $ 3,187,975 (The accompanying notes are an integral part of these financial statements.) 2 MESA ROYALTY TRUST (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Trust corpus, beginning of period $ 3,144,222 $ 3,108,332 $ 3,129,874 $ 3,040,907 Cash reserves withheld for Trust expenses — — — 72,000 Distributable income 88,894 54,942 365,709 400,622 Distributi

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (Unaudited) Note 1—Trust Organization and Provisions The Trust, created under the laws of the State of Texas, maintains its offices at the office of the Trustee, The Bank of New York Mellon Trust Company, N.A., (the "Trustee"), 601 Travis Street, Floor 16, Houston, Texas 77002. The telephone number of the Trust is 713-483-6020. The Trust has no employees. Administrative functions of the Trust are performed by the Trustee. The Trustee maintains a website for the Trust that makes available, free of charge, filings by the Trust with the Securities and Exchange Commission ("SEC") and other information. Any reports filed with the SEC are accessible through the Trust's website as soon as reasonably practicable after the Trustee electronically files such material with, or furnishes it to, the SEC. The Trust's website is http://mtr.q4web.com/home/default.aspx. Trust Corpus Description. The Trust was created on November 1, 1979 and is now governed by the Mesa Royalty Trust Indenture (as amended, the "Trust Indenture"). Through a series of conveyances, assignments, and acquisitions, the Trust currently owns an overriding royalty interest (the "Royalties") equal to 11.44% of 90% of the Net Proceeds (as defined in the Conveyance and described below) attributable to the specified interest in certain producing oil and gas properties located in the: Hugoton field of Kansas (the "Hugoton Royalty Properties"); San Juan Basin field of New Mexico (the "San Juan Basin—New Mexico Properties"); and San Juan Basin field of Colorado (the "San Juan Basin—Colorado Properties", and together with the San Juan Basin—New Mexico Properties, the "San Juan Basin Royalty Properties", and together with the Hugoton Royalty Properties, the "Royalty Properties"). Trust Corpus Conveyance History. On November 1, 1979, Mesa Petroleum Co., predecessor to Mesa Limited Partnership ("MLP"), which was the predecessor to MESA Inc., conveyed to the Trust the Royalti

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