UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒


ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
~~For the Quarterly Period ended September 30, 2020~~
o		~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
~~For the Transition Period from to~~

For the Quarterly Period ended September 30, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 1-7884

MESA ROYALTY TRUST

(Exact name of registrant as specified in its charter)

Texas		76-6284806
~~Texas~~ (State or other jurisdiction of Incorporation or Organization)		~~76-6284806~~ (I.R.S. Employer Identification No.)
The Bank of New York Mellon Trust Company, N.A., Trustee 601 Travis Street, Floor 16 Houston, Texas		77002
(Address of Principal Executive Offices)	~~77002~~	(Zip Code)

1-713-483-6020

(~~Registrant's~~Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class			Trading Symbol(s)		Name of each exchange on which registered
	Units of Beneficial Interest	MTR		New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No o

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o☐ No o

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ~~"large~~“large accelerated filer,~~" "accelerated~~” “accelerated filer,~~" "smaller~~” “smaller reporting company,"” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o☐	Accelerated filer o☐	Non-accelerated filer ý☒	Smaller reporting company ý ☒
				Emerging growth company o ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No ý

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As of November ~~16, 2020—~~15, 2021 — 1,863,590 Units of Beneficial Interest were outstanding in Mesa Royalty Trust.

DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q includes ~~"forward-looking statements"~~“forward-looking statements” about Mesa Royalty Trust (the ~~"Trust"~~“Trust”) and other matters discussed herein that are subject to risks and uncertainties that are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the ~~"Exchange Act"~~“Exchange Act”). All statements other than statements of historical fact included in this document, including, without limitation, statements under ~~"Trustee's~~“Trustee’s Discussion and Analysis of Financial Condition and Results of Operations,"” including the ~~Trust's~~Trust’s or any Working Interest ~~Owner's~~Owner’s (as defined in "“Note 1—1 — Trust Organization and Provisions"”) future financial position, status in any insolvency proceeding, business strategy, budgets, projected costs, statements regarding the COVID-19 pandemic and related containment measures, expected market conditions and ~~decreases in~~ commodity pricing, prices received by Working Interest Owners, plans and objectives, ~~for future operations,~~oil and natural gas prices, information regarding target distributions, statements regarding reconciliation and adjustment of estimated versus actual revenue and expense amounts, statements pertaining to future exploration and development activities and costs, estimates regarding production costs and expenses, estimates of cash flows, statements regarding the number of development wells to be completed in future periods, and information regarding production and ~~reserve growth,~~reserves, are forward-looking statements. Actual outcomes and results, which are substantially all outside the ~~Trust's~~Trust’s control, may differ materially from those projected. Forward-looking statements are generally accompanied by words such as ~~"estimate," "project," "predict," "believe," "expect," "anticipate," "potential," "possibly," "could," "may," "can," "foresee," "plan," "goal," "assume," "target," "should," "intend"~~“estimate,” “project,” “predict,” “future,” “believe,” “expect,” “anticipate,” “potential,” “possibly,” “could,” “may,” “can,” “foresee,” “plan,” “goal,” “forecast,” “assume,” “target,” “should,” “intend” or other words that convey the uncertainty of future events or outcomes. These statements are based on certain assumptions made by the Trust in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. The Trustee (as defined herein) relies on the Working Interest Owners for information regarding the Subject Interests (as defined in "“Note 1—1 — Trust Organization and Provisions"”), the Royalty (as defined in "“Note 1—1 — Trust Organization and Provisions"”), and the Working Interest Owners themselves.

Although the information provided by the Working Interest Owners provides a reasonable basis for the forward-looking statements contained herein, no assurance can be given that such expectations will prove to be correct. However, whether actual results and developments will conform with such expectations and predictions is subject to a number of risks and uncertainties, including the risk factors discussed in Part I, Item 1A of the ~~Trust's~~Trust’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, the risks discussed in ~~Part II, Item 1A of~~ the ~~Trust's~~Trust’s Quarterly Report on Form 10-Q for the ~~three months~~quarter ended March 31, ~~2020,~~2021, the risks discussed in ~~Part II, Item 1A of~~ the ~~Trust's~~Trust’s Quarterly Report on Form 10-Q for the ~~three months~~quarter ended June 30, ~~2020, the risk factors discussed herein,~~2021, and those set forth from time to time in the ~~Trust's~~Trust’s filings with the Securities and Exchange Commission (the ~~"SEC"~~“SEC”), which could affect the future results of the energy industry in general, and the Trust and Working Interest Owners in particular, and could cause those results to differ materially from those expressed in such forward-looking statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Working Interest ~~Owners'~~Owners’ businesses and the Trust. Such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in such forward-looking statements. The Trust undertakes no obligation to publicly update or revise any forward-looking statements, except as required by applicable law.

PART I—I — FINANCIAL INFORMATION

Item 1. Financial Statements.

MESA ROYALTY TRUST

STATEMENTS OF DISTRIBUTABLE INCOME

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Royalty income		$	—		$	49,984		$	630,687		$	703,387
Interest income			35			89			92			5,731
General and administrative expense			(53,641)			(73,854)			(149,794)			(167,149)
Income available for distribution prior to cash reserves used for Trust expenses			(53,606)			(23,781)			480,985			541,969
Cash reserves used for current Trust expenses			53,606			23,781			51,367			23,781
Distributable income		$	—		$	—		$	532,352		$	565,750
Distributable income per unit		$	—		$	—		$	0.2857		$	0.3036
Units outstanding			1,863,590			1,863,590			1,863,590			1,863,590

Three Months Ended
September 30, Nine Months Ended
September 30,

2020 2019 2020 2019
Royalty income
$ 49,984 $ 203,160 $ 703,387 $ 1,518,510
Interest income
89 7,402 5,731 24,385
General and administrative expense
(73,854 ) (42,386 ) (167,149 ) (140,098 )

Income available for distribution prior to cash reserves used for Trust expenses
$ (23,781 ) $ 168,176 $ 541,969 $ 1,402,797
Cash reserves used for current Trust expenses
23,781 — 23,781 —

Distributable income
$ — $ 168,176 $ 565,750 $ 1,402,797

Distributable income per unit
$ — $ 0.0902 $ 0.3036 $ 0.7527

Units outstanding
1,863,590 1,863,590 1,863,590 1,863,590

STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS

	September 30, 2021			December 31, 2020
	(Unaudited)
ASSETS
Cash and short-term investments		$	1,019,741		$	1,076,485
Net overriding royalty interest in oil and gas properties			42,498,034			42,498,034
Accumulated amortization			(41,013,540)			(40,984,296)
Total assets		$	2,504,235		$	2,590,223
LIABILITIES AND TRUST CORPUS
Distributions payable		$	7,316		$	—
Trust corpus (1,863,590 units of beneficial interest authorized, issued and outstanding)			2,496,919			2,590,223
Total liabilities and trust corpus		$	2,504,235		$	2,590,223

September 30,
2020 December 31,
2019

(Unaudited)

ASSETS

Cash and short-term investments
$ 974,496 $ 1,233,060
Net overriding royalty interest in oil and gas properties
42,498,034 42,498,034
Accumulated amortization
(40,958,057 ) (40,890,724 )

Total assets
$ 2,514,473 $ 2,840,370

LIABILITIES AND TRUST CORPUS

Distributions payable
$ — $ 255,848
Trust corpus (1,863,590 units of beneficial interest authorized, issued and outstanding)
2,514,473 2,584,522

Total liabilities and trust corpus
$ 2,514,473 $ 2,840,370

~~(The~~(The accompanying notes are an integral part of these financial statements.)

MESA ROYALTY TRUST

STATEMENTS OF CHANGES IN TRUST CORPUS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Trust corpus, beginning of period		$	2,557,841		$	2,547,145		$	2,590,223		$	2,584,522
Cash reserves withheld for current Trust expenses			(53,606)			(23,781)			(51,367)			(23,781)
Distributable income			—			—			532,352			565,750
Distributions to unitholders			(7,316)			—			(545,045)			(544,685)
Amortization of net overriding royalty interest			—			(8,891)			(29,244)			(67,333)
Trust corpus, end of period		$	2,496,919		$	2,514,473		$	2,496,919		$	2,514,473

Three Months Ended
September 30, Nine Months Ended
September 30,

2020 2019 2020 2019
Trust corpus, beginning of period
$ 2,547,145 $ 2,662,505 $ 2,584,522 $ 2,792,012
Cash reserves used for current Trust expenses
(23,781 ) — (23,781 ) —
Distributable income
— 168,176 565,750 1,402,797
Distributions to unitholders
— (167,046 ) (544,685 ) (1,440,349 )
Amortization of net overriding royalty interest
(8,891 ) (26,484 ) (67,333 ) (117,309 )

Trust corpus, end of period
$ 2,514,473 $ 2,637,151 $ 2,514,473 $ 2,637,151

~~(The~~(The accompanying notes are an integral part of these financial statements.)

MESA ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1—1 — Trust Organization and Provisions

The Mesa Royalty Trust (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"~~“Trustee”), 601 Travis Street, Floor 16, Houston, Texas 77002. The telephone number of the Trust is 713-483-6020. The Bank of New York Mellon Trust Company, N.A., is the successor Trustee from JP Morgan Chase Bank, N.A., which is the successor by mergers to the originally named Trustee, Texas Commerce Bank National Association. 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"~~(“SEC”) and other information. Any reports filed with the SEC are accessible through our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The ~~Trust's~~Trust’s website is http://mtr.q4web.com/home/default.aspx.

Trust Corpus Description. The ~~Mesa Royalty~~ Trust ~~(the "Trust")~~ was created on November 1, 1979 and is now governed by the Mesa Royalty Trust Indenture (as amended, the ~~"Trust Indenture"~~“Trust Indenture”). Through a series of conveyances, assignments, and acquisitions, the Trust currently owns an overriding royalty interest (the ~~"Royalty"~~“Royalty”) 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~~“Hugoton Royalty ~~Properties"~~Properties”);

•

San Juan Basin field of New Mexico (the ~~"San~~“San Juan ~~Basin—~~Basin — New Mexico ~~Properties"~~Properties”); and

•

San Juan Basin field of Colorado (the ~~"San~~“San Juan ~~Basin—~~Basin — Colorado ~~Properties"~~Properties”, and together with the San Juan ~~Basin—~~Basin — New Mexico Properties, the ~~"San~~“San Juan Basin Royalty ~~Properties"~~Properties”, and together with the Hugoton Royalty Properties, the ~~"Royalty Properties"~~“Royalty Properties”).

Trust Corpus Conveyance History. On November 1, 1979, Mesa Petroleum Co., predecessor to Mesa Limited Partnership ~~("MLP"~~(“MLP”), which was the predecessor to MESA Inc., conveyed to the Trust the Royalty equal to 90% of the Net Proceeds attributable to the specified interests in properties conveyed by the assignor on that date (the ~~"Subject Interests"~~“Subject Interests”). The Subject Interests consisted of interests in the Royalty Properties described above. The Royalty is evidenced by counterparts of an Overriding Royalty Conveyance, dated as of November 1, 1979 (the ~~"Conveyance"~~“Conveyance”). In 1985, the Trust Indenture was amended, and the Trust conveyed to an affiliate of Mesa Petroleum Co. 88.5571% of the original Royalty (such transfer, the ~~"1985 Assignment"~~“1985 Assignment”). The effect of the 1985 Assignment was an overall reduction of approximately 88.56% in the size of the Trust. As a result, the Trust is now entitled to receive 11.44% of 90% of the Net Proceeds attributable to the Royalty Properties each month.

Hugoton Royalty Properties. Until August 7, 1997, MESA Inc. operated the Hugoton Royalty Properties through Mesa Operating Co., a wholly owned subsidiary of MESA Inc. On August 7, 1997, MESA Inc. merged with and into Pioneer Natural Resources Company ("Pioneer"), formerly a wholly

~~MESA ROYALTY TRUST~~

~~NOTES TO FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 1—Trust Organization and Provisions (Continued)~~

owned subsidiary of MESA Inc., and Parker & Parsley Petroleum Company merged with and into Pioneer Natural Resources USA, Inc. (successor to Mesa Operating Co.), a wholly owned subsidiary of Pioneer ("PNR") (collectively, the mergers are referred to herein as the "Merger"). Subsequent to the Merger, the Hugoton Royalty Properties were operated by PNR until December 31, 2014, at which point Linn Energy Holdings, LLC, a subsidiary of Linn Energy, LLC ("Old Linn") took over as operator. Pursuant to the bankruptcy proceedings and court approved plans of reorganization involving Old Linn, Linn Energy, Inc. (together with its subsidiaries, "Linn") became the operator of the Hugoton Royalty Properties on February 28, 2017. On April 18, 2018, Linn announced its Board of Directors' decision to separate Linn into two stand-alone public companies. On August 7, 2018 Linn completed the spin-off of Riviera Resources, Inc. ("Riviera") through the pro rata distribution of all of the shares of Riviera's outstanding common stock to Linn's stockholders. In connection with such distribution, Linn ceased to be the operator of the Hugoton Royalty Properties, and starting on August 7, 2018, Riviera operated the Hugoton Royalty Properties. On November 22, 2019, Riviera Resources, Inc. (“Riviera”) completed the sale of its interest in its remaining properties located in the Hugoton Basin ~~under the Purchase and Sale Agreement, dated August 28, 2019 (the "Purchase Agreement"), by and between the Riviera Upstream, LLC, Riviera Operating, LLC and~~to Scout Energy Group V, LP ~~("Scout"~~(“Scout”). ~~Pursuant to the Purchase Agreement, Riviera divested all of its interest in oil and gas assets and contracts in the Hugoton Royalty Properties.~~ Since November 23, 2019, Scout has operated the Hugoton Royalty Properties.

San Juan ~~Basin—~~Basin — Colorado Properties. On April 30, 1991, MLP sold to Conoco, Inc. ~~("ConocoPhillips"~~(“ConocoPhillips”) its interests in the San Juan Basin Royalty Properties (the ~~"San~~“San Juan Basin ~~Sale"~~Sale”). The ~~Trust's~~Trust’s interest in the San Juan Basin Royalty Properties was conveyed from ~~PNR's~~Pioneer Natural Resources’ working interest in 31,328 net producing acres in northwestern New Mexico and southwestern Colorado. ConocoPhillips sold the portion of its interests in the San Juan ~~Basin—~~Basin — Colorado Properties to MarkWest Energy Partners, Ltd. (effective January 1, 1993) and Red Willow Production Company ("(“Red ~~Willow"~~Willow”) ~~(effective~~

(effective April 1, 1992). On October 26, 1994, MarkWest Energy Partners, Ltd. sold substantially all of its interest in the San Juan ~~Basin—~~Basin — Colorado Properties to BP Amoco Company ~~("BP"~~(“BP”), a subsidiary of BP p.l.c. On February 28, 2020, BP completed the sale of all of its interest in the San Juan ~~Basin—~~Basin — Colorado Properties to SIMCOE LLC, an affiliate of IKAV Energy Inc. ~~("IKAV"~~(“Simcoe”). BP, under a transition services agreement with ~~IKAV,~~Simcoe, operated the properties until December 1, 2020. Simcoe and Red Willow currently operate the San Juan ~~Basin—~~Basin — Colorado Properties.

Following Simcoe’s acquisition of BP’s interest in the San Juan ~~Basin—~~Basin-Colorado Properties, there was a transition period to transfer historical information, knowledge and processes from one owner to the other. During the transition period, Net Proceeds were received by the Trust from BP through the Trust month of January 2021. As reported by Simcoe, the BP statements did not include expenses attributable to Simcoe for this period. According to Simcoe, in the future it is expected that there will be additional adjustments on the monthly statements for deficit or overpayment amounts until all transition period differences are resolved.

Simcoe has informed the Trustee that the amount paid to the Trust in the month of May 2021 includes adjusted proceeds for prior periods. There was unusually high pricing due to extreme winter weather in early 2021, and income for subsequent periods was reduced as pricing declined. Simcoe has also informed the Trustee that the amounts paid to the Trust in the months of May and June 2021 are subject to further adjustment in future periods for certain expenses that Simcoe asserts it is entitled to deduct under the Conveyance. Simcoe is expected to recover such expense amounts by withholding a portion or all of the Net Proceeds that would otherwise be payable to the Trust in future periods. Any reduction in income paid to the Trust for these properties may materially reduce or eliminate distributions to the Trust’s unitholders in future periods.

San Juan Basin — New Mexico Properties. Starting from the date of the San Juan Basin Sale and ending on July 31, 2017, ConocoPhillips operated substantially all of the San Juan ~~Basin—~~Basin — New Mexico Properties, except a small number of properties that had been assigned to XTO Energy, Inc. ~~("XTO"~~(“XTO”) effective January 1, 2005. On July 31, 2017, ConocoPhillips sold its San Juan Basin assets to Hilcorp San Juan LP ~~("Hilcorp"~~(“Hilcorp”), an affiliate of Hilcorp Energy Company. On March 29, 2018, XTO sold to

~~MESA ROYALTY TRUST~~

~~NOTES TO FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 1—Trust Organization and Provisions (Continued)~~

Hilcorp its interests in the San Juan ~~Basin—~~Basin — New Mexico Properties. Hilcorp currently operates all of the San Juan ~~Basin—~~Basin — New Mexico Properties.

Following ~~Hilcorp's~~Hilcorp’s acquisition of ~~ConocoPhillips'~~ConocoPhillips’ and ~~XTO's~~XTO’s interests in the San Juan ~~Basin—~~Basin — New Mexico Properties, there was a transition period to transfer historical information, knowledge and processes from one owner to the other. During this transition period, Hilcorp recorded estimates of revenues and expenses and made payments to the Trust based on historical amounts previously paid by ConocoPhillips, and the Trust recognized such amounts in accordance with its accounting practices. Accordingly, Hilcorp made an estimated payment of $97,150 in Net Proceeds to the Trust from September 2017 to March 2019 based upon the July 2017 production month previously paid by ConocoPhillips. In April 2019, Hilcorp began to generate actual (instead of estimated) Net Proceeds due to the Trust on a monthly basis. Hilcorp ~~has~~ informed the Trust that it will utilize actual revenue and expense amounts and either add or subtract reconciled historical amounts on a month-by-month ~~basis, which~~basis. These amounts will be recognized over time by the Trust in accordance with the ~~Trust's~~Trust’s modified cash basis of accounting. In December 2019, Hilcorp made the first payment to the Trust in reconciling historical amounts for one accounting month. For the ~~nine~~twelve months ended ~~September 30,~~December 31, 2020, Hilcorp reconciled ~~seven~~10 additional historical amounts for the accounting months of October 2017 through ~~April~~July 2018. For the three months ended March 31, 2021, Hilcorp reconciled seven additional historical amounts (including the incremental costs of approximately $1.1 million referred to below) for the accounting months of August 2018 through February 2019, which

resulted in a charge to the Trust of ~~$9,184.~~

~~Until~~$975,792. As of March 31, 2021, Hilcorp has informed the Trust that its true-up reconciliation for the estimates of revenue and expenses is complete.

Although Hilcorp has indicated that all estimated historical monthly amounts received by the Trust from September 2017 to March 2019 are fully reconciled, ~~and adjusted,~~ Net Proceeds from the San ~~Juan—~~Juan Basin — New Mexico Properties that would otherwise be payable to the Trust in subsequent periods will ~~reflect adjustments~~continue to ~~actual current~~be adjusted against the outstanding excess production ~~and~~ costs ~~to account for historical monthly reconciliations as they~~until such amounts are completed. Because of anticipated future adjustments, the amounts of Net Proceeds reported for the San Juan Basin—New Mexico Properties during the three months ended September 30, 2020 may not be representative of Net Proceeds that will be received in future quarters.

fully recovered by Hilcorp.

Hilcorp has informed the Trust that significant incremental costs of approximately $1.1 million attributable to the Trust were incurred in 2018 with respect to a newly drilled well in the San Juan ~~Basin—~~Basin — New Mexico Properties. ~~Incremental~~Hilcorp has reconciled these costs ~~attributable~~resulting in a charge to the Trust ~~will reduce~~for which the ~~Trust's future Net Proceeds over~~amount is included in the true-up of historical amounts referred to above. With the assistance of a ~~period of time as adjustments are made by Hilcorp after taking into account actual revenues as well as costs for these properties during~~third party consultant, the ~~applicable time period. The potential impact to Net Proceeds depends upon the results of all of the reconciliation work currently being conducted by Hilcorp and is therefore uncertain. The~~ Trust ~~will undertake~~has commenced a review of the reconciliation calculations by Hilcorp and the amount of Net Proceeds calculated and ~~paid~~paid.

In April 2021, Hilcorp informed the Trust that Hilcorp is in process of a system conversion that has delayed the ability to provide current information. For the Trust distribution months of April through September 2021, Hilcorp recorded estimates of revenues and ~~intends~~expenses and calculated payments to ~~engage third party consultants~~the Trust based on Hilcorp’s December 2020 production month, and the Trust recognized such amounts in accordance with its accounting practices. Accordingly, Hilcorp calculated an estimated payment of $90,649 in Net Proceeds to the Trust for each month from April 2021 through September 2021. These Net Proceeds were adjusted against the outstanding excess production costs referred to above. Per Hilcorp, when ~~appropriate~~the system conversion is complete, Hilcorp will perform a true-up of the estimated amounts and provide the true-up to ~~assist~~the Trust.

For the nine months ended September 30, 2021, Net Proceeds from the San Juan Basin — New Mexico Properties adjusted against the outstanding excess production costs and recovered by Hilcorp were $777,327, leaving a balance of $198,465 to be recovered from future proceeds, if any. Because of the anticipated future offset, the amounts of Net Proceeds reported for the San Juan Basin — New Mexico Properties during the nine months ended September 30, 2021 may not be representative of Net Proceeds that will be received in ~~the Trust's review.~~

future quarters.

~~MESA ROYALTY TRUST~~

~~NOTES TO FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 1—Trust Organization and Provisions (Continued)~~

subsequent periods. This could result in a decrease in Net Proceeds paid to the Trust and could result in future material reductions in distributions to the ~~Trust's~~Trust’s unitholders.

Net Proceeds from the San Juan Basin—New Mexico Properties for the three months ended September 30, 2020 and 2019 were $28,347 and $103,678, respectively, which revenue accounted for approximately 57% and 51%, respectively, of the total Royalty income reported by the Trust during those periods.

As used in this report, Scout refers to the current operator of the Hugoton Royalty Properties, Hilcorp refers to the current operator of the San Juan ~~Basin—~~Basin — New Mexico Properties, and ~~BP (under a transition services agreement with IKAV)~~Simcoe and Red Willow refer to the current co-operators of certain tracts of land included in the San Juan ~~Basin—~~Basin — Colorado Properties, unless otherwise indicated. Scout, ~~BP,~~Simcoe, Red Willow and Hilcorp are each individually referred to herein as ~~"Working~~“Working Interest ~~Owner"~~Owner” or collectively as the ~~"Working~~“Working Interest Owners."

”

The Royalty Properties are required to be operated by the Working Interest Owners in accordance with reasonable and prudent business judgment and good oil and gas field practices. Each Working Interest Owner has the right to abandon any well or lease if, in its opinion, such well or lease ceases to produce or is not capable of producing oil, gas or other minerals in commercial quantities. Each Working Interest Owner ~~markets~~is required to market the production on terms deemed by it to be the best reasonably obtainable in the

circumstances. ~~See "Contracts" under Part I, Item 1 of the Trust's Annual Report on Form 10-K for the year ended December 31, 2019.~~ The Trustee has no power or authority to exercise any control over the operation of the Royalty Properties ~~the incurrence of costs,~~ or the marketing of production therefrom.

In addition, the Trust does not undertake or control any capital projects or make capital expenditures related to any of the Royalty Properties.

Trustee and Terms of Trust Indenture. ~~Effective October 2, 2006, the Trustee succeeded JP Morgan Chase Bank, N.A. as Trustee of the Trust.~~ The Trust is a passive entity whose purposes are limited to: (1) converting the Royalty to cash, either by retaining it and collecting the proceeds of production (until production has ceased or the Royalty is otherwise terminated) or by selling or otherwise disposing of the Royalties; and (2) distributing such cash, net of amounts for payments of liabilities to the Trust, to the unitholders. The Trust has no sources of liquidity or capital resources other than the revenues, if any, attributable to the Royalties and interest on cash held by the Trustee as a reserve for liabilities or for distribution. The terms of the Trust Indenture provide, among other things, that:

(a)

the Trust cannot engage in any business or investment activity or purchase any assets;

(b)

the Royalty can be sold in part or in total for cash upon ~~required~~ approval by the unitholders;

(c)

the Trustee can establish cash reserves and borrow funds to pay liabilities of the Trust and can pledge assets of the Trust to secure payment of the borrowings;

(d)

~~MESA ROYALTY TRUST~~

~~NOTES TO FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 1—Trust Organization and Provisions (Continued)~~

~~(d)~~ the Trustee will make cash distributions to the unitholders in January, April, July and October each year as discussed more fully in "“Note 2—2 — Basis of Presentation"”;

(e)

the Trust will terminate upon the first to occur of the following events: (i) at such time as the ~~Trust's royalty~~Trust’s Royalty income for two successive years is less than $250,000 per year or (ii) a vote by the unitholders in favor of termination. Upon termination of the Trust, the Trustee will sell for cash all the assets held in the Trust estate and make a final distribution to unitholders of any funds remaining after all Trust liabilities have been satisfied; and

(f)

Scout, Hilcorp, and ~~BP (under a transition services agreement with IKAV)~~Simcoe will reimburse the Trust for 59.34%, 27.45% and 1.77%, respectively, of general and administrative expenses of the Trust.

~~Trustee's~~Trustee’s Fees. Pursuant to the Trust Indenture, the Trust pays the Trustee fees for its services each quarter and the Working Interest Owners partially reimburse the Trust for the fees paid in connection with the ~~Trustee's~~Trustee’s services. The net amount of these reimbursements is included in the general and administrative expenses of the Trust. For the ~~three months~~quarter ended September 30, ~~2020,~~2021, the Trustee was due $118,750 for its services. The Trust paid $108,288 of this amount to the Trustee, and $10,462 was allocated to offset against interest due to the Trust under the Trust Indenture. The Trustee was due $356,250 for its services for the nine months ended September 30, ~~2020.~~2021. The Trust paid $324,865 of this amount to the Trustee and $31,385 was allocated to offset against interest due to the Trust under the Trust Indenture. The Trust Indenture requires that cash being held by the Trustee earn interest at 1.5% below the prime rate, which would have yielded the Trust a ~~3.25%~~1.75% annualized return from January 1, ~~2020 through March 2, 2020, a 2.75% annualized return from March 3, 2020 through March 14, 2020 and a 1.75% annualized return from March 15, 2020~~2021 through September 30, ~~2020.~~2021. However, due to the current interest rate environment, the Trustee was unable to obtain an account in which such an interest rate was available. In the event such an interest rate is unavailable in the future, the Trustee intends to allocate certain of its fees due to the Trust to meet the minimum interest rate payable under the Trust Indenture. In future periods the Trustee will continue to allocate a portion of the fees earned for its services to the Trust until all remaining interest due to the Trust is fully offset.

The Working Interest Owners partially reimburse the Trust each quarter for amounts paid in connection with the ~~Trustee's~~Trustee’s services. For the ~~three months~~quarter ended September 30, ~~2020,~~2021, the ~~Trustee's~~Trustee’s fees were $108,288 and the Working Interest Owners reimbursed a sum of $95,897 to the Trustee, which was the same amount reimbursed for the ~~three months~~quarter ended September 30, ~~2019.~~2020. For the nine months ended September 30, ~~2020,~~2021, the ~~Trustee's~~

Trustee’s fees were $324,865 and the Working Interest Owners reimbursed a sum of $287,691 to the Trustee, which was the same amount reimbursed for the nine months ended September 30, ~~2019.~~

2020.

Discussion of Net Proceeds. The Conveyance provides for a monthly computation of Net Proceeds. Net Proceeds is defined in the Conveyance as the ~~"Gross Proceeds"~~“Gross Proceeds” received by the Working Interest

~~MESA ROYALTY TRUST~~

~~NOTES TO FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 1—Trust Organization and Provisions (Continued)~~

Owners during a particular period, minus certain production and capital costs for such period. ~~"Gross Proceeds"~~“Gross Proceeds” is defined in the Conveyance as the amount received by the Working Interest Owners from the sale of ~~"Subject Minerals"~~“Subject Minerals”, subject to certain adjustments. ~~"Subject Minerals"~~“Subject Minerals” means all oil, gas and other minerals, whether similar or dissimilar, in and under, and which may be produced, saved and sold from, and which accrue and are attributable to, the Subject Interests from and after November 1, 1979. ~~"Production costs"~~“Production costs” means, generally, costs incurred on an accrual basis by the Working Interest Owners in operating the Royalty Properties, including capital and non-capital costs. If production and capital costs exceed Gross Proceeds for any month, the excess, plus interest thereon at 120% of the prime rate of Bank of America, is recovered out of future Gross Proceeds prior to the making of further payment to the Trust. The Trust, however, is generally not liable for any operating costs or other costs or liabilities attributable to the Royalty Properties or minerals produced therefrom. The Trust is not obligated to return any Royalty income received in any period.

The Working Interest Owners are required to maintain books and records sufficient to determine the amounts payable under the Royalty. Additionally, in the event of a controversy between a Working Interest Owner and any purchaser as to the correct sales price for any production, amounts received by such Working Interest Owner and promptly deposited by it with an escrow agent are not considered to have been received by such Working Interest Owner, and, therefore, are not subject to being payable with respect to the Royalty until the controversy is resolved; but all amounts thereafter paid to such Working Interest Owner by the escrow agent will be considered amounts received from the sale of production. Similarly, operating costs include any amounts a Working Interest Owner is required to pay whether as a refund, interest or penalty to any purchaser because the amount initially received by such Working Interest Owner as the sales price was in excess of that permitted by the terms of any applicable contract, statute, regulation, order, decree or other obligation. Within 30 days following the close of each calendar quarter, the Working Interest Owners are required to deliver to the Trustee a statement of the computation of Net Proceeds attributable to such quarter.

The brief discussions of the Trust Indenture and the Conveyance contained herein are qualified in their entirety by reference to the Trust Indenture and the Conveyance themselves, which are exhibits to the ~~Trust's~~Trust’s Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 and are available upon request from the Trustee.

Note 2—2 — Basis of Presentation

The accompanying unaudited financial information has been prepared by the Trustee in accordance with the instructions to Form 10-Q. The preparation of the financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Trustee believes such information includes all the disclosures necessary to make the information presented not misleading.

~~MESA ROYALTY TRUST~~

~~NOTES TO FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 2—Basis of Presentation (Continued)~~

The information furnished reflects all adjustments which are, in the opinion of the Trustee, necessary for a fair presentation of the results for the interim periods presented. The financial information should be read in conjunction with the financial statements and notes thereto included in the ~~Trust's~~Trust’s Annual Report on Form 10-K for the year

ended December 31, ~~2019.~~2020. The Trust considers all highly liquid investments with a maturity of three months or less to be cash equivalents. Subsequent events were evaluated through the issuance date of the financial statements.

In accordance with the Conveyance, the Working Interest Owners are obligated to calculate and pay the Trust each month an amount equal to 11.44% of 90% of the Net Proceeds (as defined in the Conveyance) attributable to the month.

The net overriding royalty interest is reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. If circumstances require the net overriding royalty interest to be tested for possible impairment, the Trust first compares undiscounted cash flows expected to be generated by the net overriding royalty interest to its carrying value. If the carrying value of the net overriding royalty interest is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. The fair value of the net overriding royalty interest is measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount.

The financial statements of the Trust are prepared on the following ~~basis:~~

modified cash basis of accounting:

(a)

Royalty income recorded for a month is the amount computed and paid by the Working Interest Owners to the Trustee for such month rather than either the value of a portion of the oil and gas produced by the Working Interest Owners for such month or the amount subsequently determined to be the ~~Trust's~~Trust’s proportionate share of the ~~net proceeds~~Net Proceeds for such month;

(b)

Interest income, interest receivable and distributions payable to unitholders include interest to be earned on short-term investments from the financial statement date through the next date of distribution;

(c)

Trust general and administrative expenses, net of reimbursements, are recorded in the month they are included in the calculation of the monthly distribution amount;

(d)

Amortization of the Royalty is computed on a unit-of-production basis and is charged directly to trust corpus because such amount does not affect distributable income; and

(e)

Distributions payable are determined on a monthly basis and are payable to unitholders of record as of the last business day of each month or such later date as the Trustee determines is required to comply with applicable law or stock exchange requirements. However, cash distributions are made quarterly in January, April, July and October, and include interest earned from the monthly record dates to the date of distribution.

This basis for reporting distributable income is considered to be the most meaningful because distributions to the unitholders for a month are based on net cash receipts for such month. However, these statements differ from financial statements prepared in accordance with accounting principles generally accepted in the United States of America because, under such principles, ~~royalty~~Royalty income for a month would be based on ~~net proceeds~~Net Proceeds from production for such month without regard to when calculated or received, general and administrative expenses would be recorded in the month they accrue, and interest income for a month would be calculated only through the end of such month.

~~MESA ROYALTY TRUST~~

~~NOTES TO FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

Note 3—3 — Legal Proceedings

There are no pending legal proceedings to which the Trust is a named party. The Trustee has been advised by the Working Interest Owners that the Trust may be subject to litigation in the ordinary course of

business for certain matters that include the Royalty Properties. While each of the Working Interest Owners has advised the Trustee that it does not currently believe any of the pending litigation will have a material adverse effect net to the Trust, in the event such matters were adjudicated or settled in a material amount and charges were made against Royalty income, such charges could have a material impact on future Royalty income.

Note 4—4 — Income Tax Matters

In a technical advice memorandum dated February 26, 1982, the Internal Revenue Service (the ~~"IRS"~~“IRS”) advised the Dallas District Director that the Trust is classifiable as a grantor trust and not as an association taxable as a corporation. As a grantor trust, the Trust incurs no federal income tax liability and each unitholder is subject to tax on the ~~unitholder's~~unitholder’s pro rata share of the income and expense of the Trust as if the unitholder were the direct owner of a pro rata share of the ~~Trust's~~Trust’s assets. In addition, there is no state tax liability for the period.

Individuals, estates, and trusts with income above certain thresholds are subject under Section 1411 of the Code to an additional 3.8% ~~tax—~~tax — also known as the Net Investment Income Tax ~~("NIIT"~~(“NIIT”)—on their net investment income. Grantor trusts such as the Trust are not subject to the NIIT; however, the unitholders may be subject to the tax. For these purposes, investment income would generally include certain income derived from investments, such as the royalty income derived from the units and gain realized by a unitholder from a sale of units.

The Trustee assumes that some Trust units are held by a middleman, as such term is broadly defined in U.S. Treasury Regulations (and includes custodians, nominees, certain joint owners, and brokers holding an interest for a custodian in street name). Therefore, the Trustee considers the Trust to be a non-mortgage widely held fixed investment trust ~~("WHFIT"~~(“WHFIT”) for U.S. federal income tax purposes. The Bank of New York Mellon Trust Company, N.A., 601 Travis Street, Floor 16, Houston, Texas 77002, telephone number 713-483-6020, is the representative of the Trust that will provide tax information in accordance with applicable U.S. Treasury Regulations governing the information reporting requirements of the Trust as a WHFIT.

Notwithstanding the foregoing, the middlemen holding units on behalf of unitholders, and not the Trustee of the Trust, are solely responsible for complying with the information reporting requirements under the Treasury Regulations with respect to such units, including the issuance of IRS Forms 1099 and certain written tax statements. Unitholders whose units are held by middlemen should consult with such middlemen regarding the information that will be reported to them by the middlemen with respect to the units.

Each unitholder should consult its own tax advisor with respect to its particular circumstances.

~~MESA ROYALTY TRUST~~

~~NOTES TO FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

Note 5—5 — Excess Production Costs

	As of September 30, 2021			As of December 31, 2020
Hugoton Properties		$	306,944		$	430,888
San Juan Basin – Colorado Properties – Simcoe			425,073			—
San Juan Basin – Colorado Properties – Red Willow			26,920			36,453
San Juan Basin – New Mexico Properties – Hilcorp			212,615			18,874
Total		$	971,552		$	486,215

As of
September 30,
2020 As of
December 31,
2019
Hugoton Properties
$ 185,635 $ —
San Juan Basin—Colorado Properties—Red Willow
34,250 29,597
San Juan Basin—New Mexico Properties—Hilcorp
28,076 5,321

Total
$ 247,961 $ 34,918

Excess production costs result when costs, charges, and expenses attributable to a ~~working interest property and reported by a Working Interest Owner~~Royalty Property exceed the revenue received from the sale of oil, gas, and other hydrocarbons produced from such property. The excess production costs ~~may be recovered~~are recoverable by the Working Interest Owners before any distribution of Royalty income from the properties will be made to the Trust. Excess production costs are reported by the Working Interest Owners for prior production months and may ~~continue~~be based upon estimates that are subject to ~~increase, particularly during a low oil and natural gas price environment, which could have the effect of reducing or eliminating~~adjustment in future ~~distributions to unitholders.~~

periods.

Note 6—6 — Distributable Income Per Unit

The ~~Trust's~~Trust’s Royalty income from the Royalty Properties and its distributions to unitholders are heavily influenced by commodity ~~prices.~~prices received by Working Interest Owners. Commodity prices may fluctuate widely in response to (i) relatively minor changes in the supply of and demand for oil and natural gas, (ii) market uncertainty and (iii) a variety of additional factors that are beyond the ~~Trustee's~~Trustee’s control. ~~Recently, there has been a substantial decrease in oil and natural gas~~Royalty Income may be based upon spot market prices ~~due in part to significantly decreased demand as a result of the novel coronavirus ("COVID-19") pandemic and an oversupply of crude oil. Both factors have put substantial downward pressure~~or on the price of oil and natural gas during 2020, and the Trust cannot guarantee that the above factors will not continue to negatively impact natural gas commodity prices. The continued spread of the COVID-19 pandemic, and the measures taken to mitigate the impact of the COVID-19 pandemic, are adversely affecting the business and operations of the Working Interest Owners, which in turn are having an adverse effect on Trust distributions. For each month in the three months ended September 30, 2020, the Trust announced in a press release that there would be no distribution paid to unitholders, as costs, charges and expenses attributable to the Trust's Royalty properties exceeded the revenue received from the sale of oil, natural gas and other hydrocarbons produced from such properties, as reportedprices determined by ~~the Working Interest Owners.~~

~~During 2011, the~~contract.

The Trustee, acting pursuant to the Trust Indenture, ~~withheld $1.0 million~~may withhold Royalty income for future unknown contingent liabilities and expenses (such cumulative withholding being the ~~"Contingent Reserve"~~“Contingent Reserve”). The Trustee reserves the right to determine whether or not to increase or release cash reserves in future periods with respect to any reimbursement expenses. At any given time, the Contingent Reserve is included in cash and short-term investments.

The balance in the Contingent Reserve was increased and decreased during the period, as further described below.

~~MESA ROYALTY TRUST~~

~~NOTES TO FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 6—Distributable Income Per Unit (Continued)~~

For the three months ended September 30, ~~2020,~~2021, the Trustee increased the Contingent Reserve by $35 for interest earned on the operating and reserve accounts.

For the three months ended September 30, 2021, the Trustee decreased the Contingent Reserve by (1) $53,641 for general and administrative net unreimbursed expenses paid by the Trust and (2) $7,316 for the distribution payable to unitholders in October 2021.

For the nine months ended September 30, 2021, the Trustee increased the Contingent Reserve by (1) ~~$7,238~~$8,565 for a reimbursement not received from Hilcorp until January 2021 but included in the December 2020 distribution to unitholders calculation, (2) $36,515 of Royalty income received in February 2021 from BPSimcoe but withheld as cash reserves for current Trust expenses, (3) $27 for interest earned on the operating and reserve accounts for the quarter ended March 31, 2021, (4) $31 for interest earned on the operating and reserve accounts for the quarter ended June 30, 2021, (5) $156 received from Amoco in ~~September 2020~~April 2021, receipt of which is pending identification, (6) $594,172 of income received in May and June from Simcoe, $560,409 of which is included in the May and June 2021 distributions to unitholders, and the remaining $33,763 which was received from Simcoe in June 2021 after the distribution to unitholders had been announced for the month of ~~September 2020, which Royalty income~~June 2021 and was included in the ~~October 2020~~July 2021 distribution ~~calculation, (2) $83~~to unitholders and (7) $35 for interest earned on the ~~Contingent Reserve in~~operating and reserve accounts for the ~~third~~ quarter ~~of 2020 and (3) $300 for an overpayment received from Hilcorp in July 2020.~~ ended September 30, 2021.

For the ~~three~~nine months ended September 30, ~~2020,~~2021, the Trustee decreased the Contingent Reserve by (1) ~~$19,412 as~~$42,867 for general and administrative net unreimbursed expenses ~~were greater than Royalty income~~paid by the Trust for the quarter ended March 31, 2021, (2) $62,007 for general and ~~(2) $11,990~~administrative net unreimbursed expenses paid by the Trust for ~~a reimbursement not received from Hilcorp until October 2020 but included in~~ the ~~September 2020 distribution calculation.~~

~~For the nine months~~quarter ended ~~September~~June 30, ~~2020, the Trustee increased the Contingent Reserve by (1) $22,268 of Royalty income received from BP in March 2020 after~~2021, (3) $537,730 for the distribution to unitholders had been announced for the month of March 2020, which Royalty income was included in the April 2020 distribution to unitholders, (2) $23,629 reimbursement not received from Scout until January 2020 but included in the December 2019 distribution to unitholders, (3) $147,893 Royalty income for February and March 2020 included in the March 2020 distribution to unitholders but not received from Scout until April 2020, (4) $583 for interest earned on the Contingent Reserve in the second quarter of 2020, (5) $7,238 of Royalty income received from BP in September 2020 after the distribution to unitholders had been announced for the month of September 2020, which Royalty income was included in the October 2020 distribution calculation, (6) $83 for interest earned on the Contingent Reserve in the third quarter of 2020 and (7) $300 for an overpayment received from Hilcorp in July 2020.

For the nine months ended September 30, 2020, the Trustee decreased the Contingent Reserve by (1) $844 due to an overpayment received in error from BP in December 2019 that was deducted from BP's January 2020 payment to the Trust, (2) $147,893 Royalty income for February and March 2020 included in the March 2020 distribution to unitholders but not received from Scout until April 2020, (3) $22,268 of Royalty income received from BP in March 2020 after the distribution to unitholders had been announced for the month of March 2020, which Royalty income was included in the April 2020 distribution to unitholders, (4) $2,303 which was the difference between the amount to be paidpayable to unitholders in July ~~2020~~2021, (4) $53,641 for general and administrative net unreimbursed expenses paid by the ~~amount in the Trust's operating account as of June 30, 2020, (5) $19,412, as expenses were greater than Royalty income~~Trust for the ~~three months~~quarter ended September 30, ~~2020~~2021 and ~~(6) $11,990~~(5) $7,316 for ~~a reimbursement not received from Hilcorp until~~the distribution payable to unitholders in October ~~2020 but included in the September 2020 distribution calculation.~~

2021.

11
~~MESA ROYALTY TRUST~~

~~NOTES TO FINANCIAL STATEMENTS (Continued)~~

~~(Unaudited)~~

~~Note 6—Distributable Income Per Unit (Continued)~~

As of September 30, ~~2020,~~2021, the value of the Contingent Reserve was ~~$974,496,~~$1,012,425, which is included in cash and short-term investments. The effect on distributable income per unit of adjustments to the Contingent Reserve is as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Income available for distribution prior to cash reserves used for Trust expenses	$	(23,781	)	$	168,176		$	541,969		$	1,402,797
													Three Months Ended September 30						Nine Months Ended September 30,
													2021			2020			2021			2020
Distributable income before reserve for contingent liabilities and expenses														$	(53,606)		$	(23,781)		$	480,985		$	541,969
Increase in Contingent Reserve		(7,621	)		(1,130	)		(201,994	)		(58,357	)			(35)			(7,621)			(639,501)			(201,994)
Withdrawal from Contingent Reserve		31,402			—			204,710			95,909				60,957			31,402			703,561			204,710

Distributable income available for distribution	$	—		$	167,046		$	544,685		$	1,440,349			$	7,316		$	—		$	545,045		$	544,685



Distributable income available for distribution per unit	$	—		$	0.0896		$	0.2923		$	0.7729			$	0.0039		$	—		$	0.2925		$	0.2923



Units outstanding		1,863,590			1,863,590			1,863,590			1,863,590				1,863,590			1,863,590			1,863,590			1,863,590

Item 2. ~~Trustee's~~Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.

The following review of Mesa Royalty ~~Trust's~~Trust’s (the ~~"Trust"~~“Trust”) financial condition and results of operations should be read in conjunction with the financial statements and notes thereto. The discussion of net production attributable to the Hugoton Royalty Properties and San Juan Basin Royalty Properties (as each is defined below) represents production volumes that are to a large extent hypothetical as the Trust does not own and is not entitled to any specific production volumes. Any discussion of ~~"actual"~~“actual” production volumes represents the hydrocarbons that were produced from the properties in which the Trust has an overriding royalty ~~interest and reported by the Working Interest Owners.~~interest. See Note 7 to the financial statements in the ~~Trust's~~Trust’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

2020.

The Trust was created on November 1, 1979 and is now governed by the Mesa Royalty Trust Indenture (as amended, the ~~"Trust Indenture"~~“Trust Indenture”). Through a series of conveyances, assignments, and acquisitions, the Trust currently owns an overriding royalty interest (the ~~"Royalty"~~“Royalty”) equal to 11.44% of 90% of the Net Proceeds (as defined and described in an Overriding Royalty Conveyance dated as of November 1, 1979 (the ~~"Conveyance"~~“Conveyance”)) attributable to the specified interest in certain producing oil and gas properties located in the:

•

Hugoton field of Kansas (the ~~"Hugoton~~“Hugoton Royalty ~~Properties"~~Properties”);

•

San Juan Basin field of New Mexico (the ~~"San~~“San Juan ~~Basin—~~Basin — New Mexico ~~Properties"~~Properties”); and

•

On November 22, 2019, Riviera Resources, Inc. (“Riviera”) completed the sale of its interest in its remaining properties located in the Hugoton Basin ~~under the Purchase and Sale Agreement, dated August 28, 2019 (the "Purchase Agreement"), by and among Riviera Upstream, LLC, Riviera Operating, LLC and~~to Scout Energy Group V, LP ~~("Scout"~~(“Scout”). ~~Pursuant to the Purchase Agreement, Riviera divested all of its interest in oil and gas assets and contracts in the Hugoton Royalty Properties.~~ Since November 23, 2019, Scout has operated the Hugoton Royalty Properties.

On February 28, 2020, BP completed the sale of all of its interest in the San Juan Basin—Colorado Properties to IKAV Energy Inc. ("IKAV"). BP, under a transition services agreement with IKAV, and Red Willow currently operate the San Juan Basin—Colorado Properties.

Pursuant to past conveyances, Scout, Hilcorp, ~~BP (under a transition services agreement with IKAV)~~Simcoe and Red Willow are the operators of certain portions of the Hugoton Royalty Properties and San Juan Basin Royalty Properties (each of Scout, Hilcorp, BP

Simcoe and Red Willow being a ~~"Working~~“Working Interest ~~Owner"~~Owner”, and together, the ~~"Working~~“Working Interest ~~Owners"~~Owners”). As used in this report, Scout refers to the current operator of the Hugoton Royalty Properties, Hilcorp refers to the current operator of the San Juan ~~Basin—~~Basin — New Mexico Properties, and BPSimcoe and Red Willow refer to the current co-operators of certain tracts of land included in the San Juan ~~Basin—~~Basin — Colorado Properties, unless otherwise indicated.

The Trust is a passive entity whose purposes are limited to: (1) converting the Royalties to cash, either by retaining them and collecting the proceeds of production (until production has ceased or the Royalties are otherwise terminated) or by selling or otherwise disposing of the Royalties; and (2) distributing such cash, net of amounts for payments of liabilities to the Trust, to the unitholders.

The Trust has no sources of liquidity or capital resources other than the revenues, if any, attributable to the Royalties and interest on cash held by ~~The Bank of New York Mellon Trust Company, N.A. ("~~the ~~Trustee")~~Trustee as a reserve for liabilities or for distribution. The Trust does not undertake or control any capital projects or make capital expenditures. While the ~~Trust's~~Trust’s Royalty income is net of capital expenditures, these capital expenditures are controlled and paid by the Working Interests Owners, and the Trust receives Royalty income net of these expenses. In addition, the Trust does not have any off-balance sheet arrangements or other contingent obligations.

Note Regarding Forward-Looking Statements

This Form 10-Q includes ~~"forward-looking statements"~~“forward-looking statements” about the Trust and other matters discussed herein that are subject to risks and uncertainties that are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this document, including, without limitation, statements under ~~"Trustee's~~“Trustee’s Discussion and Analysis of Financial Condition and Results of Operations,"” including the ~~Trust's~~Trust’s or any Working Interest ~~Owner's~~Owner’s future financial position, status in any insolvency proceeding, business strategy, budgets, projected costs, statements regarding the COVID-19 pandemic and related containment measures, expected market conditions and ~~decreases in~~ commodity pricing, prices received by Working Interest Owners, plans and objectives, ~~for future operations,~~oil and natural gas prices, information regarding ~~target~~future distributions, statements regarding reconciliation and adjustment of estimated versus actual revenue and expense amounts, statements pertaining to future exploration and development activities and costs, estimates regarding production costs and expenses, estimates of cash flows, statements regarding the number of development wells to be completed in future periods, and information regarding production and ~~reserve growth,~~reserves, are forward-looking statements. Actual outcomes and results, which are substantially all outside the ~~Trust's~~Trust’s control, may differ materially from those projected. Forward-looking statements are generally accompanied by words such as ~~"estimate," "project," "predict," "believe," "expect," "anticipate," "potential," "possibly," "could," "may," "can," "foresee," "plan," "goal," "assume," "target," "should," "intend"~~“estimate,” “project,” “predict,” “future,” “believe,” “expect,” “anticipate,” “potential,” “possibly,” “could,” “may,” “can,” “foresee,” “plan,” “goal,” “forecast,” “assume,” “target,” “should,” “intend” or other words that convey the uncertainty of future events or outcomes. These statements are based on certain assumptions made by the Trust in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. The Trustee relies on the Working Interest Owners for information regarding the Subject Interests (as defined herein in "“Note 1—1 — Trust Organization and Provisions"”), the Royalty, and the Working Interest Owners themselves.

the ~~Trust's~~Trust’s Quarterly Report on Form 10-Q for the ~~three months~~quarter ended June 30, ~~2020,~~2021, the ~~risk factors~~risks discussed ~~herein,~~in Part II, Item 1A and those set forth from time to time in the ~~Trust's~~Trust’s filings with the Securities and Exchange Commission (the ~~"SEC"~~“SEC”), which could affect the future results of the energy industry in general, and the Trust and Working Interest Owners in particular, and could cause those results to differ materially from those expressed in such forward-looking statements. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Working Interest ~~Owners'~~Owners’ businesses and the Trust. Such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in such forward-looking statements. The Trust undertakes no obligation to publicly update or revise any forward-looking statements, except as required by applicable law.

SUMMARY OF ROYALTY INCOME, PRODUCTION AND AVERAGE PRICES

(Unaudited)

The ~~Trust's~~Trust’s Royalty income from the Royalty Properties and its distributions to unitholders are heavily influenced by commodity ~~prices.~~prices received by Working Interest Owners. Commodity prices may fluctuate widely in response to (i) relatively minor changes in the supply of and demand for oil and natural gas, (ii) market uncertainty and (iii) a variety of additional factors that are beyond the ~~Trustee's~~Trustee’s control. ~~Recently,~~In 2020 there ~~has been~~was a substantial decrease in oil and natural gas prices due in part to significantly decreased demand as a result of the ~~novel coronavirus ("COVID-19")~~COVID-19 pandemic and an oversupply of crude oil. Both factors ~~have~~ put substantial downward pressure on the price of oil and natural gas during ~~2020, and~~2020. Although there has been an increase in the price for natural gas in the first nine months of 2021, including unusually high pricing due to extreme winter weather in early 2021, the Trust cannot guarantee that the above factors will not continue to negatively impact natural gas commodity prices. ~~The recent spread of~~To the ~~COVID-19 pandemic, and~~extent prices are determined by contract, any increases in spot prices may not result in a corresponding increase in Net Proceeds received by the ~~measures taken to mitigate the impact of the COVID-19 pandemic, are adversely affecting the business and operations of the Working Interest Owners, which in turn are having an adverse effect on~~ Trust ~~distributions. For each month~~or in the ~~three months ended September 30, 2020, the Trust announced in a press release that there would be no distribution paid~~amount of cash available to ~~unitholders, as costs, charges and expenses attributable~~pay cash distributions to ~~the Trust's Royalty properties exceeded the revenue received from the sale of oil, natural gas and other hydrocarbons produced from such properties, as reported by the Working Interest Owners.~~

unitholders.

The following summary illustrates the net effect of the components of the actual Royalty computation for the periods indicated.

	Three Months Ended September 30,
	2021									2020
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
The Trust’s proportionate share of Gross proceeds(1)(5)		$	665,006		$	279,222		$	8,919		$	456,408		$	144,298		$	22,255
Less the Trust’s proportionate share of:
Capital costs recovered			(733)			(585)			(19)			(19,958)			(304)			(4,307)
Operating costs			(891,375)			(161,363)			(3,620)			(435,021)			(138,255)			(19,808)
Net proceeds(2)		$	(227,102)		$	117,274		$	5,280		$	1,429		$	5,739		$	(1,860)
Royalty income(2)		$	—		$	—		$	—		$	36,002		$	1,773		$	12,209
Average sales price		$	—		$	—		$	—		$	0.69		$	8.49		$	39.41
Average production costs(3)		$	—		$	—		$	—		$	8.67		$	663.35		$	77.85

			(Mcf)						(Bbls)						(Bbls)						(Mcf)						(Bbls)						(Bbls)
Net production volumes attributable to the Royalty paid(4)					—						—						—						52,492						209						310

Three Months Ended September 30,

2020 2019

Natural
Gas Natural
Gas Liquids Oil and
Condensate Natural
Gas Natural
Gas Liquids Oil and
Condensate
The Trust's proportionate share of Gross proceeds(1)(5)
$ 456,408 $ 144,298 $ 22,255 $ 457,944 $ 265,950 $ 41,757
Less the Trust's proportionate share of:

Capital costs recovered
(19,958 ) (304 ) (4,307 ) (9,861 ) (13,386 ) (3,037 )
Operating costs
(435,021 ) (138,255 ) (19,808 ) (335,122 ) (183,553 ) (26,160 )

Net proceeds(2)
$ 1,429 $ 5,739 $ (1,860 ) $ 112,961 $ 69,011 $ 12,560

Royalty income(2)
$ 36,002 $ 1,773 $ 12,209 $ 120,988 $ 69,580 $ 12,592

Average sales price
$ 0.69 $ 8.49 $ 39.41 $ 1.00 $ 14.95 $ 48.00

Average production costs(3)
$ 8.67 $ 663.35 $ 77.85 $ 2.86 $ 42.31 $ 111.30

(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Net production volumes attributable to the Royalty paid(4)
52,492 209 310 120,758 4,655 262

Nine Months Ended September 30,

2020 2019

Natural
Gas Natural
Gas Liquids Oil and
Condensate Natural
Gas Natural
Gas Liquids Oil and
Condensate
The Trust's proportionate share of Gross proceeds(1)(5)
$ 1,702,735 $ 583,063 $ 58,618 $ 2,280,331 $ 856,782 $ 72,801
Less the Trust's proportionate share of:

Capital costs recovered
(39,814 ) (10,473 ) (6,099 ) (19,386 ) (19,609 ) (3,700 )
Operating costs
(1,365,475 ) (387,705 ) (44,507 ) (1,134,577 ) (485,584 ) (38,798 )

Net proceeds(2)
$ 297,446 $ 184,885 $ 8,012 $ 1,126,368 $ 351,589 $ 30,303

Royalty income(2)
$ 499,092 $ 182,164 $ 22,131 $ 1,137,640 $ 350,536 $ 30,334

Average sales price
$ 1.35 $ 11.66 $ 40.86 $ 1.93 $ 17.61 $ 45.00

Average production costs(3)
$ 3.80 $ 25.49 $ 93.44 $ 1.96 $ 25.38 $ 63.04

(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Net production volumes attributable to the Royalty paid(4)
369,725 15,619 542 588,615 19,907 674

Nine Months Ended September 30, 2021 2020 Natural Gas Natural Gas Liquids Oil and Condensate Natural Gas Natural Gas Liquids Oil and Condensate The Trust’s proportionate share of Gross proceeds(1)(5) $ 2,724,818 $ 795,345 $ 79,203 $ 1,702,735 $ 583,063 $ 58,618 Less the Trust’s proportionate share of: Capital costs recovered (1,036,884) (3,088) (161,402) (39,814) (10,473) (6,099) Operating costs (1,763,837) (455,908) (32,898) (1,365,475) (387,705) (44,507) Net proceeds(2) $ (75,903) $ 336,349 $ (115,097) $ 297,446 $ 184,885 $ 8,012 Royalty income(2) $ 630,687 $ — $ — $ 499,092 $ 182,164 $ 22,131 Average sales price $ 4.49 $ — $ — $ 1.35 $ 11.66 $ 40.86 Average production costs(3) $ 19.94 $ — $ — $ 3.80 $ 25.49 $ 93.44 (Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls) Net production volumes attributable to the Royalty paid(4) 140,431 — — 369,725 15,619 542 (1)

Gross Proceeds from natural gas liquids attributable to each of the Hugoton Royalty Properties and San Juan Basin Royalty Properties are reported by the Working Interest Owner net of a volumetric in-kind processing fee retained by Scout and Hilcorp, respectively.

(2)

~~(2)~~

Royalty income is computed after deducting the ~~Trust's~~Trust’s proportionate share of capital costs, operating costs and interest on any cost carryforward from the ~~Trust's~~Trust’s proportionate share of Gross Proceeds. As a result of excess production costs incurred in one monthly operating period and then recovered in a subsequent monthly operating period, the Royalty income paid to the Trust may not ~~match~~agree to the ~~Trust's~~Trust’s royalty interest in the Net Proceeds (as defined in the Conveyance). The excess production costs ~~may be recovered~~are recoverable by the Working Interest Owners before any distribution of Royalty income will be made to the Trust.

San Juan ~~Basin—~~Basin — New Mexico ~~Properties.~~Properties. Excess production costs in the amount of ~~$16,086~~$14,150 and ~~$2,720~~$16,086 as of September 30, ~~2020~~2021 and September 30, ~~2019,~~2020, respectively, were related to the San Juan ~~Basin—~~Basin — New Mexico Properties formerly operated by XTO, currently operated by Hilcorp. Excess production costs related to the San Juan ~~Basin—~~Basin — New Mexico Properties formerly operated by XTO and currently operated by Hilcorp were ~~approximately~~$0 and $4,183, ~~and $1,010,~~ respectively, for the three months ended September 30, ~~2020,~~2021, and ~~2019.~~2020. Hilcorp recovered prior period excess production costs of $2,134 and $0, respectively related to the San Juan Basin — New Mexico Properties formerly operated by XTO and currently operated by Hilcorp during each of the quarters ended September 30, 2021 and 2020.

Excess production costs related to the San Juan ~~Basin—~~Basin — New Mexico Properties formerly operated by XTO and currently operated by Hilcorp were ~~approximately~~$0 and $10,765, ~~and $0,~~ respectively, for the nine months ended September 30, ~~2020~~2021 and ~~2019. The Trust~~2020. Hilcorp recovered prior period excess production costs of ~~$2,229~~$4,724 and $0, respectively related to the San Juan ~~Basin—~~Basin — New Mexico Properties formerly operated by XTO and currently operated by Hilcorp during each of the nine months ended September 30, ~~2019.~~

2021 and 2020.

Excess production costs in the amount of ~~$11,990~~$198,465 and $0$11,990 as of September 30, ~~2020~~2021 and September 30, ~~2019,~~2020, respectively, and for the ~~three and~~ nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively were related to the San Juan ~~Basin—~~Basin — New Mexico Properties ~~formerly operated by Conoco, Inc. ("ConocoPhillips") and currently~~ operated by Hilcorp.

Excess production costs related to the San Juan ~~Basin—~~Basin — New Mexico Properties were $0 and $11,990, respectively, for the three months ended September 30, 2021, and 2020. Hilcorp recovered prior period excess production costs of $271,947 and $0, respectively related to the San Juan Basin — New Mexico Properties during each of the quarters ended September 30, 2021 and 2020.

San Juan Basin — Colorado ~~Properties.~~Properties. Excess production costs in the amount of ~~$34,250~~$26,920 and ~~$15,436~~$34,250 as of September 30, ~~2020~~2021 and September 30, ~~2019,~~2020, respectively, were related to the San Juan ~~Basin—~~Basin — Colorado Properties operated by Red Willow. Excess production costs related to the San Juan ~~Basin—~~Basin — Colorado Properties operated by Red Willow were ~~approximately~~$0 and $1,360, ~~and $7,617,~~ respectively, for the three months ended September 30, ~~2020~~2021 and ~~2019.~~ 2020.

Excess production costs related to the San Juan ~~Basin—~~Basin — Colorado Properties operated by Red Willow were ~~approximately~~$0 and $4,652, ~~and $12,479,~~ respectively, for the nine months ended September 30, ~~2020~~2021 and ~~2019.~~

No2020. Red Willow recovered prior period excess production costs ~~were recorded~~of $4,405 and $0, respectively related to the San Juan Basin — Colorado Properties operated by Red Willow during each of the quarters ended September 30, 2021 and 2020. Red Willow recovered prior period excess production costs of $9,533 and $0, respectively related to the San Juan Basin — Colorado Properties operated by Red Willow during each of the nine months ended September 30, 2021 and 2020.

Excess production costs in the amount of $425,073 and $0 as of September 30, ~~2020~~2021 and September 30, ~~2019 or with respect to~~2020, respectively, and for the three and nine months ended September 30, 2021 and 2020, ~~and 2019~~respectively, were related to the San Juan ~~Basin—~~Basin — Colorado Properties operated by ~~BP. The Trust recovered prior period excess production costs of $2,357 related to the San Juan Basin—Colorado Properties operated by BP during the three months ended September 30, 2020.~~

Simcoe.

Hugoton Royalty ~~Properties.~~Properties. Excess production costs in the amount of ~~$185,635~~$306,944 and $0$185,635 as of September 30, ~~2020~~2021 and September 30, ~~2019,~~2020, respectively, were related to the Hugoton ~~Royalty~~ Properties operated by Scout. Excess production costs related to the Hugoton Properties operated by Scout were $0 and $29,500, for the three months ended September 30, 2021 and 2020. Excess production costs related to the Hugoton Royalty Properties operated by Scout were ~~approximately $29,500~~$0 and ~~$0, respectively, for the three months ended September 30, 2020, and 2019.~~

~~Excess production costs related to the Hugoton Royalty Properties operated by Scout were approximately~~ $185,635, ~~and $0,~~ respectively, for the nine months ended September 30, ~~2020~~2021 and ~~2019.~~

2020. Scout recovered prior period excess production costs of $42,039 and $0, respectively related to the Hugoton Properties operated by Scout during each of the quarters ended September 30, 2021 and 2020. Scout recovered prior period excess production costs of $123,943 and $0, respectively related to the Hugoton Properties operated by Scout during each of the nine months ended September 30, 2021 and 2020.

(3)

Average production costs attributable to the Royalty are calculated as stated capital costs plus operating costs, divided by stated net production volumes attributable to the Royalty paid. As noted above in footnote (2), production costs may be incurred in one operating period and then recovered in a subsequent operating period, which may cause Royalty income paid to the Trust not to agree to the ~~Trust's~~Trust’s Royalty interest in the Net Proceeds.

(4)

~~(4)~~

Net production volumes attributable to the Royalty are determined by dividing Royalty income by the average sales price received. Any differences noted are due to rounding.

(5)

Subject to adjustments to actual current production and costs to account for historical monthly reconciliations as they are completed by Hilcorp. See Trustee’s Discussion and Analysis of Financial Condition and Results of Operations — Operational Overview — San Juan Basin Royalty Properties of this Form 10-Q.

~~(5)~~

Three Months Ended September 30, 2021 and 2020

Financial Review

	Three Months Ended September 30,
	2021			2020
Royalty income		$	—		$	49,984
Interest income			35			89
General and administrative expense			(53,641)			(73,854)
Income available for distribution prior to cash reserves used for Trust expenses			(53,606)			(23,781)
Cash reserves used for current Trust expenses			53,606			23,781
Distributable income		$	—		$	—
Distributable income per unit		$	—		$	—
Units outstanding			1,863,590			1,863,590

Royalty Income. The Trust’s Royalty income was $0 for the quarter ended September 30, 2021, as compared to $49,984 for the quarter ended September 30, 2020. This decrease was primarily a result of no Royalty income received from any of the Working Interest Owners for the three months ended September 30, 2021, as actual expenses and adjustments for all Working Interest Owners were greater than actual revenues in either current or past periods. Such amounts are being recovered by the Working Interest Owners by withholding the Net Proceeds that would otherwise be payable to the Trust.

The Trust’s interest income for the three months ended September 30, 2021 and 2020 was $35 and $89, respectively. In accordance with the Trust Indenture and as explained below, interest on cash on hand was paid at a rate equivalent to a 1.75% annualized return from January 1, 2021 through September 30, 2021.

General and Administrative Expense. General and administrative expense was $53,641 and $73,854 for the three months ended September 30, 2021 and 2020, respectively. The Trustee’s fees are included in general and administrative expense. The decrease for the three months ended September 30, 2021 as compared to September 30, 2020 was primarily a result of the timing of expenses received and paid by the Trust and a September 2020 reimbursable amount not received from Hilcorp until October 2020.

For the quarter ended September 30, 2021, the Trustee was due $118,750 for its services. The Trust paid $108,288 of this amount to the Trustee, and $10,462 was allocated to offset against interest due to the Trust under the Trust Indenture. The Trust Indenture requires that cash being held by the Trustee earn interest at 1.5% below the prime rate, which would have yielded the Trust a 1.75% annualized return from January 1, 2021 through September 30, 2021. However, due to the current interest rate environment, the Trustee was unable to obtain an account in which such an interest rate was available. In the event such an interest rate is unavailable in the future, the Trustee intends to allocate certain of its fees due to the Trust to meet the minimum interest rate payable under the Trust Indenture. In future periods the Trustee will continue to allocate a portion of the fees earned for its services to the Trust until all remaining interest due to the Trust is fully offset.

Unreimbursed Expenses and the Contingent Reserve. The Working Interest Owners partially reimburse the Trust each quarter for amounts paid in connection with the Trustee’s services. For the quarter ended

September 30, 2021, the Trustee’s fees were $108,288 and the Working Interest Owners reimbursed a sum of $95,897 to the Trustee, which was the same amount reimbursed for the quarter ended September 30, 2020. As of each of the quarters ended September 30, 2021 and 2020, there were $0 and $11,990, respectively, of unreimbursed expenses.

The Trustee, acting pursuant to the Trust Indenture, may withhold Royalty income for future unknown contingent liabilities and expenses (such cumulative withholding being the “Contingent Reserve”). The Trustee reserves the right to determine whether or not to increase or release cash reserves in future periods with respect to any reimbursement expenses. The Trustee intends to increase the Contingent Reserve from $1.0 million to a total of $2.0 million.

The balance in the Contingent Reserve was increased and decreased during the period, as further described below.

For the three months ended September 30, 2021, the Trustee increased the Contingent Reserve by $35 for interest earned on the operating and reserve accounts.

Distributable Income Available for Distribution. The portion of the Trust’s distributable income available for distribution each period includes the Royalty income received from the Working Interest Owners during such period, plus interest income earned to the date of distribution (if any) and increases or withdrawals from the Contingent Reserve (if any). Distributable income available for distribution for the quarter ended September 30, 2021 was $7,316, representing $0.0039 per unit, compared to $0, representing $0 per unit, for the quarter ended September 30, 2020. Based on 1,863,590 units outstanding for the quarters ended September 30, 2021 and 2020, respectively, the per unit distributions for each month in such periods were as follows:

	2021			2020
July		$	0.0039		$	—
August			—			—
September			—			—
		$	0.0039		$	—

Operational Review

In 2020, the business of the Working Interest Owners was adversely affected by the COVID-19 pandemic and measures taken to mitigate its impact. The oil and gas industry experienced sharp declines in the demand for crude oil and natural gas worldwide. The global economy and commodity prices were severely negatively impacted, as economic activity and demand for energy declined in response to the COVID-19 pandemic, as well as due to other geopolitical factors. The magnitude of the impact of the COVID-19 pandemic will depend on the duration and extent of the pandemic, including increases in COVID-19 case counts, any additional waves of the virus, new variants of the virus and the availability and ultimate efficacy of the vaccine on new variants of the virus. The effects from the pandemic continue to have a material adverse effect on Trust distributions.

Hugoton Royalty Properties

Natural gas and natural gas liquids production attributable to the Hugoton Royalty Properties accounted for none of the Royalty income of the Trust during the third quarter of 2021.

	Three Months Ended September 30,
	2021			2020
Royalty income attributable to Hugoton Royalty Properties		$	—		$	—
Operating costs attributable to Hugoton Royalty Properties		$	372,042		$	278,709
Capital expenditures attributable to Hugoton Royalty Properties		$	—		$	—

Royalty Income. Royalty income attributable to the Hugoton Royalty Properties was $0 in both the third quarter of 2021 and the third quarter of 2020. The lack of Royalty income was primarily a result of actual expenses being greater than actual revenues in past periods as reported by Scout. Such amounts are being recovered by Scout by withholding the Net Proceeds that would otherwise be payable to the Trust in the quarters ended September 30, 2021 and September 30, 2020. For the three months ended September 30, 2021, Net Proceeds from the Hugoton Properties adjusted against the outstanding excess production costs and recovered by Scout were $42,039, leaving a balance of $306,944 to be recovered from future proceeds, if any.

Operating Costs and Capital Expenditures. Operating costs were $372,042 in the third quarter of 2021 as compared to $278,709 in the third quarter of 2020. The increase of approximately 33% was primarily due to increased power costs incurred by Scout, associated with the extreme winter weather in early 2021, which costs are being repaid to the power company incrementally through the remainder of 2021, in the quarter ended September 30, 2021 as compared to the quarter ended September 30, 2020. Capital expenditures attributable to the Hugoton Royalty Properties were $0 in both the third quarter of 2021 and in the third quarter of 2020.

	Three Months Ended September 30,
	2021									2020
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price		$	3.68		$	20.05		$	—		$	2.40		$	8.10		$	—

	(Mcf)		(Bbls)		(Bbls)		(Mcf)		(Bbls)		(Bbls)
Actual production volumes attributable to the Royalty paid for Hugoton Royalty Properties		89,833		4,157		—		85,068		5,522		—
Net production volumes attributable to the Royalty paid for Hugoton Royalty Properties		—		—		—		—		—		—

Average Sales Price. Average sales prices per thousand cubic feet (“Mcf”) of natural gas and barrel (“Bbl”) for natural gas liquids for the Hugoton Royalty Properties are directly dependent on the prices paid to Scout under the relevant contracts with purchasers. Overall market prices received for natural gas from Hugoton Royalty Properties were higher for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

San Juan Basin Royalty Properties

Royalty income from the San Juan Basin Royalty Properties is calculated and paid to the Trust on a state-by-state basis depending upon whether the property is situated in Colorado or New Mexico. A majority of the Royalty income from the San Juan Basin Royalty Properties is attributable to the San Juan Basin — New Mexico Properties.

San Juan Basin — Colorado Properties

	Three Months Ended September 30,
	2021			2020
Royalty income attributable to San Juan Basin – Colorado Properties		$	—		$	21,636
Operating costs attributable to San Juan Basin – Colorado Properties		$	474,272		$	25,702

Royalty Income. Royalty income from the San Juan Basin — Colorado Royalty Properties was $0 during the third quarter of 2021, compared to $21,636 during the third quarter of 2020. This decrease was primarily a result of prior period adjustments reported by Simcoe in the three months ended September 30, 2021, compared to the three months ended September 30, 2020. Amounts not yet offset as a result of these adjustments will be recovered by Simcoe by withholding the Net Proceeds that would otherwise be payable to the Trust in future periods. If not for the prior period adjustments by Simcoe, Royalty income received from Simcoe would have been $24,721 in the third quarter of 2021 as compared to $21,636 for the quarter ended September 30, 2020, leaving a balance of $425,073 to be recovered from future proceeds, if any. Because of anticipated future adjustments, the amounts of Net Proceeds reported for the San Juan Basin — Colorado Properties during the three months ended September 30, 2021 may not be representative of Net Proceeds that will be received in future quarters.

Operating Costs. Operating costs on these properties were $474,272 in the third quarter of 2021, an increase of $448,570 as compared to $25,702 in the third quarter of 2020. The increase was primarily the result of prior period adjustments reported by Simcoe in the three months ended September 30, 2021, compared to the three months ended September 30, 2020, that Simcoe asserts it is entitled to deduct under the Conveyance. If not for the adjustments, operating costs would have been $24,479 for the three months ended September 30, 2021.

	Three Months Ended September 30,
	2021									2020
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price		$	0.66		$	—		$	—		$	0.51		$	—		$	—

	(Mcf)		(Bbls)		(Bbls)		(Mcf)		(Bbls)		(Bbls)
Actual production volumes attributable to the Royalty paid for San Juan Basin – Colorado Properties		80,733		—		—		92,914		—		—
Net production volumes attributable to the Royalty paid for San Juan Basin – Colorado Properties		—		—		—		42,311		—		—

San Juan Basin — New Mexico Properties

	Three Months Ended September 30,
			2021		2020
Royalty income attributable to San Juan Basin – New Mexico Properties		$	—	$	28,348
Operating costs attributable to San Juan Basin – New Mexico Properties		$	210,044	$	288,673
Capital expenditures attributable to San Juan Basin – New Mexico Properties		$	1,336	$	24,570

Royalty Income. Royalty income from the San Juan Basin — New Mexico Properties was $0 during the third quarter of 2021 as compared with Royalty income of $28,348 during the third quarter of 2020. This decrease was primarily a result of actual expenses being greater than actual revenues in past periods of 2021 as reported by Hilcorp. Such amounts are being recovered by Hilcorp by withholding the Net Proceeds that would otherwise be payable to the Trust in the quarter ended September 30, 2021, as compared to the quarter ended September 30, 2020. If not for the recovery withholding by Hilcorp, Royalty income received from Hilcorp would have been $271,947 in the third quarter of 2021 as compared to $28,348 for the quarter ended September 30, 2020. Hilcorp has informed the Trust that Hilcorp is in process of a system conversion that has delayed the ability to provide current information. For each month in the quarter ended September 30, 2021, Hilcorp recorded estimates of revenues and expenses based on its December 2020 production month. Hilcorp estimated $90,649 in Net Proceeds to the Trust for each of the three months ended September 30, 2021. When the system conversion is complete, Hilcorp has informed the Trust that it will utilize actual revenue and expense amounts and either add or subtract reconciled historical amounts on a month-by month basis. These adjustments will be recognized by the Trust in accordance with the Trust’s modified cash basis of accounting. Because of anticipated future adjustments, the amounts of Net Proceeds reported for the San Juan Basin — New Mexico Properties during the three months ended September 30, 2021 may not be representative of Net Proceeds that will be received in future quarters.

Operating Costs and Capital Expenditures. Operating costs were $210,044 in the third quarter of 2021, a decrease of approximately 27% as compared to $288,673 in the third quarter of 2020. The decrease was primarily a result of including March through May 2018 true-ups of historical amounts by Hilcorp in the

three months ended September 30, 2020 as compared to no true-up of historical amounts in the three months ended September 30, 2021. Excluding the true-up, operating costs were $198,075 in the third quarter of 2020 as compared to $210,044 in the third quarter of 2021, an increase in 2021 of approximately 6%.

Capital expenditures on these properties were $1,336 in the third quarter of 2021, as compared to $24,570 in the third quarter of 2020. Excluding the true-up referred to above, capital expenditures were $707 in the third quarter of 2020 as compared to $1,336 in the third quarter of 2021.

	Three Months Ended September 30,
	2021									2020
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price		$	2.02		$	17.32		$	36.60		$	1.41		$	8.49		$	39.41

	(Mcf)		(Bbls)		(Bbls)		(Mcf)		(Bbls)		(Bbls)
Actual production volumes attributable to the Royalty paid for San Juan Basin – New Mexico Properties		138,806		11,310		244		144,399		11,503		572
Net production volumes attributable to the Royalty paid for San Juan Basin – New Mexico Properties		—		—		—		10,181		209		310

the accounting months of October 2017 through ~~April~~July 2018. For the three months ended March 31, 2021, Hilcorp reconciled seven additional historical amounts (including the incremental costs of approximately $1.1 million referred to below) for the accounting months of August 2018 through February 2019, which resulted in a charge to the Trust of ~~$9,184.~~

~~Until~~$975,792. As of March 31, 2021, Hilcorp informed the Trust that its true-up reconciliation for the estimates of revenue and expenses is complete.

Although all estimated historical monthly amounts received by the Trust from September 2017 to March 2019 are fully reconciled, ~~and adjusted,~~ Net Proceeds from the San ~~Juan—~~Juan Basin — New Mexico Properties that would otherwise be payable to the Trust in subsequent periods will ~~reflect adjustments~~continue to ~~actual current~~be adjusted against the outstanding excess production ~~and~~ costs ~~to account for historical monthly reconciliations as they~~until such amounts are completed. Because of anticipated future adjustments, the amounts of Net Proceeds reported for the San Juan Basin—New Mexico Properties during the three months ended September 30, 2020 may not be representative of Net Proceeds that will be received in future quarters.

fully recovered by Hilcorp.

Basin — New Mexico Properties. ~~Incremental~~As of March 31, 2021, Hilcorp reconciled these costs ~~attributable~~resulting in a charge to the Trust ~~will reduce~~for which the ~~Trust's future~~amount is included in the true-up of historical amounts referred to above. Net Proceeds ~~over~~from the San Juan Basin — New Mexico Properties that would otherwise be payable to the Trust in subsequent periods will continue to be adjusted against the outstanding charge until such amounts are fully recovered by Hilcorp. With the assistance of a ~~period of time as adjustments are made by Hilcorp after considering actual revenues as well as costs for these properties during~~third party consultant, the ~~applicable time period. The potential impact to Net Proceeds depends upon the results of all of the reconciliation work currently being conducted by Hilcorp and is therefore uncertain. The~~ Trust ~~will undertake~~has commenced a review of the reconciliation calculations by Hilcorp and the amount of Net Proceeds calculated and ~~paid and intends to engage third party consultants when appropriate to assist in~~paid.

For the ~~Trust's review.~~

Pursuant to the Trust Indenture, the Trust is not required to pay to Hilcorp any amounts that could be owed if the estimated revenue exceeded actual revenue amounts or estimated expenses were less than actual expense amounts in past periods. However, Hilcorp may recover such amounts by withholding a portion or all of the Net Proceeds that would otherwise be payable to the Trust in subsequent periods. This could result in a decrease in Net Proceeds paid to the Trust and could result in future material reductions in distributions to the Trust's unitholders.three months ended September 30, 2021, Net Proceeds from the San Juan ~~Basin—~~Basin — New Mexico Properties ~~for~~(excluding properties operated by Hilcorp, formerly operated by XTO) adjusted against the ~~three months ended September 30, 2020~~outstanding excess production costs and ~~2019~~recovered by Hilcorp were ~~$28,348 and $103,678, respectively, which revenue accounted for approximately 57% and 51%, respectively,~~$271,947, leaving a balance of $198,465 to be recovered from future proceeds, if any. Because of the ~~total Royalty income reported by the Trust. Because of~~ anticipated future ~~adjustments,~~offset, the amounts of Net Proceeds reported for the San Juan ~~Basin—~~Basin — New Mexico Properties during the ~~three months~~quarter ended September 30, ~~2020~~2021 may not be representative of Net Proceeds that will be received in future quarters.

~~Working Interest Owner and Industry Update~~

The business of the Working Interest Owners is being adversely affected by the COVID-19 pandemic and the containment measures being taken to mitigate its impact. The oil and gas industry has experienced a sharp and rapid decline in the demand for crude oil and natural gas worldwide. The global economy and commodity prices are being severely negatively impacted, as economic activity and demand for energy have declined in response to the COVID-19 pandemic, as well as due to other geopolitical factors. The pandemic continues to have a material adverse effect on the Working Interest Owners' costs, operations, business and financial condition, which is having an adverse effect on Trust distributions. For each month in the three months ended September 30, 2020, the Trust announced in a press release that there would be no distribution paid to unitholders, as costs, charges and expenses attributable to the Trust's Royalty properties exceeded the revenue received from the sale of oil, natural gas and other hydrocarbons produced from such properties, as reported by the Working Interest Owners. There is no indication of if or when distributions may be announced in future periods.

~~Three Months Ended September 30, 2020 and 2019~~

~~Financial Review~~

Three Months Ended
September 30,

2020 2019
Royalty income
$ 49,984 $ 203,160
Interest income
89 7,402
General and administrative expense
(73,854 ) (42,386 )
Cash reserves used for current Trust expenses
23,781 —

Distributable income
$ — $ 168,176

Distributable income per unit
$ — $ 0.0902

Units outstanding
1,863,590 1,863,590

~~Royalty Income.~~ The Trust's Royalty income was $49,984 for the three months ended September 30, 2020, a decrease of approximately 75% as compared to $203,160 for the three months ended September 30, 2019. The decrease was primarily a result of lower natural gas, natural gas liquids and oil and condensate prices, decreased net production of natural gas and natural gas liquids, an increase in operating expenses for natural gas and an increase in capital expenditures for natural gas and oil and condensate, offset in part by a decrease in operating expenses for natural gas liquids and oil and condensate and lower capital expenditures for natural gas liquids in the three months ended September 30, 2020, as compared to the three months ended September 30, 2019.

The Trust's interest income for the quarters ended September 30, 2020 and 2019 was $89 and $7,402, respectively. In accordance with the Trust Indenture and as explained below, interest on cash on hand was paid at a rate equivalent to a 3.25% annualized return from January 1, 2020 through March 2, 2020, a 2.75% annualized return from March 3, 2020 through March 14, 2020 and a 1.75% annualized return from March 15, 2020 through September 30, 2020.

~~General and Administrative Expense.~~ General and administrative expense was $73,854 and $42,386 for the three months ended September 30, 2020 and 2019, respectively. The Trustee's fees are included in general and administrative expense. The increase for the three months ended September 30, 2020 as compared to September 30, 2019 was primarily a result of the timing of expenses received and paid by the Trust and a September 2020 reimbursable amount not received from Hilcorp until October 2020.

For the three months ended September 30, 2020, the Trustee was due $118,750 for its services. The Trust paid $108,288 of this amount to the Trustee, and $10,462 was allocated to offset against interest due to the Trust under the Trust Indenture. The Trust Indenture requires that cash being held by the Trustee earn interest at 1.5% below the prime rate, which would have yielded the Trust a 3.25% annualized return from January 1, 2020 through March 2, 2020, a 2.75% annualized return from March 3, 2020 through March 14, 2020 and a 1.75% annualized return from March 15, 2020 through September 30, 2020. However, due to the current interest rate environment, the Trustee was unable to obtain an account in which such an interest rate was available. In the event such an interest rate is unavailable in the future, the Trustee intends to allocate certain of its fees due to the Trust to meet the minimum interest rate payable under the Trust Indenture. In future periods the Trustee will continue to

~~allocate a portion of the fees earned for its services to the Trust until all remaining interest due to the Trust is fully offset.~~

~~Unreimbursed Expenses and the Contingent Reserve.~~ The Working Interest Owners partially reimburse the Trust each quarter for amounts paid in connection with the Trustee's services. For the three months ended September 30, 2020, the Trustee's fees were $108,288 and the Working Interest Owners reimbursed a sum of $95,897 to the Trustee, which was the same amount reimbursed for the three months ended September 30, 2019. As of each of the quarters ended September 30, 2020 and 2019, there were $11,990 and $0, respectively, of unreimbursed expenses.

During 2011, the Trustee, acting pursuant to the Trust Indenture, withheld $1.0 million for future unknown contingent liabilities and expenses (such cumulative withholding, the "Contingent Reserve"). The Trustee reserves the right to determine whether or not to release cash reserves in future periods with respect to any reimbursement expenses. For the three months ended September 30, 2020, the Trustee increased the Contingent Reserve by (1) $7,238 of Royalty income received from BP in September 2020 after the distribution to unitholders had been announced for the month of September 2020, which Royalty income was included in the October 2020 distribution calculation, (2) $83 for interest earned on the Contingent Reserve in the third quarter of 2020 and (3) $300 for an overpayment received from Hilcorp in July 2020. For the three months ended September 30, 2020, the Trustee decreased the Contingent Reserve by (1) $19,412, as expenses were greater than Royalty income for the quarter and (2) $11,990 for a reimbursement not received from Hilcorp until October 2020 but included in the September 2020 distribution calculation.

~~Distributable Income Available for Distribution.~~ The portion of the Trust's distributable income available for distribution each period includes the Royalty income received from the Working Interest Owners during such period, plus interest income earned to the date of distribution (if any) and increases or withdrawals from the Contingent Reserve (if any). Distributable income available for distribution for the three months ended September 30, 2020 was $0, representing $0 per unit, compared to $167,046, representing $0.0896 per unit, for the three months ended September 30, 2019. Based on 1,863,590 units outstanding for the quarters ended September 30, 2020 and 2019, respectively, the per unit distributions for each month in such periods were as follows:

2020 2019
July
$ — $ 0.0283
August
— 0.0270
September
— 0.0343

$ — $ 0.0896

~~Operational Review~~

~~Hugoton Royalty Properties~~

~~Natural gas and natural gas liquids production attributable to the Hugoton Royalty Properties accounted for none of the Royalty income of the Trust during the third quarter of 2020.~~

Three Months Ended
September 30,

2020 2019
Royalty income attributable to Hugoton Royalty Properties
$ — $ 69,339
Operating costs attributable to Hugoton Royalty Properties
$ 278,709 $ 273,270

~~Royalty Income.~~ Royalty income attributable to the Hugoton Royalty Properties decreased to $0 in the third quarter of 2020 from $69,339 in the third quarter of 2019 as operating expenses exceeded proceeds for the three months ended September 30, 2020, due to decreases in natural gas and natural gas liquids prices, from the Hugoton Royalty Properties in the third quarter of 2020 as compared to the third quarter of 2019.

~~Operating Costs and Capital Expenditures.~~ Operating costs were $278,709 in the third quarter of 2020, an increase of approximately 2% as compared to $273,270 in the third quarter of 2019. Capital expenditures attributable to the Hugoton Royalty Properties were $0 in the third quarter of 2020, as compared to $0 in the third quarter of 2019.

Three Months Ended September 30,

2020 2019

Natural
Gas Natural
Gas Liquids Oil and
Condensate Natural
Gas Natural
Gas Liquids Oil and
Condensate
Average sales price
$ 2.40 $ 8.10 $ — $ 3.08 $ 19.34 $ —

(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Actual production volumes attributable to the Royalty paid for Hugoton Royalty Properties
85,068 5,522 — 86,034 4,000 —

Net production volumes attributable to the Royalty paid for Hugoton Royalty Properties
— — — 17,313 823 —

~~Average Sales Price.~~ Average sales prices per thousand cubic feet ("Mcf") of natural gas and barrel ("Bbl") for natural gas liquids for the Hugoton Royalty Properties are directly dependent on the prices Scout realizes for natural gas sold under short-term and multi-month contracts at market clearing prices to multiple purchasers. Overall market prices received for natural gas from Hugoton Royalty Properties were lower for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

~~San Juan Basin Royalty Properties~~

~~San Juan Basin—Colorado Properties~~

Three Months Ended
September 30,

2020 2019
Royalty income attributable to San Juan Basin—Colorado Properties
$ 21,636 $ 30,142
Operating costs attributable to San Juan Basin—Colorado Properties
$ 25,702 $ 31,304

~~Royalty Income.~~ Royalty income from the San Juan Basin—Colorado Royalty Properties was $21,636 during the third quarter of 2020, compared to $30,142 during the third quarter of 2019. This decrease in Royalty income was due primarily to decreased net natural gas production volumes, offset in part by higher market prices for natural gas and a decrease in operating costs in the third quarter of 2020 compared to the third quarter of 2019.

~~Operating Costs.~~ ~~Operating costs on these properties were $25,702 in the third quarter of 2020, a decrease of approximately 18% as compared to $31,304 in the third quarter of 2019.~~

Three Months Ended September 30,

2020 2019

Natural
Gas Natural
Gas Liquids Oil and
Condensate Natural
Gas Natural
Gas Liquids Oil and
Condensate
Average sales price
$ 0.51 $ — $ — $ 0.49 $ — $ —

(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Actual production volumes attributable to the Royalty paid for San Juan Basin—Colorado Properties
92,914 — — 104,879 — —

Net production volumes attributable to the Royalty paid for San Juan Basin—Colorado Properties
42,311 — — 60,915 — —

~~San Juan Basin—New Mexico Properties~~

Three Months Ended
September 30,

2020 2019
Royalty income attributable to San Juan Basin—New Mexico Properties
$ 28,348 $ 103,679
Operating costs attributable to San Juan Basin—New Mexico Properties
$ 288,673 $ 240,261
Capital expenditures attributable to San Juan Basin—New Mexico Properties
$ 24,570 $ 26,284

~~Royalty Income.~~ Royalty income from the San Juan Basin—New Mexico Properties was $28,348 during the third quarter of 2020 as compared with Royalty income of $103,679 during the third quarter of 2019. This decrease in Royalty income was due primarily to a decrease in natural gas liquids and oil and condensate prices, decreased net production volumes for natural gas and natural gas liquids and an increase in operating costs, offset in part by an increase in natural gas prices for the third quarter of 2020 compared to the third quarter of 2019.

~~Operating Costs and Capital Expenditures.~~ Operating costs were $288,673 in the third quarter of 2020, an increase of approximately 20% as compared to $240,261 in the third quarter of 2019, due primarily to including the March through May 2018 reconciliation of historical amounts by Hilcorp in the three months ended September 30, 2020 compared to the same period in 2019. Excluding the reconciliation, operating costs were $198,075 in the third quarter of 2020, a decrease of approximately 18% as compared to $240,261 in the third quarter of 2019, due primarily to Hilcorp reducing their operating expenses as the oil and gas prices dropped. Capital expenditures on these properties were $24,570 in the third quarter of 2020, a decrease of approximately 7% as compared to $26,284 in the third quarter of 2019.

Three Months Ended September 30,

2020 2019

Natural
Gas Natural
Gas Liquids Oil and
Condensate Natural
Gas Natural
Gas Liquids Oil and
Condensate
Average sales price
$ 1.41 $ 8.49 $ 39.41 $ 0.88 $ 14.00 $ 48.00

(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Actual production volumes attributable to the Royalty paid for San Juan Basin—New Mexico Properties
144,399 11,503 572 155,820 13,748 871

Net production volumes attributable to the Royalty paid for San Juan Basin—New Mexico Properties
10,181 209 310 42,529 3,832 262

Following Hilcorp's acquisition of ConocoPhillips' and XTO's interests in the San Juan Basin—New Mexico Properties, there was a transition period to transfer historical information, knowledge and processes from one owner to the other. During this transition period, Hilcorp recorded estimates of revenues and expenses and made payments to the Trust based on historical amounts previously paid by ConocoPhillips, and the Trust recognized such amounts in accordance with its accounting practices. Accordingly, Hilcorp made an estimated payment of $97,150 in Net Proceeds to the Trust from September 2017 to March 2019 based upon the July 2017 production month previously paid by ConocoPhillips. In April 2019, Hilcorp began to generate actual (instead of estimated) Net Proceeds due to the Trust on a monthly basis. Hilcorp has informed the Trust that it will utilize actual revenue and expense amounts and either add or subtract reconciled historical amounts on a month-by-month basis, which will be recognized over time by the Trust in accordance with the Trust's modified cash basis of accounting. In December 2019, Hilcorp made the first payment to the Trust in reconciling historical amounts for one accounting month. For the nine months ended September 30, 2020, Hilcorp reconciled seven additional historical amounts for the accounting months of October 2017 through April 2018, which resulted in a charge to the Trust of $9,184.

Until all estimated historical monthly amounts received by the Trust from September 2017 to March 2019 are fully reconciled and adjusted, Net Proceeds from the San Juan—New Mexico Properties will reflect adjustments to actual current production and costs to account for historical monthly reconciliations as they are completed. Because of anticipated future adjustments, the amounts of Net Proceeds reported for the San Juan Basin—New Mexico Properties during the three months ended September 30, 2020 may not be representative of Net Proceeds that will be received in future quarters.

Hilcorp has informed the Trust that significant incremental costs of approximately $1.1 million attributable to the Trust were incurred in 2018 with respect to a newly drilled well in the San Juan Basin—New Mexico Properties. Incremental costs attributable to the Trust will reduce the Trust's future Net Proceeds over a period of time as adjustments are made by Hilcorp after taking into account actual revenues as well as costs for these properties during the applicable time period. The potential impact to Net Proceeds depends upon the results of all of the reconciliation work currently being conducted by Hilcorp and is therefore uncertain. The Trust will undertake a review of the reconciliation calculations by Hilcorp and the amount of Net Proceeds calculated and paid and intends to engage third party consultants when appropriate to assist in the Trust's review.

Pursuant to the Trust Indenture, the Trust is not required to pay to Hilcorp any amounts that could be owed if the estimated revenue exceeded actual revenue figures in past periods, plus any additional required costs. However, Hilcorp may recover such amounts by withholding a portion or all of the Net Proceeds that would otherwise be payable to the Trust in subsequent periods. This could result in a decrease in Net Proceeds paid to the Trust and could result in future material reductions in distributions to the ~~Trust's~~Trust’s unitholders.

Net Proceeds from the San Juan Basin—New Mexico Properties for the three months ended September 30, 2020 and 2019 were $28,348 and $103,678, respectively, which revenue accounted for approximately 57% and 51%, respectively, of the total Royalty income reported by the Trust during those periods. Because of anticipated future adjustments, the amounts of Net Proceeds reported for the San Juan Basin—New Mexico Properties during the three months ended September 30, 2020 may not be representative of Net Proceeds that will be received in future quarters.

Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

Financial Review

	Nine Months Ended September 30,
	2021			2020
Royalty income		$	630,687		$	703,387
Interest income			92			5,731
General and administrative expense			(149,794)			(167,149)
Income available for distribution prior to cash reserves used for Trust expenses			480,985			541,969
Cash reserves used for current Trust expenses			51,367			23,781
Distributable income		$	532,352		$	565,750
Distributable income per unit		$	0.2857		$	0.3036
Units outstanding			1,863,590			1,863,590

Nine Months Ended
September 30,

2020 2019
Royalty income
$ 703,387 $ 1,518,510
Interest income
5,731 24,385
General and administrative expense
(167,149 ) (140,098 )
Cash reserves used for current Trust expenses
23,781 —

Distributable income
$ 565,750 $ 1,402,797

Distributable income per unit
$ 0.3036 $ 0.7527

Units outstanding
1,863,590 1,863,590

Royalty Income. The ~~Trust's~~Trust’s Royalty income was $630,687 for the nine months ended September 30, 2021, a decrease of approximately 10% as compared to $703,387 for the nine months ended September 30, 2020 ~~a decrease of approximately 54% as compared to $1,518,510 for the nine months ended September 30, 2019~~ primarily as a result of ~~decreased natural gas, natural gas liquids~~actual expenses being greater than actual revenues in past periods. Such amounts are being recovered by both Scout and oil and condensate prices, decreased net production of natural gas, natural gas liquids and oil and condensate, an increase in operating expenses for natural gas and oil and condensate and an increase in capital expenditures for natural gas and oil and condensate, offset in partHilcorp by ~~a decrease in operating and capital expenses for natural gas liquids~~withholding the Net Proceeds that would otherwise be payable to the Trust in the first nine months of ~~2020~~2021 as compared to the first nine months of ~~2019.~~2020. The ~~Trust's~~Trust’s interest income for the nine months ended September 30, 2021 and 2020 was $92 and ~~2019 was~~ $5,731, ~~and $24,385,~~ respectively.

General and Administrative Expense. General and administrative expense was ~~$167,149~~$149,794 and ~~$140,098~~$167,149 for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The ~~Trustee's~~Trustee’s fees are included in general and administrative expense. The increase for the nine months ended September 30, 2020 as compared to September 30, 2019 was primarily a result of the timing of expenses received and paid by the Trust and a September 2020 reimbursable amount not received from Hilcorp until October 2020.

For the nine months ended September 30, ~~2020,~~2021, the Trustee was due $356,250 for its services. The Trust paid $324,865 of this amount to the Trustee, and $31,385 was allocated to offset against interest due to the Trust under the Trust Indenture. The Trust Indenture requires that cash being held by the Trustee earn interest at 1.5% below the prime rate, which would have yielded the Trust a ~~3.25%~~1.75% annualized return from January 1, ~~2020 through March 2, 2020, a 2.75% annualized return from March 3, 2020 through March 14, 2020 and a 1.75% annualized return from March 15, 2020~~2021 through September 30, ~~2020.~~2021. However, due to the current interest rate environment, the Trustee was unable to obtain an account in which such an interest rate was available. In the event such an interest rate is unavailable in the future, the Trustee intends to allocate certain of its fees due to the Trust to meet the minimum interest rate payable under the Trust Indenture. In future periods the Trustee will continue to allocate a portion of the fees earned for its services to the Trust until all remaining interest due to the Trust is fully offset.

Unreimbursed Expenses and the Contingent Reserve. The Working Interest Owners partially reimburse the Trust each quarter for amounts paid in connection with the ~~Trustee's~~Trustee’s services. For the nine months ended September 30, ~~2020,~~2021, the ~~Trustee's~~Trustee’s fees were $324,865 and the Working Interest Owners reimbursed a sum of $287,691 to the Trustee, which was the same amount reimbursed for the nine months ended September 30, ~~2019.~~2020. As of each of the nine-month periods ended September 30, ~~2020~~2021 and ~~2019,~~2020, there were ~~$11,990~~$0 and ~~$0,~~$11,990, respectively, of unreimbursed expenses.

~~During 2011, the~~

The balance in the Contingent Reserve was increased and decreased during the period, as further described below.

For the nine months ended September 30, ~~2020,~~2021, the Trustee increased the Contingent Reserve by (1) ~~$22,268~~$8,565 for a reimbursement not received from Hilcorp until January 2021 but included in the December 2020 distribution to unitholders calculation, (2) $36,515 of Royalty income received in February 2021 from BPSimcoe but withheld as cash reserves for current Trust expenses, (3) $27 for interest earned on the operating and reserve accounts for the quarter ended March 31, 2021, (4) $31 for interest earned on the operating and reserve accounts for the quarter ended June 30, 2021, (5) $156 received from BP/Amoco in ~~March 2020~~April 2021, the receipt of which is pending identification from Simcoe, (6) $594,172 of proceeds received in May and June 2021 from Simcoe, $560,409 of which is included in the May and June 2021 distributions to unitholders, and the remaining $33,763 of which was received from Simcoe in June 2021 after the distribution to unitholders had been announced for the month of ~~March 2020,~~June 2021, which ~~Royalty income was~~proceeds were included in the ~~April 2020~~July 2021 distribution to unitholders ~~(2) $23,629 reimbursement not received from Scout until January 2020 but included in the December 2019 distribution to unitholders, (3) $147,893 Royalty income for February~~ and ~~March 2020 included in the March 2020 distribution to unitholders but not received from~~

~~Scout until April 2020, (4) $583~~(7) $35 for interest earned on the ~~Contingent Reserve in the second quarter of 2020, (5) $7,238 of Royalty income received from BP in September 2020 after the distribution to unitholders had been announced~~operating and reserve accounts for the ~~month of~~quarter ended September 2020, which Royalty income was included in the October 2020 distribution calculation, (6) $83 for interest earned on the Contingent Reserve in the third quarter of 2020 and (7) $300 for an overpayment received from Hilcorp in July 2020.

30, 2021.

For the nine months ended September 30, ~~2020,~~2021, the Trustee decreased the Contingent Reserve by (1) ~~$844 due to an overpayment received in error from BP in December 2019 that was deducted from BP's January 2020 payment to~~$42,867 for general and administrative net unreimbursed expenses paid by the Trust for the quarter ended March 31, 2021, (2) ~~$147,893 Royalty income~~$62,007 for ~~February~~general and ~~March 2020 included in~~administrative net unreimbursed expenses paid by the ~~March 2020 distribution to unitholders but not received from Scout until April 2020,~~Trust for the quarter ended June 30, 2021, (3) ~~$22,268 of Royalty income received from BP in March 2020 after~~$537,730 for the distribution to unitholders had been announced for the month of March 2020, which Royalty income was included in the April 2020 distribution to unitholders, (4) $2,303 which was the difference between the amount to be paidpayable to unitholders in July ~~2020~~2021, (4) $53,641 for general and administrative net unreimbursed expenses paid by the ~~amount in the Trust's operating account as of June 30, 2020, (5) $19,412, as expenses were greater than Royalty income~~Trust for the ~~three months~~quarter ended September 30, ~~2020~~2021 and ~~(6) $11,990~~(5) $7,316 for ~~a reimbursement not received from Hilcorp until~~the distribution payable to unitholders in October ~~2020 but included in the September 2020 distribution calculation.~~

2021.

Distributable Income Available for Distribution. The portion of the ~~Trust's~~Trust’s distributable income available for distribution each period includes the Royalty income received from the Working Interest Owners during such period, plus interest income earned to the date of distribution (if any) and increases or withdrawals from the Contingent Reserve (if any). Distributable income available for distribution for the nine months

ended September 30, ~~2020~~2021 was ~~$544,685,~~$545,045, representing ~~$0.2923~~$0.2925 per unit, compared to ~~$1,440,349,~~$544,685, representing ~~$0.7729~~$0.2923 per unit, for the nine months ended September 30, ~~2019.~~2020.

Operational Review

The Trust did not make distributions to unitholders from the time of the income distribution for the month of May 2020, paid to unitholders on July 31, 2020, until the income distribution for the months of May and June 2021, paid to unitholders on July 30, 2021, as costs, charges and expenses attributable to the Trust’s Royalty properties, and applicable reserves, exceeded the revenue received from the sale of oil, natural gas and other hydrocarbons produced from such properties, as reported by the Working Interest Owners. All income received in May and June 2021 came from Simcoe. No income was received in May or June 2021 from any other Working Interest Owner. Simcoe has informed the Trustee that the amounts paid to the Trust in the months of May and June 2021 are subject to further adjustment in future periods for certain expenses that Simcoe is entitled to deduct under the Conveyance. Simcoe is expected to recover such expense amounts by withholding a portion or all of the Net Proceeds that would otherwise be payable to the Trust in future periods. Any reduction in income paid to the Trust for these properties may materially reduce or eliminate distributions to the Trust’s unitholders in future periods. No income was received from any Working Interest Owner in the three months ended September 30, 2021. There is no indication if or when distributions may be announced in the future.

Hugoton Royalty Properties

Natural gas and natural gas liquids production attributable to the Hugoton Royalty Properties accounted for ~~approximately 35%~~none of the Royalty income of the Trust during the nine months ended September 30, ~~2020.~~

2021.

	Nine Months Ended September 30,
	2021			2020
Royalty income attributable to Hugoton Royalty Properties		$	—		$	248,445
Operating costs attributable to Hugoton Royalty Properties		$	964,125		$	876,499
Capital expenditures attributable to Hugoton Royalty Properties		$	14,614		$	—

Nine Months Ended
September 30,

2020 2019
Royalty income attributable to Hugoton Royalty Properties
$ 248,445 $ 415,866
Operating costs attributable to Hugoton Royalty Properties
$ 876,499 $ 892,146
Capital expenditures attributable to Hugoton Royalty Properties
$ — $ 1

Royalty Income. Royalty income attributable to the Hugoton Royalty Properties decreased to $0 for the nine months ended September 30, 2021 from $248,445 for the same period in 2020. The decrease was primarily a result of actual expenses being greater than actual revenues in past periods. Such amounts are being recovered by Scout by withholding the Net Proceeds that would otherwise be payable to the Trust in the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. If not for the recovery withholding by Scout, Royalty income attributable to the Hugoton Royalty Properties would

have been $123,943 in the nine months of 2021 as compared to $248,445 for the nine months ended September 30, ~~2020 from $415,866 for the same period~~2020. This decrease was primarily a result of higher operating and capital costs and lower actual production volumes, offset in ~~2019 primarily due to decreased~~part by higher natural gas and natural gas liquids prices ~~and decreased net natural gas production volumes offset in part by increased net natural gas liquids production volumes and lower operating costs~~ from the Hugoton Royalty Properties in the first nine months of ~~2020~~2021 as compared to the first nine months of ~~2019.~~

2020.

Operating Costs and Capital Expenditures. Operating costs on these properties were $964,125 during the nine months ended September 30, 2021, as compared to $876,499 during the nine months ended September 30, ~~2020, a decrease~~2020. The increase of approximately ~~2% as compared~~10% was primarily due to

~~$892,146 during~~ increased power costs incurred by Scout, associated with the ~~nine months~~extreme winter weather in early 2021, which costs are being repaid to the power company incrementally through the remainder of 2021, in the quarter ended September 30, ~~2019.~~2021 as compared to the quarter ended September 30, 2020. Capital expenditures attributable to the Hugoton Royalty Properties were $14,614 during the nine months ended September 30, 2021, as compared to $0 during the nine months ended September 30, ~~2020, as~~2020.

	Nine Months Ended September 30,
	2021									2020
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price		$	3.57		$	17.55		$	—		$	2.70		$	9.79		$	—

	(Mcf)		(Bbls)		(Bbls)		(Mcf)		(Bbls)		(Bbls)
Actual production volumes attributable to the Royalty paid for Hugoton Royalty Properties		247,778		12,412		—		289,617		16,026		—
Net production volumes attributable to the Royalty paid for Hugoton Royalty Properties		—		—		—		69,693		6,145		—

San Juan Basin Royalty Properties

San Juan Basin — Colorado Properties

	Nine Months Ended September 30,
	2021			2020
Royalty income attributable to San Juan Basin – Colorado Properties		$	630,687		$	135,214
Operating costs attributable to San Juan Basin – Colorado Properties		$	483,993		$	89,587

Royalty Income. Royalty income from the San Juan Basin — Colorado Royalty Properties was $630,687 for the nine months ended September 30, 2021, compared to $1$135,214 during the same period in 2020. The increase was primarily a result of Royalty income received from Simcoe in May 2021 which included unusually high pricing due to extreme winter weather in early 2021. Simcoe has informed the Trustee that the amounts paid to the Trust in the months of May and June 2021 are subject to further adjustment in future periods for certain expenses that Simcoe is entitled to deduct under the Conveyance. Simcoe is expected to recover such expense amounts by withholding a portion or all of the net proceeds that would otherwise be payable to the Trust in future periods.

Operating Costs. Operating costs on these properties were $483,993 during the nine months ended September 30, ~~2019.~~

Nine Months Ended September 30,

2020 2019

Natural
Gas Natural
Gas Liquids Oil and
Condensate Natural
Gas Natural
Gas Liquids Oil and
Condensate
Average sales price
$ 2.70 $ 9.79 $ — $ 3.80 $ 23.75 $ —

(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Actual production volumes attributable to the Royalty paid for Hugoton Royalty Properties
289,617 16,026 — 266,072 12,580 —

Net production volumes attributable to the Royalty paid for Hugoton Royalty Properties
69,693 6,145 — 86,028 3,761 —

~~San Juan Basin Royalty Properties~~

~~San Juan Basin—Colorado Properties~~

Nine Months Ended
September 30,

2020 2019
Royalty income attributable to San Juan Basin—Colorado Properties
$ 135,214 $ 395,411
Operating costs attributable to San Juan Basin—Colorado Properties
$ 89,587 $ 87,970

~~Royalty Income.~~ ~~Royalty income from the San Juan Basin—Colorado Royalty Properties was $135,214 for the nine months ended September 30, 2020,~~2021, an increase of $394,406 as compared to $395,411 during the same period in 2019. This decrease in Royalty income was due primarily to decreased natural gas prices, lower net production volumes for natural gas and an increase in operating costs in the first nine months of 2020 compared to the first nine months of 2019.

~~Operating Costs.~~ ~~Operating costs on these properties were~~ $89,587 during the nine months ended September 30, ~~2020, an~~2020. The increase was primarily the result of ~~approximately 2% as compared to $87,970 during~~prior period adjustments reported by Simcoe in the nine months ended September 30, ~~2019.~~2021, compared to the nine months ended September 30, 2020, that Simcoe is entitled to deduct under the Conveyance. If not for the adjustments, operating costs would have been $53,438 for the nine months ended September 30, 2021.

	Nine Months Ended September 30,
	2021									2020
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price		$	4.49		$	—		$	—		$	0.71		$	—		$	—

	(Mcf)		(Bbls)		(Bbls)		(Mcf)		(Bbls)		(Bbls)
Actual production volumes attributable to the Royalty paid for San Juan Basin – Colorado Properties		229,623		—		—		309,063		—		—
Net production volumes attributable to the Royalty paid for San Juan Basin – Colorado Properties		140,431		—		—		191,305		—		—

Nine Months Ended September 30,

2020 2019

Natural
Gas Natural
Gas Liquids Oil and
Condensate Natural
Gas Natural
Gas Liquids Oil and
Condensate
Average sales price
$ 0.71 $ — $ — $ 1.53 $ — $ —

(Mcf) (Bbls) (Bbls) (Mcf) (Bbls) (Bbls)
Actual production volumes attributable to the Royalty paid for San Juan Basin—Colorado Properties
309,063 — — 309,979 — —

Net production volumes attributable to the Royalty paid for San Juan Basin—Colorado Properties
191,305 — — 258,069 — —

San Juan ~~Basin—~~Basin — New Mexico Properties

	Nine Months Ended September 30,
	2021			2020
Royalty income attributable to San Juan Basin – New Mexico Properties		$	—		$	319,728
Operating costs attributable to San Juan Basin – New Mexico Properties		$	804,524		$	831,601
Capital expenditures attributable to San Juan Basin – New Mexico Properties		$	1,186,761		$	56,386

Nine Months Ended
September 30,

2020 2019
Royalty income attributable to San Juan Basin—New Mexico Properties
$ 319,728 $ 707,233
Operating costs attributable to San Juan Basin—New Mexico Properties
$ 831,601 $ 678,843
Capital expenditures attributable to San Juan Basin—New Mexico Properties
$ 56,386 $ 42,694

Royalty Income. Royalty income from the San Juan ~~Basin—~~Basin — New Mexico Properties was $0 for the nine months ended September 30, 2021 as compared to $319,728 during the same period in 2020. The decrease was primarily a result of actual expenses being greater than actual revenues in past periods. Such amounts are being recovered by Hilcorp by withholding the Net Proceeds that would otherwise be payable to the Trust in the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. If not for the recovery withholding by Hilcorp, Royalty income received from Hilcorp would have been $777,327 for the nine months ended September 30, 2021 as compared to $319,728 for the nine months ended September 30, 2020. Hilcorp has informed the Trust that Hilcorp is in process of a system conversion that has delayed the ability to provide current information. For each month in the second and third quarters ended June 30, 2021 and September 30, 2021, respectively, Hilcorp recorded estimates of revenues and expenses based on its December 2020 ~~as compared~~production month. Hilcorp estimated $90,649 in Net Proceeds to ~~$707,233~~the Trust for each month in the quarters ended June 30, 2021 and September 30, 2021. When the system conversion is complete, Hilcorp has informed the Trust that it will utilize actual revenue and expense amounts and either add or subtract reconciled historical amounts on a month-by month basis. These adjustments will be recognized by the Trust in accordance with the Trust’s modified cash basis of accounting.

	As of September 30, 2020		As of December 31, 2019

Hugoton Properties	$	185,635	$	—
San Juan Basin—Colorado Properties—Red Willow		34,250		29,597
San Juan Basin—New Mexico Properties—Hilcorp		28,076		5,321

Total	$	247,961	$	34,918



Net production volumes attributable to the Royalty paid(4)	52,492	209	310	120,758	4,655	262



Net production volumes attributable to the Royalty paid(4)	369,725	15,619	542	588,615	19,907	674



Actual production volumes attributable to the Royalty paid for San Juan Basin—Colorado Properties	92,914	—	—	104,879	—	—



Net production volumes attributable to the Royalty paid for San Juan Basin—Colorado Properties	42,311	—	—	60,915	—	—



Actual production volumes attributable to the Royalty paid for San Juan Basin—Colorado Properties	309,063	—	—	309,979	—	—



Net production volumes attributable to the Royalty paid for San Juan Basin—Colorado Properties	191,305	—	—	258,069	—	—

	Nine Months Ended September 30
	2021									2020
	Natural Gas			Natural Gas Liquids			Oil and Condensate			Natural Gas			Natural Gas Liquids			Oil and Condensate
Average sales price		$	2.62		$	16.53		$	43.45		$	1.62		$	12.88		$	40.86



Actual production volumes attributable to the Royalty paid for San Juan Basin—New Mexico Properties	432,961	32,840	1,442	469,463	37,264	1,618



Net production volumes attributable to the Royalty paid for San Juan Basin—New Mexico Properties	108,727	9,474	542	244,517	16,146	674

	Exhibit Number
~~Exhibit~~ ~~Number~~				SEC File or Registration Number			Exhibit Number
	4(a)*	*	Mesa Royalty Trust Indenture between Mesa Petroleum Co. and Texas Commerce Bank National Association, as Trustee, dated November 1, 1979			2-65217	1(a)
	4(b)*	*	Form of Overriding Royalty Conveyance between Mesa Petroleum Co. and Texas Commerce Bank, as Trustee, dated November 1, 1979		~~2-65217~~	2-65217	1(b)
	4(c)*	*	First Amendment to the Mesa Royalty Trust Indenture dated as of March 14, 1985 (Exhibit 4(c) to Form 10-K for year ended December 31, 1984 of Mesa Royalty Trust)		~~1-7884~~	1-7884	4(c)
	4(d)*	*	Form of Assignment of Overriding Royalty Interest, effective April 1, 1985, from Texas Commerce Bank National Association, as Trustee, to MTR Holding Co. (Exhibit 4(d) to Form 10-K for year ended December 31, 1984 of Mesa Royalty Trust)		~~1-7884~~	1-7884	4(d)
	4(e)*	*	Purchase and Sale Agreement, dated March 25, 1991, by and among Mesa Limited Partnership, Mesa Operating Limited Partnership and ConocoPhillips, as amended on April 30, 1991 (Exhibit 4(e) to Form 10-K for year ended December 31, 1991 of Mesa Royalty Trust)		~~1-7884~~	1-7884	4(e)
	31		Certification furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32		Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Mesa Royalty Trust
	By:	The Bank of New York Mellon Trust Company, N.A., as Trustee
	By:	/s/ ~~ELAINA RODGERS~~ E laina Rodgers Elaina Rodgers Vice President & Trust Officer