EXHIBIT 99.1
[XTO ENERGY INC. LETTERHEAD APPEARS HERE]
May 5, 2004
Nancy G. Willis
Vice President
Bank of America, N.A., Trustee
Hugoton Royalty Trust
901 Main Street, 17th Floor
P.O. Box 830650
Dallas, Texas 75283-0650
Re: Overhead Escalation
Dear Nancy:
In creating the Hugoton Royalty Trust, XTO Energy Inc. conveyed certain net overriding royalties to the Hugoton Royalty Trust by executing Net Overriding Royalty Conveyances covering various properties. Under the terms of the Schedule B Accounting Procedures attached to the Conveyance, it was agreed that the Operator could charge certain overhead rates as stated in Section III. Section III.1.A.(3) states that the overhead rates will be adjusted on the first day of April of each year, which adjustment will be made based upon the percentage of increase or decrease in the average weekly earnings of Crude Petroleum and Gas Production Workers for the last calendar year, as published by the United States Department of Labor, Bureau of Labor Statistics. A copy of the overhead section from the Conveyance is attached to this letter. Unfortunately, the Bureau of Labor Statistics has decided not to publish the overhead adjustment index. As a result, there is a question as to what index should be used with regard to the overhead adjustment.
Schedule B is based upon the Accounting Procedures published by the Council of Petroleum Accountants Societies (“COPAS”). COPAS has decided to provide guidance to the industry by publishing a replacement index for the index previously published by the Bureau of Labor Statistics. As shown by the attached letter from COPAS dated March 22, 2004, the new rate, effective April 1, 2004, will be a positive 2.3%. COPAS has also recommended changes to Sections III.1.A.(3) and IV.2.A.(2)(b), as shown by the attached Model Form Modification from COPAS, that are consistent with the change in the index.
XTO wishes to modify the Conveyances in accordance with the recommendation of COPAS. We would propose to amend Section III.1.A.(3) to read as follows:
“The well rates shall be adjusted as of the first day of April each year beginning in 1999. The adjustments shall be computed by multiplying the rate currently in use by the percentage increase or decrease published by the Council of Petroleum Accounting Societies. The adjusted rates shall be the rates currently in use, plus or minus the computed adjustment.”
We would recommend that Section IV.2.A.(2)(b) be amended to read as follows:
“Line pipe movements (except size 24 inch OD and larger with walls ¾ inch and over) less than 30,000 pounds shall be priced at Eastern mill published carload base prices effective as of date of shipment, plus the percent most recently recommended by COPAS, plus transportation costs based
on freight rates as set forth under provisions of tubular goods pricing in Paragraph A.(1)(a) as provided above. Freight charges shall be calculated from Lorain, Ohio.”
Section 3.01 of the Hugoton Royalty Trust Indenture gives the Trustee the authority to take such action as in its judgment is necessary or advisable best to achieve the purpose of the Trust, including the authority to agree to modification or settlements of the terms of the Conveyances. Under this provision, we believe that the Trust has the authority to make these changes.
If you are in agreement with this amendment, please sign this letter below and return it to us for our files.
If you have any questions regarding the above, please let us know.
Very truly yours,
Frank G. McDonald
Vice President, General Counsel & Assistant Secretary
AGREED TO AND ACCEPTED this 8th day of June, 2004.
HUGOTON ROYALTY TRUST
By: | BANK OF AMERICA, N.A., TRUSTEE |
| |
By: | /S/ NANCY G. WILLIS | |
| Nancy Willis, Vice President |
| |
cc: | Mike Tyson |
| Vice President, Financial Reporting |
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