Tuesday morning, the San Juan Royalty Trust (SJT) announced that the operator of their properties, Burlington Resources, miscalculated the lease operating expenses and capital expenses to be paid by the trust over the past four months. The error resulted in an overpayment of $3.39 mln, or a total of $.072 per San Juan Trust share. The trust will face reduced payments over the next four months in order to correct the miscalculation.
In our previous article on the San Juan Trust, we argued that natural gas prices of $3.00 should bring about $.044 monthly distributions. The past three months, however, the trust paid a total of $.2747 ($.0522 + $.0707 + $.0694 + $.0825) in distributions, or $.0687 per month. If we adjust these four distributions for the expense calculation error, the San Juan Trust should have been distributing an average of $.0506 per month - a significant reduction.
We continue to believe that the San Juan Trust trades well above it's fundamental value, and the expense payment oversight is yet another example of the inefficiencies and mismanagement of royalty trusts in general.