Cross Timbers Royalty Trust Declares March Distribution Amid Mixed Property Performance

March Distribution Reflects Volatile Energy Markets and Rising Operating Costs

Cross Timbers Royalty Trust ($CT) has declared a March cash distribution of $0.000923 per unit, payable to unitholders on April 14, 2026. The monthly payout underscores the trust's sensitivity to energy price fluctuations and operational challenges, as modest commodity sales were partially offset by escalating excess costs on key Texas properties. For a trust that derives its value from underlying oil and gas operations, this distribution reflects the continued pressure weighing on energy-focused royalty investments in an environment of volatile crude prices and elevated production expenses.

The declaration comes during a period of mixed performance across Cross Timbers' asset portfolio, revealing a widening cost burden that threatens to compress future distributions. The trust's operational footprint spans multiple producing regions, but performance divergence between geographic areas highlights the importance of portfolio diversification—and the risks when operational challenges concentrate in higher-margin properties.

Key Operational Metrics and Property-Level Performance

The trust's March operational performance presents a nuanced picture of its revenue-generating capabilities:

Commodity Sales and Pricing:

• Oil production: 10,000 barrels at $56.83 per barrel (total oil revenue: $568,300)
• Natural gas production: 39,000 Mcf at $4.30 per Mcf (total gas revenue: $167,700)
• Combined gross proceeds: Approximately $736,000 before cost deductions

These volumes reflect moderate production levels typical of mature producing assets. Oil prices remain under pressure globally, with WTI crude trading below historical averages, while natural gas prices have stabilized in the $4-5 range—levels that provide modest profitability but leave limited margin for operational inefficiencies.

Excess Cost Dynamics—A Growing Headwind:

The most concerning development in Cross Timbers' March results is the trajectory of excess costs, which represent the difference between actual operating expenses and the recoverable amount from production revenues:

• Texas properties: Excess costs increased by $95,000 during March
• Cumulative Texas excess costs: Now totaling $5.762 million
• Oklahoma properties: Recovered $39,000 in prior excess costs but generated no proceeds for distribution in March

This bifurcated performance reveals significant stress in the Texas portfolio, where operating expenses are outpacing revenue recovery. The accumulation of $5.762 million in excess costs represents a substantial contingent liability that will eventually reduce future distributions or require asset restructuring. By contrast, Oklahoma properties, while showing some cost recovery, failed to contribute to this month's distribution—suggesting those assets may be approaching or at economic breakeven.

Market Context: Royalty Trust Sector Under Pressure

The energy royalty trust sector faces headwinds that extend beyond Cross Timbers' operational challenges. Several broader market dynamics are reshaping the investment thesis for these vehicles:

Commodity Price Environment: Crude oil prices remain volatile, hovering near or below $60 per barrel for much of recent trading. This pricing level pressures the economics of mature, high-cost producing assets. Many trusts distributed by producers during the 2010s benefited from $70-80+ WTI levels; today's pricing environment offers substantially thinner margins. Natural gas remains equally challenged, with structural oversupply and competition from renewables limiting upside price potential.

Industry Structural Challenges:

• Production decline rates on mature properties (5-15% annually are common)
• Rising operating costs driven by inflation and infrastructure maintenance
• Limited reinvestment capacity in declining assets
• Regulatory pressures affecting drilling and completion economics

Competitive Landscape: Other royalty trusts and mineral interest companies face similar pressures. Energy royalties remain attractive for yield-focused investors, but distributions have compressed industrywide. Investors comparing $CT to peers like Permian Basin Royalty Trust ($PBT) or San Juan Basin Royalty Trust ($SJT) are likely seeing similar trends: modest distributions supported by operational leverage to commodity prices, but challenged by cost inflation.

Investor Implications: Distribution Sustainability in Question

For unitholders in Cross Timbers Royalty Trust, the March distribution warrants careful scrutiny:

Distribution Sustainability Risk: The monthly payout of $0.000923 per unit annualizes to approximately $0.0111 per unit—a distribution yield that requires consistent operational performance. However, the accumulation of excess costs, particularly the $5.762 million burden on Texas properties, suggests that current distributions may not be fully sustainable. If excess costs continue to accumulate at recent rates, management may face difficult choices: reduce distributions, seek operational improvements, or sell assets at unfavorable prices.

Asset Quality Deterioration Signal: The divergence between Texas and Oklahoma properties is telling. When producing assets transition from cost recovery mode to cost accumulation mode, it signals depleting reserve bases relative to fixed expenses. This is a natural progression in mature properties, but it compresses the runway for distributions. Investors should monitor whether excess costs stabilize, continue to grow, or eventually force asset sales or restructuring.

Yield vs. Principal Risk: Royalty trusts appeal to income-focused investors seeking distributions higher than dividend stocks or bonds. However, **$CT'**s situation illustrates the risk inherent in trusts backed by depleting assets. The modest distribution yield only makes sense if the trust can maintain current payout levels for several years. The data presented suggests increasing doubt on that front.

Market Opportunity: For contrarian investors, Cross Timbers may represent a value opportunity if management can execute operational improvements or if commodity prices strengthen materially. A rise to $65-70 WTI and $5+ natural gas would meaningfully improve distribution capacity. Conversely, further price weakness could necessitate distribution cuts.

Looking Ahead: Monitoring Points for Investors

Unitholders and prospective investors should focus on several key metrics in coming months:

1. Trend in excess costs: Stabilization would be positive; continued accumulation is concerning
2. Production volumes: Decline rates will determine revenue trajectory independent of prices
3. Commodity prices: $WTI and natural gas benchmarks remain the primary distribution drivers
4. Management commentary: Any discussion of asset sales, cost reduction initiatives, or distribution policy changes
5. Oklahoma property contribution: Recovery to distribution-supporting levels is critical

The March distribution from Cross Timbers Royalty Trust illustrates both the appeal and risks of energy royalty investments in the current environment. While the trust continues to generate cash from oil and gas sales, rising operational costs and modest commodity pricing create a challenging backdrop for distributions. Investors should approach $CT as a cyclical, commodity-linked investment rather than a stable income vehicle—particularly given the pronounced excess costs accumulating on Texas properties. The coming quarters will be critical in determining whether management can stabilize economics or whether distribution compression lies ahead.