A high-leverage “recovery option” on San Juan natural gas: distributions are paused until EPC clears, but upside snaps back if prices and costs normalize.
Overview
San Juan Basin Royalty Trust (SJT) is a **passive grantor trust** (formed 1980) created to distribute cash generated from a **75% net overriding royalty / net profits interest** in specific oil and gas properties in the San Juan Basin (NW New Mexico/SW Colorado). It does not operate wells, cannot acquire assets, and simply collects monthly royalty proceeds (after expenses/reserves) for unitholders. Hilcorp San Juan (operator since acquiring interests from ConocoPhillips in 2017) sells production—primarily natural gas (>95% of royalty revenue)—then deducts LOE, CAPEX, and taxes to compute net proceeds, of which the Trust receives 75%. Since mid-2024, distributions have been suspended due to **Excess Production Costs (EPC)** created by Hilcorp’s aggressive 2024 horizontal drilling program combined with weak gas prices; EPC must be fully repaid from future proceeds before the Trust recognizes income again. As of early 2026, the investment hinges on the pace of EPC paydown, rebuilding a mandated **$2.0M cash reserve**, and repaying a **$2.0M LOC** used to fund admin expenses during the shortfall—making SJT a leveraged recovery/option-like exposure to gas prices and operator cost discipline.