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Grapeman- I had talked to our two trustee reps at Bank of America Wealth Management Division in Dallas too and that is the answer I got. When I asked a few more questions about the lawsuit and whether the trust should be liable they were pretty tight lipped, but repeated the XTO position that the trust is on the hook for 80% of the settlement and they were “investigating” on behalf of the unit holders. One of the reps went on to say how the present Oklahoma and Kansas settlement “is not the way the law works here in Texas”. That gives me reservations about their approach. Keep in mind they are getting about $50,000 a year to administer the trust distributions and attend to their fiduciary responsibilities to us as unit holders. So we are asking the B of A’s Dallas office to investigate Exxon, the world’s largest corporation, in their home town. I just don’t have confidence that B of A is going to expend its resources going after what may be the biggest hand that feeds them. Seems like it would only complicate the bank’s job as trustee and expose them to liabilities for not performing their fiduciary responsibilities if it is discovered that there are years of undistributed profits. Surprisingly, the Trustee, Bank of America, Dallas Office, discloses in the most recent Annual Report pg 44 that they are the beneficial owner of 2,914,411 units.
One thing is clear, this is potentially big money. XTO is willing to settle claims on 228 of their 1268 (18%) wells for $ 36 MM and to significantly increase the land owner royalty calculations for these wells going forward. There is your smoking gun. The two parties have agreed and the settlement will be going before a judge for a fairness hearing at the end of the month. My understanding from reading the court documents is that the land owner royalties may differ well to well, but typically are 1/8th of the value of the well’s production. That royalty payment is one of the expenses XTO and the unit holders pay for. I’ve been told by trustee rep that it comes out of “Overhead” in the Calculation of Net Profits (pg 20 in AR) but I don’t see any notes to confirm it. That should leave the other 7/8 of production to XTO and the unit holders to divide up the profits 20/80. You can re-read the “tip of the iceberg” message string concerning the quarterly report disclosures. There are two more lawsuits that are following the $36 MM Frankhouser settlement road map that apparently cover the majority of the rest of wells. Those may take “3 or 4 years” to settle according to the Trustee. Needless to say the potential size of future settlements and adjustments in distributions for, or against, unit holders, could easily be 100’s of millions of dollars when you account for both past and future production.
I have been working my way through court documents for each of the class action suits and have some knowledge as to how production costs are accounted for in the oil and gas industry and I am not completely sure that the trust officers have a complete grasp of the situation.
1: Apple is bigger then Exxon. Exxon isnt the biggest company in the world anymore.
2: Good work on digging up info
3: I am not sure if the way they do things in Texas would apply here since the "damages" were caused in another state. I could be wrong.
Generally, contracts are signed and within the contract there is usually a clause that states where any lawsuits have to be filed. I would guess jurisdiction is based on where the corporation is incorporated. Could be Delaware for all I know.
Thanks for the compliment.
I think you are right - any lawsuit over the production interest in the wells on behalf of unit holders would be filed in the states where the wells are, OK and KS. Perhaps in with same courts and judges as are seeing the land royalty cases.
BTW I'd counter XOM has a much larger balance sheet and over twice the net income of AAPL, but I'll concede that AAPL definately has a larger market cap, which is how most on this board measure it.
So, if shareholders end up in a long term legal spat with the Trust and XOM or XTO....what will that do to the detriment of any future earnings/distributions from the Trust?
Is there clause that says that legal defense would NOT come out of revenues to be distributed to shareholders?
This thing is a MAJOR can of worms!!!