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Hugoton Royalty Trust Message Board

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  • grapeman1212 grapeman1212 Jun 7, 2012 1:00 PM Flag

    Lawsuit

    Shredsail - The answer I got from IR was YES.
    XTO passes $ to HGT , who paid it out as dididends to shareholders.
    "Separately, did the unjust enrichment that XTO’s subsidiaries took, and for which XTO is now ready to settle, actually enrich the HGT unit holders that will be called on to pay 80% of the settlement? "

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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.

    • It may have enriched former unitholders, but not current ones (except where the two sets overlap).
      In other words current unitholders are paying back enrichment paid to former unitholders.

 
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