Overview.
Kiewit Royalty Trust (the "Trust") is a royalty trust with royalty and
overriding royalty interests in certain coal leases. The Trust was formed for
the purposes of administering the income received from such coal leases and
distributing such income (together with interest earned thereon, if any, less
payment of or provision for obligations) to the holders of the units of
beneficial interest.
During the three month period ended September 30, 2021, the Trust did not
receive any revenue. For the nine month period ended September 30, 2021, the
Trust received a total of $142,135 of royalty and overriding royalty payments,
net of production expenses. The Trust does not anticipate receiving any royalty
payments in the foreseeable future. The following table reflects the royalty and
overriding royalty payments, net of production expenses, received by the Trust
at the following mines:
Three Months Ended
September 30,
2021 2020
Decker Mine $ - $ 385,413
Spring Creek Mine - 10,000
Total Royalty Income $ - $ 395,413
Nine Months Ended
September 30,
2021 2020
Decker Mine $ 142,135 $ 1,037,086
Spring Creek Mine - 10,000
Total Royalty Income $ 142,135 $ 1,047,086
Decker Mine. Royalty and overriding royalty amounts received by the Trust from
the Decker Mine decreased to $0 during the third quarter of 2021, as compared to
$385,413 received during the same period in 2020. During the nine month period
ended September 30, 2021, the royalty amounts decreased substantially by
$894,951, or approximately 86%, as compared to the same period in 2020. Until
2021, when the Decker Mine announced cessation of mining activities, the primary
producer currently was an East Decker Mine, which in recent years was the only
lease in which the Trust had an interest that was actively producing. The
changes this quarter, as well as during the first nine months of 2021, resulted
from the cession of mine operations and the Decker Mine bankruptcy.
In December 2020, Lighthouse Resources, Inc., the owner of the Decker Mine,
filed for Chapter 11 bankruptcy, in the United States Bankruptcy Court for the
District of Delaware (Case No. 20-13056(JTD)). Lighthouse initially reduced
operations at the Decker Mine, and in first quarter 2021, the Decker Mine ceased
operations. The Trust is an unsecured creditor in the bankruptcy case and is
entitled to receive 0.80% of any distributions made to its class of unsecured
creditors. Total distributions to this unsecured class is a maximum aggregate
amount of $750,000, and payment is subject to satisfaction of various
contingencies. The projected payment to the Trust is $6,000 and timing of the
payment is unknown.
In September 2021, the Trust commenced the auction process with EnergyNet to
offer for sale the Trust's non-producing overriding royalty interests in the
Decker Mines. EnergyNet developed and hosted the online auction to facilitate
the sale of the Trust's overriding royalty interests. On September 29, 2021,
Spartan Energy Acquisitions, LLC ("Spartan") of Denver, Colorado was the
successful bidder in the EnergyNet auction and has agreed to purchase the
overriding royalty interests in the Decker Mines and Black Butte Mine. The
transfer of these overriding royalty interests is subject to various closing
conditions, including either court approval or Unit Holder approval of the
transaction. After the satisfaction of the closing conditions, the Trust has
agreed to convey to Spartan the overriding royalty interests in exchange for a
total cash value of $12,510. Closing is anticipated in early 2022 after the
Trust obtains court approval or Unit Holder approval.
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Spring Creek Mine. The Trust did not receive any royalty payments from the
Spring Creek Mine during the first nine months of 2021 and received $10,000 in
2020. Royalties with respect to this mine are typically paid during the second
half of each calendar year but the timing of the first payment varies, and it
can be received at the end of the second quarter or beginning of the third
quarter. However, it is unknown whether the Trust will receive additional
royalties from this mine in the future due to various factors, including the
financial struggles of the coal operator, the lack of mining activities in the
applicable mines, and the general depletion of coal. In 2019, the Spring Creek
Mine was sold to Navajo Transitional Energy Company ("NTEC"), which is wholly
owned by the Navajo Nation, and is currently operating the mine as a contract
operator. Operational issues, together with general economic issues impacting
coal mines, are challenging and make it difficult for the Trust to predict the
long-term status of the operations of this mine.
On July 28, 2021, the Trust executed an agreement with NTEC pursuant to which
NTEC has agreed to purchase certain overriding royalty interests owned by the
Trust in certain Spring Creek Mines, specifically lease MTM-069782 and
MTM-110692. The agreement is subject to various closing conditions, including
either court approval or Unit Holder approval of the transaction. At closing,
the Trust has agreed to convey to NTEC the leases free and clear of all liens in
exchange for a total cash value of $105,000, less advance minimum royalties
previously received by the Trust of $20,716, for an anticipated cash payment of
$84,274. Closing is anticipated in early 2022 after the Trust obtains court
approval or Unit Holder approval.
Because the Trust has buyers for its assets, the Trust filed a Petition to
Terminate on October 29, 2021, requesting the Court allow the Trust to liquidate
all of its assets and wind up operations pursuant to the terms of the Trust
Indenture. Refer to note (e) of the financial statements.
Other Mines. In addition to the Decker Mine and Spring Creek Mine, the Trust
also owns rights in lease number 027475 in the Black Butte Mine in Sweetwater
County, Wyoming. Such mine is not part of any future mining plans yet the lease
continues to be active. Interests in this mine were recently sold to Spartan
Energy along with the Decker Mines discussed above.
Interest Income. The Trust generally earns interest on the royalty payments held
in reserve. During the nine months ended September 30, 2021, the Trust earned a
nominal amount of interest of $2 compared to $499 of interest earned during the
nine months ended September 30, 2020. The decrease in interest resulted from the
substantial reduction of the royalty payments.
Trust Expenses. Trust expenses decreased slightly to $128,048 for the first nine
months of 2021, as compared to $133,995 for the same period in 2020. Trust
expenses included fees of the Trustee, accountants, attorneys, and other
professionals that the Trustee employs in the administration of the Trust. Trust
expenses decreased to $48,271 for the three month period ending September 30,
2021, as compared to $50,812 for the same period in 2020. The expenses fluctuate
from period to period largely because of the timing of when the Trust receives
invoices and pays its expenses. Further, the Trust is incurring additional fees
and expenses relating to the sale of its assets. The Trust currently has a
limited amount of cash to pay future expenses.
Liquidity and Capital Resources. The Trust's primary source of liquidity is the
royalty payments, and the Trust no longer expects to receive any royalty
payments. In accordance with the provisions of the Trust Indenture, generally
all income received by the Trust, net of Trust expenses and any amounts placed
in reserves, is distributed to the Unit Holders on a biannual basis as long as
the Trust has sufficient income. At this time, the Trust does not expect to make
any distributions in the near future due to the Trust's liquidity issues. The
Trust has suspended future distribution payments in light of the substantial
reduction in royalty income and is actively pursuing the liquidation of the
Trust.
Trust Reserves. The Trust established trust reserves in the third quarter of
2020 in the amount of $344,604. This reserve was established to hold the funds
until the next scheduled biannual payment and was paid to Unit Holders after the
4th quarter of 2020.
During the first quarter of 2021, the Trust's distributable income was $54,816.
Historically, this amount would have been reserved to be paid at the Trust's
next distribution date within 10 days of June 30, 2021. At June 30, 2021, the
Trust's distributable income was $7,544, which was held in reserve, resulting in
a total reserve of $62,360. At September 30, 2021, the Trust had no
distributable income yet continued to incur professional fees reducing the trust
reserve to $14,089. Because of the uncertainty of future royalty payments, the
Trust has temporarily suspended all distribution payments to Unit Holders and
instead reserved such amounts to cover future expenses. Due to the uncertainty
with respect to timing or amount of future royalty payments, the Trust believes
such suspension is in its best interests. The Trust further believes that the
current reserved amounts will not be sufficient to pay expenses.
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Going Concern. The Trust does not have sufficient funding in order to continue
to operate. The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. Because of the Trust's limited
source of revenues, management has substantial doubt about the Trust's ability
to continue as a going concern. The Trust's financial statements currently do
not include any adjustments that might result from the outcome of any
uncertainly as to the Trust's ability to continue as a going concern.
Change in Trust Corpus. During the three- and nine-month period ended September
30, 2021, the trust corpus remained unchanged.
Off-Balance Sheet Arrangements. As required by the Trust Indenture, the Trust is
intended to be passive in nature and the Trustee does not have any control over
or any responsibility relating to the operation of the mines under which the
Trust has any royalty interests and overriding royalty interests. The Trustee
has powers to collect and distribute proceeds received by the Trust and pay
Trust liabilities and expenses and its actions have been limited to those
activities. As a result, the Trust has not engaged in any off-balance sheet
arrangements.
Critical Accounting Policies and Estimates. The Trust's condensed financial
statements are prepared on a modified cash basis of accounting, which is a
comprehensive basis of accounting other than accounting principles generally
accepted in the United States of America, and as such there are no critical
accounting policies or estimates.
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