Introduction





The following discussion and analysis is intended to help the reader understand
the Trust's business, financial condition, results of operations, liquidity and
capital resources. This discussion and analysis should be read in conjunction
with other sections of this report, including: "Business" in Item 1 and
"Financial Statements and Supplementary Data" in Item 8. The discussion and
analysis relate to the following subjects:



  • Trust Termination and Overview:

  • Recent Developments;




  • Results of Trust Operations;




  • Liquidity and Capital Resources;




  • Critical Accounting Policies and Estimates; and




  • Off-Balance Sheet Arrangements

Trust Termination and Overview

The following is a brief overview of certain matters discussed more thoroughly elsewhere in this report.


The Trust Agreement requires the Trust to dissolve and commence winding up of
its business and affairs if cash available for distribution for any four
consecutive quarters, on a cumulative basis, is less than $5.0 million. Pursuant
to the Trust Agreement, cash that the Trust receives as proceeds from sales of
assets is not included in the calculation of cash available for distribution. As
cash available for distribution for the four consecutive quarters ended December
31, 2020, on a cumulative basis, totaled approximately $2.4 million, due in part
to Avalon's inability to make the May 2020 Quarterly Payment to the Trust (as
discussed below under "-The May 2020 Quarterly Payment"). Because Avalon's
inability to make the May 2020 Quarterly Payment contributed to the insufficient
cumulative cash available for distribution over the four-quarter period, the
Trustee and Avalon submitted to an arbitration panel, in accordance with the
Trust Agreement, the question of whether the Trust nonetheless remains required
to dissolve following the end of that period. On February 25, 2021, the
arbitration panel determined that the existence of the unpaid May 2020 Quarterly
Payment does not alter the requirement of the Trust to terminate under the
provisions of the Trust Agreement. As a result, the Trust was required to
dissolve and commence winding up beginning as of the close of business on
February 26, 2021.



Accordingly, the Trustee is required to sell all of the Royalty Interests,
either by private sale or public auction, and distribute the net proceeds of
such sale to the Trust unitholders after payment, or reasonable provision for
payment, of all Trust liabilities, which is expected to include the
establishment of cash reserves in such amounts as the Trustee in its discretion
deems appropriate for the purpose of making reasonable provision for all claims
and obligations of the Trust, including any contingent, conditional or unmatured
claims and obligations, in accordance with the Delaware Statutory Trust Act. The
sale process will involve costs that will reduce the amount of any distributions
to unitholders during the winding up period. As required by the Trust Agreement,
the Trustee has engaged a third-party advisor to assist with the marketing and
sale of the Royalty Interests. As provided in the Trust Agreement, Avalon has a
right of first refusal with respect to any sale of the Royalty Interests to a
third party. The Trustee expects to complete the sale of the Trust's assets by
the end of the third quarter of 2021 and distribute the net proceeds of such
sale (together with any cash reserves in excess of the amount necessary to pay
or provide for the payment of future known, anticipated or contingent expenses
or liabilities of the Trust) to the Trust unitholders on the following quarterly
payment date, and the Trust units are expected to be canceled shortly
thereafter. Pending the sale or sales of the Royalty Interests, and subject to
the effective date and other terms of such sale or sales, the Trust anticipates
that it will continue to receive income from the royalty interests and will
continue to make quarterly distributions to unitholders to the extent there is
available cash after payment of Trust expenses and additions to cash reserves.
The Trust will remain in existence until the filing of a certificate of
cancellation with the Secretary of State of the State of Delaware following the
completion of the winding up process.



                                       50





The value of the petroleum reserves attributable to the Trust's Royalty
Interests and the amount of cash available for distribution to Trust unitholders
are each highly dependent upon the prices realized from the sale of oil, natural
gas and NGL. The markets for these commodities are volatile and experienced
significant fluctuations during 2019 and have declined sharply in 2020 in
response to the economic effects of the dispute over production levels between
Russia and the members of the Organization of Petroleum Exporting Countries and
the global outbreak of the novel form of coronavirus known as COVID-19. These
actions led to an immediate and steep decrease in oil prices, which reached a
closing WTI price low of negative $36.98 per barrel of crude oil in April 2020.
 The spot price for WTI crude oil has decreased from $61.17 per barrel on
January 2, 2020 to $48.35 per barrel on December 31, 2020.  A buildup in
inventories, lower global demand, political unrest, or other factors, such as
the economic effects of the COVID-19 pandemic, could cause prices for U.S. oil,
natural gas and NGL to fluctuate significantly in the future. As a result,
prices for oil, natural gas and NGL might not be maintained at a constant level
for any significant period of time.



The May 2020 Quarterly Payment. In April 2020, Avalon informed the Trustee that
Avalon had been using its commercially reasonable efforts to preserve the oil
and gas leases burdened by the Royalty Interests so that in the future, assuming
that oil prices returned to a profitable level, the Trust would still hold its
Royalty Interests, and Trust unitholders might have the opportunity to receive
future quarterly distributions. Avalon also informed the Trustee that it
believed that continuing production from those Trust Wells required to preserve
such leases was preferable to stopping production, as the failure to continue
production would result in a termination of Avalon's working interest in such
Trust Wells and, therefore, the Royalty Interests, which would have a material
adverse effect on the Trust's financial condition. Avalon reported to the
Trustee that Avalon therefore used revenues it received during the production
period from December 1, 2019 to February 29, 2020 to pay the operating expenses
necessary to maintain production from the Trust Wells and to pay oil and gas
lessor royalties, as the proceeds attributable to Avalon's net revenue interest
in the Underlying Properties was insufficient to cover all such costs. Avalon
had anticipated that revenues from production during the quarterly production
period commencing March 1, 2020 would be sufficient to fund the quarterly
payment to the Trust for the quarter ended March 31, 2020 in the amount of
approximately $4.65 million (the "May 2020 Quarterly Payment"); however,
revenues from production during that quarterly production period were
insufficient to generate the cash needed to make the May 2020 Quarterly Payment
to the Trust due to the sharp drop in crude oil prices during the first quarter
of 2020. Consequently, the Trustee was unable to make any quarterly distribution
to unitholders at the end of May 2020. In accordance with Section 5.02 of the
Conveyances, the unpaid May 2020 Payment amount due and owing to the Trust has
been accruing interest since May 15, 2020 at the rate of interest per annum
publicly announced from time to time by The Bank of New York Mellon Trust
Company, N.A. as its "prime rate" in effect at its principal office in New York
City until paid to the Trust. The accrued interest from May 15, 2020 to December
31, 2020 was approximately $94,000. As of December 31, 2020, Avalon had not paid
any of the May 2020 Quarterly Payment, or any interest accrued thereon through
such date, to the Trust.



On March 1, 2021, the Trust and Avalon entered into a repayment agreement
setting forth the terms by which Avalon has agreed to pay the May 2020 Quarterly
Payment to the Trust, together with accrued interest (the "Repayment
Agreement"). Beginning with the quarterly distribution paid to Trust unitholders
on or about February 26, 2021 (the "February Distribution"), Avalon will apply
towards the payment of the May 2020 Quarterly Payment the full amount of each
quarterly cash distribution, if any, to which Avalon, as a unitholder of the
Trust, is entitled (each such cash distribution, a "Company Distribution
Amount"), until the May 2020 Quarterly Payment, together with accrued interest,
has been paid in full to the Trust, subject to any obligations Avalon may have
to repay the WaFed Loan that are not waived as provided in the Repayment
Agreement. Promptly upon receipt, Avalon deposited the $984,375 received as its
portion of the February Distribution into a repayment account established by the
Trustee on behalf of the Trust (the "Repayment Account") pursuant to the terms
of the Repayment Agreement. Avalon will deposit each additional Company
Distribution Amount into the Repayment Account promptly, but in no event later
than the next business day, after the Company's receipt of any such Company

Distribution Amount.



                                       51





The Repayment Agreement also provides that if any third party agrees to acquire
Avalon, whether pursuant to a merger, consolidation, purchase of all or
substantially all of the assets of Avalon, or other similar transaction or
series of transactions (an "Avalon Sale Transaction"), then, subject to any
obligations Avalon may have to repay the WaFed Loan in connection with any such
transaction that is not waived as provided in the Repayment Agreement, Avalon
will pay to the Trust from cash received in an Avalon Sale Transaction an amount
equal to (i) the difference between (A) the aggregate amounts deposited in the
Repayment Account pursuant to the Agreement at the time the Avalon Sale
Transaction is consummated and (B) the then outstanding balance of the May 2020
Quarterly Payment together with all accrued and unpaid interest thereon to the
date of payment of such outstanding balance (the "Balance Amount") or (ii) where
the amount of cash received in the Avalon Sale Transaction is less than the
Balance Amount, all of the cash received in the Avalon Sale Transaction. Avalon
agrees that it will pay such amount to the Trust promptly, but in no event later
than the next business day, after the closing of any such Avalon Sale
Transaction. If Avalon is unable to pay the Balance Amount in full upon the
closing of an Avalon Sale Transaction, Avalon has agreed, subject to any
obligations Avalon may have to repay the WaFed Loan in connection with any such
transaction that are not waived as provided in the Repayment Agreement, to
pledge to the Trust, to secure the payment of the outstanding portion of the
Balance Amount, any non-cash consideration that Avalon receives from such Avalon
Sale Transaction or similar transaction.



Results of Trust Operations

Results of the Trust for the Years Ended December 31, 2020 and 2019





The primary factors affecting the Trust's revenues and costs are the quantity of
oil, natural gas and NGL production attributable to the Royalty Interests and
the prices received for such production. Royalty income, post-production
expenses and certain taxes are recorded on a cash basis when the Trust receives
net revenue distributions from Avalon. Information regarding the Trust's
revenues, expenses, production and pricing for the years ended December 31,

2020
and 2019 is presented below.



                                                                Year Ended December 31,
                                                               2020 (1)          2019 (2)
Production data
Oil (MBbls)                                                           241               414
NGL (MBbls)                                                            29                57
Natural gas (MMcf)                                                    107               181

Combined equivalent volumes (MBoe)(3)                                 288               501
Average daily total volumes (MBoe/d)                                  1.0               1.4
Well data
Initial and Trust Development Wells producing - average               863

1,035


Revenues (in thousands)
Royalty income                                               $      9,704       $    22,442
Proceeds from sale of Trust assets                                  4,874  

              -
Total revenue                                                $     14,578       $    22,442
Expenses (in thousands)
Post-production expenses                                     $         33       $        50
Property taxes                                                      2,979                 -
Production taxes                                                      465             1,061
Franchise taxes                                                        36                47

Trust administrative expenses                                       1,985

1,734

Cash reserves (used) withheld for current Trust expenses, net of amounts withheld (used)

                                     (2,391 )

2,261


Total expenses                                               $      3,107       $     5,153
Less proceeds from sale of Trust assets                             4,874                 -
Distributable income available to unitholders                $      6,597
    $    17,289

Average prices
Oil (per Bbl)                                                $      38.10       $     50.77
NGL (per Bbl)                                                $      14.82       $     20.00
Natural gas (per Mcf)                                        $       0.68       $      1.22
Total (per Boe)                                              $      33.68       $     44.66
Average prices - including impact of post-production
expenses
Natural gas (per Mcf)                                        $       0.37       $      0.95
Total (per Boe)                                              $      33.56       $     44.56
Expenses (per Boe)
Post-production                                              $       0.11       $      0.10
Production taxes                                             $       1.62       $      2.12




                                       52

(1) Production volumes and related revenues and expenses for the year ended

December 31, 2020 (included in 2020 royalty payments to the Trust) represent

oil, natural gas and NGL production from September 1, 2019 to November 30,

2019 and March 1, 2020 to August 31, 2020. Avalon did not make a royalty


      payment to the Trust for the production period from December 1, 2019 to
      February 29, 2020.

(2) Production volumes and related revenues and expenses for the year ended

December 31, 2019 (included in 2019 royalty payments to the Trust) represent


      oil, natural gas and NGL production from September 1, 2018 to August 31,
      2019.

(3) Barrel of oil equivalent, determined using the ratio of six Mcf of natural

gas to one Bbl of oil, which approximates the relative energy content of oil


      as compared to natural gas.

Comparison of Results of the Trust for the Years Ended December 31, 2020 and 2019





Revenues



Royalty Income. Royalty income is a function of production volumes attributable
to the Royalty Interests sold and associated prices received by Avalon. Royalty
income received during the year ended December 31, 2020 totaled $9.7 million
compared to $22.4 million received during the year ended December 31, 2019. The
decrease is partially the result of Avalon's failure to pay proceeds owed to the
Trust for the production period from December 1, 2019 to February 29, 2020 in
the amount of approximately $4.7 million. Of the remaining portion of the
decrease in royalty income, approximately $3.3 million was attributable to a
decrease in prices received from the sale of oil, gas and NGL attributable to
the Royalty Interests and approximately $4.7 million was attributable to a
decrease in total volumes produced from wells burdened by the Royalty Interests.



Expenses




Post-Production Expenses. The Trust bears post-production expenses related to
production attributable to the Royalty Interests. Post-production expenses
generally consist of costs incurred to gather, store, compress, transport,
process, treat, dehydrate and market, as applicable, the oil, natural gas and
NGL produced from wells burdened by and attributable to the Royalty Interests.
Post-production expenses for the year ended December 31, 2020 decreased to
approximately $33,000 from approximately $50,000 for the year ended December 31,
2019 primarily as a result of a decrease in gas production volumes.



Property Taxes. Property taxes paid during the year ended December 31, 2020 were
approximately $3.0 million, which related to 2020 and 2019 property taxes. No
property tax payments were made during 2019, as approximately $1.7 million in
2019 property taxes were paid in January 2020.



Production Taxes. Production taxes are calculated as a percentage of oil,
natural gas and NGL revenues, excluding the net amount of any applicable tax
credits. Production taxes for the year ended December 31, 2020 totaled $0.5
million, or $1.62 per Boe, and were approximately 4.8% of royalty income.
Production taxes for the year ended December 31, 2019 totaled $1.1 million, or
$2.12 per Boe, and were approximately 4.7% of royalty income.



Texas Franchise Tax. The Trust paid its Texas franchise tax for the year ended
December 31, 2019 of approximately $36,000, or approximately 0.2% of 2019
royalty income, during the year ended December 31, 2020. The Trust paid its
Texas franchise tax for the year ended December 31, 2018 of approximately
$47,000, or approximately 0.2% of 2018 royalty income, during the year ended
December 31, 2019. The Trust's estimated Texas franchise tax for the year ended
December 31, 2020 of approximately 0.2% of 2020 royalty income, is expected to
be paid during the year ending December 31, 2021.



                                       53





Distributable Income




Distributable income for the year ended December 31, 2020 was $6.6 million,
which included a net reduction of approximately $2.4 million to the cash reserve
for the payment of future Trust expenses reflecting approximately $5.0 million
used to pay Trust expenses during the period partially offset by approximately
$2.6 million withheld in aggregate from 2020 cash distributions to Trust
unitholders. Distributable income for the year ended December 31, 2019 was $17.3
million, which included a net addition of approximately $2.3 million to the cash
reserve for the payment of future Trust expenses reflecting approximately $4.0
million withheld in aggregate from 2019 cash distributions to Trust unitholders
partially offset by approximately $1.7 million used to pay Trust expenses during
the period.

Liquidity and Capital Resources





The Trust has no source of liquidity or capital resources other than cash flow
generated from the Royalty Interests and borrowings as needed to fund
administrative expenses, including any amounts borrowed from Avalon, under the
loan commitment described in Note 6 to the financial statements contained in
Item 8 of this report, or from the Trustee. The Trust's primary uses of cash are
distributions to Trust unitholders, payment of Trust administrative expenses,
including any reserves established by the Trustee for future liabilities,
payment of applicable taxes, and payment of expense reimbursements to Avalon for
out-of-pocket expenses incurred on behalf of the Trust. The Trust is not
obligated to pay any operating expenses or capital costs related to the
operation of the wells.



Administrative expenses include payments to the Trustee and the Delaware
Trustee, as well as a quarterly fee of $75,000 to Avalon pursuant to the terms
of the Administrative Services Agreement. Each quarter, the Trustee determines
the amount of funds available for distribution. Available funds are the excess
cash, if any, received by the Trust from the sale of production attributable to
the Royalty Interests that quarter, over the Trust's expenses for the quarter.
If at any time the Trust's cash on hand (including available cash reserves) is
not sufficient to pay the Trust's ordinary course administrative expenses as
they become due, the Trust may borrow funds from the Trustee or other lenders,
including Avalon (pursuant to the terms set forth in the Trust Agreement), to
pay such expenses. The Trustee has not loaned and does not intend to lend funds
to the Trust. Pursuant to the Trust Agreement, if at any time the Trust's cash
on hand (including available cash reserves) is not sufficient to pay the Trust's
ordinary course administrative expenses as they become due, Avalon will, at the
Trustee's request, loan funds to the Trust necessary to pay such expenses. Any
funds loaned by Avalon pursuant to this commitment will be limited to the
payment of current accounts payable or other obligations to trade creditors in
connection with obtaining goods or services or the payment of other current
liabilities arising in the ordinary course of the Trust's business, and may not
be used to satisfy Trust indebtedness, or to make distributions. If Avalon loans
funds pursuant to this commitment, no further distributions will be made to
unitholders (except in respect of any previously determined quarterly cash
distribution amount) until such loan is repaid in full, with interest, unless
Avalon consents to any further distributions. Any such loan will be on an
unsecured basis, and the terms of such loan will be substantially the same as
that which would be obtained in an arm's length transaction between Avalon

and
an unaffiliated third party.



Commencing with the distribution to Trust unitholders paid in the first quarter
of 2019, the Trustee has withheld the greater of $190,000 or 3.5% of the funds
otherwise available for distribution to Trust unitholders each quarter to
gradually increase cash reserves for the payment of future known, anticipated or
contingent expenses or liabilities by a total of approximately $3,275,000. In
2019 and 2020, the Trustee withheld $760,000 and $570,000, respectively, from
the funds otherwise available for distribution. In light of the fact that there
would be no distribution from production for the three-month period ended
December 31, 2020 (with respect to production attributable to the Trust's
Royalty Interest from September 1, 2020 to November 30, 2020), the Trustee
withheld approximately $884,000, the remaining amount needed to reach its
targeted cash reserve, in connection with the cash distribution made in February
2021 from funds received by the Trust as fair value for the portion of the
Trust's Royalty Interests required to be released in connection with the Montare
Sale. The Trustee may increase or decrease the targeted cash reserve amount at
any time, and may increase or decrease the rate at which it withholds funds to
build the cash reserve at any time, without advance notice to Trust unitholders.



                                       54





Following the closing of the Sale Transaction, the Trust is highly dependent on
Avalon for multiple services, including the operation of the wells burdened by
the Royalty Interests, remittance of net proceeds to the Trust from the sale of
hydrocarbon production attributable to the Royalty Interests, administrative
services such as accounting, tax preparation, bookkeeping and reporting services
performed on behalf of the Trust, and potentially for loans to pay Trust
administrative expenses. Avalon is a relatively new oil and gas company formed
in August 2018 with no prior operating history. Avalon's ability to continue
operating the Underlying Properties depends on its future financial condition
and economic performance, access to capital, and other factors, many of which
are out of Avalon's control. If the reduced demand for crude oil in the global
market resulting from the economic effects of the coronavirus pandemic and the
dramatic reduction from mid-February to late April 2020 in the benchmark price
of crude oil, which continued to fluctuate through 2020, persist for the near
term or longer, such factors are likely to continue to have a negative impact on
Avalon's financial condition. This negative impact could affect Avalon's ability
to operate the wells and provide services to the Trust.

Trust Distributions to Unitholders. During the years ended December 31, 2020 and 2019, the Trust's distributions to its unitholders were as follows:





                         Covered Production                                                    Total
                               Period             Date Declared         Date Paid        Distribution Paid
                                                                                           (in millions)
Calendar Quarter 2020
                           September 1, 2019
                              - November 30,
First Quarter                           2019     January 23, 2020   February 22, 2020   $               4.2
                            December 1, 2019
                              - February 29,
Second Quarter (1)                      2020       April 23, 2020                 N/A                     -
                             March 1, 2020 -
Third Quarter                   May 31, 2020        July 23, 2020     August 31, 2020   $               0.6
                              June 1, 2020 -
Fourth Quarter               August 31, 2020     October 22, 2020   November 25, 2020   $               1.7
Calendar Quarter 2019
                           September 1, 2018
                              - November 30,
First Quarter                           2018     January 24, 2019   February 22, 2019   $               5.0
                            December 1, 2018
                              - February 28,
Second Quarter                          2019       April 25, 2019        May 24, 2019   $               3.7
                             March 1, 2019 -
Third Quarter                   May 31, 2019        July 24, 2019     August 23, 2019   $               4.7
                              June 1, 2019 -
Fourth Quarter               August 31, 2019     October 24, 2019   November 24, 2019   $               3.8

(1) Avalon did not make a distribution of revenue to the Trust for the production period from December 1, 2019 to February 29, 2020.





On February 28, 2021, the Trust paid a cash distribution of $0.075 per Trust
unit reflecting the fair value to the Trust, less cash reserves withheld by the
Trustee, received by the Trust for the portion of the Trust's Royalty Interests
required to be released in connection with the Montare Sale. There was no
distribution paid for the three-month period ended December 31, 2020, which
primarily related to production attributable to the Trust's royalty interests
from September 1, 2020 to November 30, 2020, as costs, charges and expenses
attributable to the Underlying Properties were more than the revenue received
from the sale of oil, natural gas and other hydrocarbons produced from such
properties, as reported by Avalon.



Continued relatively low oil, natural gas, and NGL prices will reduce proceeds
to which the Trust is entitled and may ultimately reduce the amount of oil,
natural gas and NGL that is economic to produce from the Underlying Properties.
As the Trust cannot acquire or cause additional wells to be drilled on its
behalf, the production from the Underlying Properties attributable to the
Royalty Interests is expected to decline each quarter during the remainder

of
the Trust's life.



Contractual Obligations. Pursuant to the terms of the Administrative Services
Agreement, the Trust is obligated to pay Avalon an annual administrative
services fee of $300,000 ($75,000 payable quarterly in arrears) for accounting,
tax preparation, bookkeeping, and informational services to be performed on
behalf of the Trust for the remaining life of the Trust. Pursuant to the Trust
Agreement, the Trust pays the Trustee an annual administrative fee, which until
April 1, 2017 was $150,000. The annual fee can be adjusted for inflation by no
more than 3% in any year through 2030. The annual administrative fee, which was
adjusted for inflation in July 2020, currently is approximately $163,000. In
addition, under the Trust Agreement the Trust is obligated to pay the Delaware
Trustee an annual fee of $2,400 throughout the life of the Trust.



                                       55

Critical Accounting Policies and Estimates





The financial statements of the Trust are significantly affected by its basis of
accounting and estimates related to the Royalty Interests and proved reserves,
as summarized below.



Basis of Accounting.  The financial statements of the Trust differ from
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP") as the Trust records revenues
when cash is received (rather than when earned) and expenses when paid (rather
than when incurred) and may also establish cash reserves for contingencies,
which would not be accrued in financial statements prepared in accordance with
GAAP. This comprehensive basis of accounting other than GAAP corresponds to the
accounting permitted for royalty trusts by the SEC as specified by Staff
Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.
Amortization of investment in the Royalty Interests, calculated on a
unit-of-production basis, and any impairment thereto is charged directly to
trust corpus. Distributions to Trust unitholders are recorded when declared.
Because the Trust's financial statements are prepared on a modified cash basis,
most accounting pronouncements are not applicable to the Trust's financial
statements.



Proved Reserves. The proved oil, natural gas and NGL reserves attributable to
the Royalty Interests are estimated by independent petroleum engineers.
Estimates of proved reserves are based on the quantities of oil, natural gas and
NGL that geological and engineering data demonstrate, with reasonable certainty,
to be recoverable in future years from known reservoirs under existing economic
and operating conditions. However, there are numerous uncertainties inherent in
estimating quantities of proved reserves and in projecting future revenues,
production volumes, rates of production and timing of development expenditures,
including many factors beyond the Trust's control. Estimating reserves is very
complex and relies on assumptions and subjective interpretations of available
geologic, geophysical, engineering and production data, and the accuracy of
reserve estimates is a function of the quality and quantity of available data,
engineering and geological interpretation and judgment. In addition, as a result
of volatility of changing market conditions, commodity prices will vary from
period to period, causing estimates of proved reserves to vary, as well as
causing estimates of future net revenues to vary. Estimates of proved reserves
are key components of the Trust's most significant financial estimates as
discussed further below.



Amortization of Investment in Royalty Interests. Amortization of investment in
the Royalty Interests is calculated on a calendar-based units-of-production
basis, whereby the Trust's cost basis is divided by the proved reserves
attributable to the Royalty Interests to derive an amortization rate per reserve
unit. The rate used to record amortization is dependent upon the estimate of
total proved reserves attributable to the Royalty Interests, which incorporates
various assumptions and future projections. If the estimates of total proved
reserves decline significantly, the rate at which the Trust records amortization
would increase, reducing trust corpus. Such a decline in reserves may result
from lower commodity prices, which may make it uneconomic for Avalon to produce
from the Underlying Properties, or from other factors, including changes to
estimates for other reasons. Changes in reserve quantity estimates are dependent
on future economic and operational conditions and cannot be predicted.



Impairment of Investment in Royalty Interests. The investment in the Royalty
Interests is assessed to determine whether net capitalized cost is impaired
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Potential impairments of the investment in the Royalty
Interests are determined by comparing the net capitalized costs of investment in
the Royalty Interests to undiscounted future net revenues attributable to the
Trust's interest in the proved oil, natural gas and NGL reserves attributable to
the Royalty Interests. The Trust provides a write-down to the extent that the
net capitalized costs exceed the fair value of the Royalty Interests, which is
determined using either a market-based or income-based approach, depending on
which is deemed more relevant in the circumstances. The income-based approach
uses future cash flows of the oil, natural gas and NGL reserves attributable to
the Royalty Interests, discounted at a relevant market participant discount
rate. Different pricing assumptions or discount rates could result in a
different calculated impairment. During the year ended December 31, 2020, due to
the decline in oil and gas prices, the Trust recorded impairments in the
carrying value of the Investment in Royalty Interests in aggregate of $83.5
million. The impairments resulted in non-cash charges to trust corpus and did
not affect the Trust's distributable income. No impairments were recorded in
2019. Material write-downs in subsequent periods may occur if commodity prices
decline significantly on a sustained basis.

Refer to Note 3 to the financial statements included in Item 8 of this report for the Trust's significant accounting policies.





                                       56

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