Mesa Royalty Trust was established on November 1, 1979, when Mesa Petroleum Co. conveyed to the Trust an overriding royalty interest in selected producing oil and gas properties. Over time, the Trust’s interests have been adjusted: notably, in 1985, part of the original royalty was reassigned, leaving the Trust with a reduced effective royalty entitlement (specifically, 11.44% of 90% of the net proceeds, per the terms of the conveyance and amendments). The underlying properties for which the Trust receives royalties are located in the Hugoton field in Kansas and in the San Juan Basin in New Mexico and Colorado.
The Trust does not operate any wells or carry out exploration or capital projects itself. Instead, third-party working interest owners operate the fields and handle all capital, operating, marketing, and development activities. The Trust’s royalty income is calculated as a share of net proceeds — that is, revenues from sale of hydrocarbons minus operating and capital costs borne by the operators, and any cost carryforwards. Because of its passive structure, the Trust is dependent on data and payments from the operators; it relies on operator reports to determine monthly net proceeds and computes monthly royalty income, which is then distributed quarterly (after administrative expenses).
In essence, Mesa Royalty Trust is a pass-through royalty vehicle: it holds a non-operated overriding royalty interest in established producing fields, receives its share of net revenues from those operations, and distributes proceeds (after minimal administrative costs) to its unitholders. Its income is entirely contingent on the performance of its underlying fields and the financial and operational decisions of the working interest operators.