{"url_path":"/sec/ectm/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 ** **Trustee's Discussion and Analysis of Financial Condition and Results of Operations.**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-13","source_url":"https://www.sec.gov/Archives/edgar/data/1487798/0001104659-26-060242-index.html","accession_number":"0001104659-26-060242","cik":"0001487798","ticker":"ECTM","issuer_name":"ECA Marcellus Trust I","edgar_url":"https://www.sec.gov/Archives/edgar/data/1487798/0001104659-26-060242-index.html","primary_entity_key":"0001487798","primary_entity_name":"ECA Marcellus Trust I"},"word_count":4943,"has_tables":true,"body_markdown":"**Item 2.** **Trustee's Discussion and Analysis of Financial Condition and Results of Operations.**\n\nReferences to the “Trust” in this document\nrefer to ECA Marcellus Trust I. As discussed in “Overview” below, Greylock Energy acquired substantially all of the assets\nof Energy Corporation of America in November 2017. References to “Legacy ECA” in this document refer to Energy Corporation\nof America and its wholly-owned subsidiaries and, when discussing the conveyance documents, the Private Investors, as such entities existed\nprior to the asset acquisition by Greylock Energy. The following review of the Trust’s financial condition and results of operations\nshould be read in conjunction with the financial statements and notes thereto and the audited financial statements and notes thereto included\nin the Trust’s Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Form 10-K”).\nThe Trust’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments\nto those reports are available on the SEC’s website at www.sec.gov and at http://ect.q4web.com/home/default.aspx. Certain terms\nused herein are defined in Appendix A. All information regarding operations has been provided to the Trustee by Greylock Energy.\n\n**Note Regarding Forward-Looking Statements**\n\nThis report contains “forward-looking statements”\nabout Greylock Energy and the Trust and other matters discussed herein that are subject to risks and uncertainties. All statements other\nthan statements of historical fact included in this document, including, without limitation, statements under “Trustee’s Discussion\nand Analysis of Financial Condition and Results of Operations” and “Risk Factors” regarding the financial position,\nbusiness strategy, production and reserve growth, development activities and costs and other plans and objectives for the future operations\nof Greylock Energy and all matters relating to the Trust are forward-looking statements. Actual outcomes and results may differ materially\nfrom those projected.\n\nWhen used in this document, the words “believes,”\n“expects,” “anticipates,” “intends” or similar expressions, are intended to identify such forward-looking\nstatements. Further, all statements regarding future circumstances or events are forward-looking statements. The following important factors,\nin addition to those discussed elsewhere in this document, could affect the future results of the energy industry in general, and Greylock\nEnergy and the Trust in particular, and could cause those results to differ materially from those expressed in such forward-looking statements:\n\n·risks incident to the operation of natural gas wells;\n\n·future production costs;\n\n·the effects of existing and future laws and regulatory actions;\n\n·the effects of changes in commodity prices;\n\n·conditions in the capital markets;\n\n·the occurrence or threat of epidemic or pandemic diseases or other public health event or any government response to such occurrence\nor threat;\n\n·the impact of geopolitical developments and tensions, war and uncertainty involving or in the geographical region of oil-producing\ncountries (including the ongoing wars in Ukraine and in the Persian Gulf, and any related political or economic responses and counter-responses\nor otherwise by various global actors or the general effect on the global economy);\n\n·global economic conditions, such as a general slowdown in the global economy, trade barriers and tariffs, supply chain disruptions,\ninflationary pressures, currency fluctuations, changes in interest rates, and instability of financial institutions;\n\n·competition in the energy industry;\n\n10\n\n·the uncertainty of estimates of natural gas reserves and production;\n\n·potential impacts on Greylock Energy’s business resulting from climate change, greenhouse gas regulations, and the impact of\nclimate change related changes in the frequency and severity of weather patterns; and\n\n·other risks described under the caption “Risk Factors” in Part I, Item 1A of the 2025 Form 10-K.\n\nThis report describes other important factors that\ncould cause actual results to differ materially from expectations of Greylock Energy and the Trust. All subsequent written and oral forward-looking\nstatements attributable to Greylock Energy or the Trust or persons acting on behalf of Greylock Energy or the Trust are expressly qualified\nin their entirety by such factors. The Trust assumes no obligation, and disclaims any duty, to update these forward-looking statements.\n\n**Overview**\n\nThe\nTrust is a statutory trust created under the Delaware Statutory Trust Act. The Bank of New York Mellon Trust Company, N.A. serves\nas Trustee. The Trust does not conduct any operations or activities. The Trust’s purpose is, in general, to hold the Royalty Interests\n(described below), to distribute to the Trust unitholders cash that the Trust receives in respect of the Royalty Interests after payment\nof Trust expenses, and to perform certain administrative functions in respect of the Royalty Interests and the Trust units. The Trustee\nhas no authority or responsibility for, and no involvement with, any aspect of the oil and gas operations on the properties to which the\nRoyalty Interests relate. The Trust derives all or substantially all of its income and cash flows from the Royalty Interests. The\nTrust is treated as a partnership for federal and state income tax purposes.\n\nIn\nNovember 2017, Greylock Energy and certain of its wholly owned subsidiaries, including Greylock Production, LLC, which serves\nas operator of the subject wells, and Greylock Midstream, LLC, whose subsidiaries market and gather certain of the gas, acquired substantially\nall of the gas production and midstream assets of Legacy ECA, including all of Legacy ECA’s interests in certain natural gas properties\nthat are subject to royalty interests held by the Trust.\n\nIn\nconnection with the transaction, Greylock Production assumed all of Legacy ECA’s obligations under the Trust Agreement and\nother instruments to which Legacy ECA and the Trustee were parties, including (1) the Administrative Services Agreement by and among\nLegacy ECA, the Trust and the Trustee dated July 7, 2010, and (2) a letter agreement between Legacy ECA and the Trustee regarding\ncertain loans to be made by Legacy ECA to the Trust as necessary to enable the Trust to pay its liabilities as they become due (the “Letter\nAgreement”). In addition, Legacy ECA, Greylock Production, and the Trustee entered into a Reaffirmation and Amendment of Mortgage,\nAssignment of Leases, Security Agreement, Fixture Filing and Financing Statement (the “Reaffirmation Agreement”), pursuant\nto which, among other things, Greylock Production (1) reaffirmed the liens and the security interest granted pursuant to the existing\nmortgage securing the interests in the subject properties, as well as the mortgage and the obligations of Legacy ECA under the mortgage,\nand (2) assumed the obligations of Legacy ECA under the Letter Agreement.\n\nThe Royalty Interests\nwere conveyed to the Trust from the working interest now held by Greylock Production in the Producing Wells and the PUD Wells limited\nto the Underlying Properties. The PDP Royalty Interest entitles the Trust to receive 90% of the proceeds (exclusive of any production\nor development costs but after deducting post-production costs and any applicable taxes) from the sale of production of natural gas attributable\nto the Sponsor’s initial interest in the Producing Wells for a period of 20 years commencing on April 1, 2010 and\n45% thereafter. The PUD Royalty Interest entitles the Trust to receive 50% of the proceeds (exclusive of any production or development\ncosts but after deducting post-production costs and any applicable taxes) from the sale of production of natural gas attributable to the\nSponsor’s initial interest in the PUD Wells for a period of 20 years commencing on April 1, 2010 and 25% thereafter.\n\nLegacy ECA was obligated\nto drill all of the PUD Wells by March 31, 2014. As of November 30, 2011, Legacy ECA had fulfilled its drilling obligation to\nthe Trust by drilling 40 PUD Wells (52.06 Equivalent PUD Wells), calculated as provided in the Development Agreement. Consequently, no\nadditional wells will be drilled for the Trust. The Trust was not responsible for any costs related to the drilling of development wells\nor any other development or operating costs. As of September 30, 2025, the Trust owns royalty interests in 14 Producing Wells and\nthe 40 development wells (52.06 Equivalent PUD Wells) that are now completed and in production.\n\n11\n\nThe\ncash received by the Trust in respect of the Royalty Interests are determined after deducting post-production costs and any applicable\ntaxes associated with the Royalty Interests, and the Trust’s cash available for distribution is reduced by Trust administrative\nexpenses and any amounts reserved for administrative expenses. Post-production costs generally consist of costs incurred to gather,\ncompress, transport, process, treat, dehydrate and market the natural gas produced. Charges (the “Post-Production Services Fee”)\nfor such post-production costs on the related GCGS were limited to $0.52 per MMBtu gathered until Legacy ECA fulfilled its drilling obligation\nin 2011; since then the Sponsor has been permitted to increase the Post-Production Services Fee to the extent necessary to recover certain\ncapital expenditures in the GCGS.\n\nThe Sponsor and Columbia Gas Transmission, LLC\n(“Columbia”) are parties to a transportation agreement (the “Transportation Agreement”), in effect since August 1,\n2011, that provides for firm transportation downstream of the GCGS at Columbia’s filed tariff rate. During the third quarter of\n2024, Greylock Production and Columbia amended the Transportation Agreement to reduce the firm transportation amount, from 45,000 MMBtu\nper day that had initially prevailed under the agreement, to 39,901 MMBtu per day effective January 1, 2025 through December 31,\n2027.\n\nThe tariff rates under the Transportation Agreement\nthat had been in effect from December 1, 2021 through March 31, 2025 were set in 2022 pursuant to a settlement between Columbia\nand certain shippers in proceedings before the Federal Energy Regulatory Commission (“FERC”) and had been approximately $0.35\nper MMBtu at one hundred percent load factor from April 2024 through March 31, 2025. On September 30, 2024, Columbia submitted\nan application to FERC to increase certain tariff rates effective April 1, 2025. On October 31, 2024, FERC issued an Order\nAccepting and Suspending the Filing, Subject to Refund. As filed, the tariff rate increased from approximately $0.35 per MMBtu to\napproximately $0.725 per MMBtu on the applicable contracts. Columbia began charging the increased transportation rates effective\nApril 1, 2025. Greylock Production and other parties protested the new proposed tariff rate at FERC. On July 1, 2025,\nColumbia moved to place the Period I Settlement Rates into effect as of June 1, 2025 and apply such rates to the settling parties,\nincluding Greylock Production. The Chief Administrative Law Judge granted Columbia’s motion. Columbia invoiced Greylock Production\nat the one hundred percent load factor tariff rate of $0.4436 per MMBtu for June 2025. On August 13, 2025, Columbia filed\na proposed final settlement at FERC. On September 15, 2025, the Presiding Administrative Law Judge certified the settlement\nas uncontested with a tariff rate of $0.4376 per MMBtu from April 1, 2025 to March 31, 2026 and increasing by $0.0075 per MMBtu\nannually (through March 31, 2028). FERC approved the settlement on October 30, 2025. Columbia issued refunds on\nthe difference between the initial increased rates charged for April and May 2025 and the final settlement rate. During the\nfirst quarter of 2026, Greylock Production distributed to the Trust approximately $30,000 representing the portion of the refund attributable\nto the Trust, along with the royalty income attributable to the fourth quarter of 2025.\n\nFirm transportation utilized as to the Trust’s\ninterests is a chargeable post-production cost, and the Trust bears its proportionate share of such costs; however, the Trust was not\ncharged for the costs associated with modifying the Transportation Agreement with Columbia.\n\nGreylock Production may enter into similar gas\nsupply arrangements and post-production service arrangements for the natural gas to be produced from the Underlying Properties. Any new\ngas supply arrangements or those entered into for providing post-production services, will be utilized in determining the proceeds for\nthe Underlying Properties. Accordingly, to the extent that the cost of any new gas supply arrangements exceeds the cost under existing\narrangements, proceeds to the Trust could decline and any such decline could be material.\n\nGenerally, the percentage\nof production proceeds to be received by the Trust with respect to a well equals the product of (i) the percentage of proceeds to\nwhich the Trust is entitled under the terms of the conveyances (90% for the Producing Wells and 50% for the PUD Wells) multiplied by (ii) Greylock\nProduction’s net revenue interest in the well. Greylock Production on average owns an 81.53% net revenue interest in the Producing\nWells. Therefore, the Trust is entitled to receive on average 73.37% of the proceeds of production from the Producing Wells. With respect\nto the PUD Wells, the conveyance related to the PUD Royalty Interest provides that the proceeds from the PUD Wells will be calculated\non the basis that the underlying PUD Wells are burdened only by interests that in total would not exceed 12.5% of the revenues from such\nproperties, regardless of whether the royalty interest owners are actually entitled to a greater percentage of revenues from such properties.\nAs an example, assuming Greylock Production owns a 100% working interest in a PUD Well, the applicable net revenue interest is calculated\nby multiplying Greylock Production’s percentage working interest in the 100% working interest well by the unburdened interest percentage\n(87.5%), and such well would have a minimum 87.5% net revenue interest. Accordingly, the Trust is entitled to a minimum of 43.75% of the\nproduction proceeds from the well provided in this example. To the extent Greylock Production’s working interest in a PUD Well is\nless than 100%, the Trust’s share of proceeds would be proportionately reduced.\n\n12\n\nThe Trust makes quarterly\ncash distributions of substantially all of its cash receipts, after deducting Trust administrative expenses and costs and reserves therefor,\non or about the 60th day following the completion of each quarter. Unless sooner terminated, the Trust will begin to liquidate\nin March 2030 and will soon thereafter wind up its affairs and terminate.\n\nThe amount of Trust royalty income and cash distributions\nto Trust unitholders depends on, among other things:\n\n·natural gas prices received;\n\n·the volume and Btu rating of natural gas produced and sold;\n\n·post-production costs and any applicable taxes; and\n\n·administrative expenses of the Trust including expenses incurred as a result of being a publicly traded entity and any changes in\namounts reserved for such expenses.\n\nThe markets for natural gas are volatile. The outbreak of war between\nRussia and Ukraine in February 2022 and the subsequent sanctions imposed on Russia and other actions have created significant market\nuncertainties, including uncertainties around potential supply disruption for oil and natural gas, which has further enhanced the volatility\nin natural gas prices since early 2022. In addition, the ongoing war with Iran also could have a disruptive effect on global natural gas\nmarkets. The extent and duration of the wars in Ukraine and the Persian Gulf, sanctions and resulting market disruptions could be significant,\nincluding significant volatility in commodity prices, supply of energy resources, instability in financial markets, supply chain interruptions,\npolitical and social instability, changes in consumer or purchaser preferences as well as increases in cyberattacks and espionage, each\nof which could have a substantial impact on the global economy and consequently the Trust’s business for an unknown period of time.\nAlthough the events in Ukraine and the Middle East are not currently expected to have a material impact on the Trust’s business,\ncash flows, liquidity or financial condition, neither Greylock Energy nor the Trustee can predict the progress or outcome of the wars\nin Ukraine or the Persian Gulf, as these conflicts, and any resulting government reactions, are evolving and beyond the control of Greylock\nEnergy or the Trust. Meanwhile, economic conditions, such as inflation or higher unemployment rates, or changes in economic policies,\nsuch as further increases in tariffs or trade barriers, could affect the demand for natural gas. As a result of these and other factors,\nprices for natural gas, and therefore the Trust’s quarterly cash distributions, might not be maintained for any significant period.\nLow natural gas prices will reduce royalty income to the Trust, which will reduce the amount of cash available for distribution to unitholders\nand in certain periods could result in no distributions to unitholders. For example, there was no distribution to unitholders for the\nquarter ended June 30, 2024 as Trust expenses exceeded net revenues to the Trust.\n\nThe effective date of the Trust was April 1,\n2010, meaning the Trust has received the proceeds of production attributable to the PDP Royalty Interest from that date even though the\nPDP Royalty Interest was not conveyed to the Trust until July 7, 2010. The amount of the quarterly distributions fluctuates from\nquarter to quarter, depending on the proceeds received by the Trust, among other factors. There is no minimum required distribution.\n\nGross proceeds to the Trust attributable to the\nRoyalty Interests during the three-month period ended March 31, 2026 were $1.8 million and totaled approximately $4.3 million for\nthe four consecutive quarters ended March 31, 2026. The gross proceeds attributable to the Royalty Interests are dependent upon both\nthe volume of hydrocarbons extracted and sold from the Underlying Properties and the price realized on those sales. The Trust has no control\nor influence over either the volumes sold or the proceeds realized from those sales. The royalty income to which the Trust is entitled\nhas experienced a substantial decline beginning in late 2022, which has been driven by lower realized prices and, to a lesser extent,\nvolume declines that are primarily related to the natural production decline inherent in the Underlying Properties. Future volumes or\nrealized pricing or both may not be sufficient to maintain gross proceeds attributable to the Royalty Interests over any four consecutive\nquarters in excess of $1.5 million.\n\n13\n\nThe trust agreement provides that the Trust will\nterminate if gross proceeds to the Trust attributable to the Royalty Interests over any four consecutive quarters are less than $1.5 million.\nIf this early termination event occurs, the trust agreement will require the Trustee to sell the Royalty Interests, either by private\nsale or public auction, subject to Greylock Energy's right of first refusal to purchase the Royalty Interests. After the sale of\nall of the Royalty Interests, payment of all Trust liabilities and establishment of reasonable provisions for the payment of additional\nanticipated or contingent Trust expenses or liabilities, the Trustee will distribute the net proceeds of the sale to the Trust unitholders.\n\nPursuant to Section 1446 of the Internal Revenue\nCode of 1986 (the “IRC”), withholding tax on income effectively connected to a United States trade or business allocated to\nnon-U.S. persons (“ECI”) should be made at the highest marginal rate. Under IRC Section 1441, withholding tax on fixed,\ndeterminable, annual, periodic income from United States sources allocated to non-U.S. persons should be made at a 30% rate unless the\nrate is reduced by treaty. Nominees and brokers should withhold at the highest marginal rate on the distribution made to non-U.S. persons.\nA non-U.S. holder’s gain on the sale of Trust units is treated as ECI to the extent such holder would have had ECI if the Trust\nhad sold all of its assets at fair market value on the date of the sale of such Trust units. A transferee of units is also required to\nwithhold 10% of the amount realized on the sale or exchange of units (generally, the purchase price) unless the transferor certifies that\nit is not a nonresident alien individual or foreign corporation or another exception is available.\n\n**Results of Trust Operations**\n\n**For the Three Months Ended March 31, 2026 compared to the Three\nMonths Ended March 31, 2025**\n\nDistributable income for the three months ended\nMarch 31, 2026 increased to $1.6 million from $0.9 million for the three months ended March 31, 2025. Compared to the quarter\nended March 31, 2025, royalty income increased by $0.5 million while administrative expenses decreased approximately $0.2 million.\n\nRoyalty income increased to $1.8 million for the\nthree months ended March 31, 2026 from $1.3 million for the three months ended March 31, 2025. Between periods, there were increases\nin the average sales price realized and in production.\n\nThe average price realized for the three months\nended March 31, 2026 increased $1.09 per Mcf to $3.99 per Mcf compared to $2.90 per Mcf for the three months ended March 31,\n2025. The increase in the average sales price realized for natural gas production was due to a higher average sales price and a decrease\nin the average rate for other post-production costs. The average sales price, before post-production costs, increased from $3.50 per Mcf\nfor the three months ended March 31, 2025 to $4.58 per Mcf for the three months ended March 31, 2026. The increase in price\nwas the result of an increase in the average monthly closing NYMEX price, partially offset by an increase in the average negative basis.\nThe weighted average monthly closing NYMEX price for the three months ended March 31, 2026 was $4.84 per MMBtu compared to the\nweighted average monthly closing NYMEX price of $3.65 per MMBtu for the three months ended March 31, 2025. The average Basis per\nMMBtu realized for the three months ended March 31, 2026 was minus $0.40 per MMBtu compared to minus $0.25 per MMBtu for the three\nmonths ended March 31, 2025.\n\nPost-production costs\nconsist of a post-production services fee together with a charge for electricity used in lieu of gas for compression on the gathering\nsystem and firm transportation charges on interstate gas pipelines. Average post-production costs were $0.59 per Mcf for the three months\nended March 31, 2026 compared to $0.60 per Mcf for the three months ended March 31, 2025.\n\n14\n\nProduction increased 1.9% from 441 MMcf for the\nthree months ended March 31, 2025 to 450 MMcf for the three months ended March 31, 2026.\n\nGeneral and administrative\nexpenses paid by the Trust were $0.1 million and $0.3 million for the three-month periods ended March 31, 2026 and 2025, respectively.\nCash reserves of $0.1 million were withheld for each of the three-month periods ended March 31, 2026 and March 31, 2025.\n\n**Liquidity and Capital Resources**\n\nThe Trust has no source\nof liquidity or capital resources other than net cash flows from the Royalty Interests. Other than Trust administrative expenses, including,\nif applicable, expense reimbursements to Greylock Production and any reserves established by the Trustee for future liabilities, the Trust’s\nonly use of cash is for distributions to Trust unitholders. Administrative expenses include payments to the Trustee and the Delaware Trustee\nas well as a quarterly fee of $15,000 to Greylock Production pursuant to the Administrative Services Agreement. Each quarter, the Trustee\ndetermines the amount of funds available for distribution. Available funds are the excess cash, if any, received by the Trust from the\nRoyalty Interests and other sources (such as interest earned on any amounts reserved by the Trustee) that quarter, over the Trust’s\nexpenses for that quarter. Available funds are reduced by any cash the Trustee determines to hold as a reserve against future expenses\nor liabilities. The Trustee, on behalf of the Trust, may borrow funds required to pay expenses or liabilities if the Trustee determines\nthat the cash on hand and the cash to be received are insufficient to cover the Trust’s expenses or liabilities. If the Trustee\nborrows funds, the Trust unitholders will not receive distributions until the borrowed funds are repaid.\n\nSince\nthe first quarter of 2019, the Trustee has been gradually building a cash reserve for the payment of future expenses and liabilities of\nthe Trust by withholding cash reserve amounts from each quarterly distribution. In November 2021, the Trustee notified the\nSponsor that the Trustee had determined to increase the targeted cash reserve from the initially stated amount of approximately $1.8 million,\nto approximately $3.8 million. From the first quarter of 2019 through the fourth quarter of 2022, the Trustee withheld an amount from\neach distribution equal to the greater of $90,000 or 10% of the amount distributable to unitholders. Since achieving the initial target\nof $1.8 million in the quarter ended December 31, 2022, the Trustee has been withholding, and currently plans to continue to withhold,\n$90,000 per quarter until a total of approximately $3.8 million in cash reserves is withheld. For the quarter ended March 31, 2026,\nthe Trustee withheld $90,000 from the funds otherwise available for distribution and withheld a minimal amount of interest earned on the\ncash reserve balance. As of March 31, 2026, the Trustee has withheld from the funds otherwise available for distribution a total\namount of approximately $2.8 million plus $0.4 million of interest toward the building of the $3.8 million cash reserve. These withholdings\nare in addition to the existing cash reserve of $0.5 million, which is determined prior to the payments of quarterly expenses. The Trustee\nmay increase or decrease the targeted amount at any time, and may increase or decrease the rate at which it is withholding funds to build\nthe cash reserve at any time, without advance notice to the unitholders.\n\nPayments to the Trust in respect of the Royalty\nInterests are based on the complex provisions of the various conveyances held by the Trust, copies of which are filed as exhibits to the\n2024 Form 10-K, and reference is hereby made to the text of the conveyances for the actual calculations of amounts due to the Trust.\n\nThe Trust does not have any transactions, arrangements\nor other relationships with unconsolidated entities or persons that could materially affect the Trust’s liquidity or the availability\nof capital resources.\n\n**Critical Accounting Policies and Estimates**\n\nThe financial statements\nof the Trust differ from financial statements prepared in accordance with generally accepted accounting principles in the United States\nof America (“GAAP”) because, among other differences, certain cash reserves may be established for contingencies, which would\nnot be accrued in financial statements prepared in accordance with GAAP. Amortization of the investment in overriding royalty interests\ncalculated on a unit-of-production basis is charged directly to Trust Corpus. This comprehensive basis of accounting other than GAAP corresponds\nto the accounting permitted for royalty trusts by the SEC as specified by ASC Topic 932 Extractive Activities—Oil and Gas:\nFinancial Statements of Royalty Trusts.\n\nIncome determined on the basis of GAAP would include\nall expenses incurred for the period presented. However, the Trust serves as a pass-through entity, with expenses for depreciation, depletion,\nand amortization, interest and income taxes being based on the status and elections of the Trust unitholders. General and administrative\nexpenses, production taxes or any other allowable costs are charged to the Trust only when cash has been paid for those expenses. In addition,\nthe Royalty Interests are not burdened by field and lease operating expenses. Thus, the statement of distributable income shows distributable\nincome, defined as income of the Trust available for distribution to the Trust unitholders before application of those unitholders’\nadditional expenses, if any, for depreciation, depletion, and amortization, interest and income taxes. The royalty income is reflected\nnet of existing royalties and overriding royalties and have been reduced by gathering/post-production expenses.\n\n15\n\n*Royalty Income and Expenses:*\n\nThe Trust serves as a pass-through entity, with\nitems of depletion, interest income and expense, and income tax attributes being based upon the status and election of the unitholders.\nThus, the Statements of Distributable Income show income available for distribution before application of those unitholders’ additional\nexpenses, if any, for depletion, interest income and expense, and income taxes.\n\nThe Trust uses the accrual basis to recognize revenue,\nwith royalty income recorded as reserves are extracted from the Underlying Properties and sold. Expenses are recognized when paid.\n\n*Royalty Interest in Gas Properties:*\n\nThe conveyance of the Royalty Interest to the Trust\nwas accounted for as a purchase transaction. The $352,100,000 reflected in the Statements of Assets, Liabilities and Trust Corpus as Royalty\ninterests in gas properties represents 17,605,000 Trust units valued at $20.00 per unit. The carrying value of the Trust’s investment\nin the Royalty Interests is not necessarily indicative of the fair value of such Royalty Interests.\n\nThe Royalty interest in gas properties is assessed\nto determine whether the net capitalized cost is impaired, whenever events or changes in circumstances indicate that its carrying amount\nmay not be recoverable, pursuant to ASC Topic 360, Property, Plant and Equipment. The Trust determines whether an impairment charge is\nnecessary to its investment in the Royalty interest in gas properties if total capitalized costs, less accumulated amortization, exceed\nundiscounted future net revenues attributable to proved gas reserves of the Underlying Properties. If required, the Trust will recognize\nan impairment charge to the extent that the net capitalized costs exceed the discounted fair value of the investment in net profits interests\nattributable to proved gas reserves of the Underlying Properties. Any such impairment charge would not reduce Distributable Income, although\nit would reduce Trust Corpus. If an impairment is present, the measurement of an impairment loss involves estimates of fair value, which\nare determined based on discounted cash flow techniques using assumptions including projected revenues, future commodity prices, production\ncosts, and market-specific average cost of capital. Estimates of undiscounted future net revenues attributable to proved gas reserves\nutilize estimates of future pricing, which are generally developed based on NYMEX forward pricing curves. No impairment in the Underlying\nProperties was recognized during 2025 or during the three months ended March 31, 2026. Significant dispositions or abandonment of\nthe Underlying Properties would be charged to Royalty Interests and the Trust Corpus; however, no such dispositions or abandonments occurred\nduring the three-month period ended March 31, 2026.\n\nAmortization of the Royalty interest in gas properties\nis calculated on a units-of-production basis, whereby the Trust’s cost basis in the properties is divided by Trust total proved\nreserves to derive an amortization rate per reserve unit. Such amortization does not reduce Distributable Income, rather it is charged\ndirectly to Trust Corpus. Revisions to estimated future units-of-production are treated on a prospective basis beginning on the date significant\nrevisions are known."}