Mesa Royalty Trust's 3Q 2024 Earnings: A Deep Dive into EPS Decline

Mesa Royalty Trust (MTR) reported a significant decline in earnings per share (EPS) for the third quarter of 2024, with EPS plummeting to US$0.029 from US$0.15 in the same period last year. This substantial drop has raised concerns among investors and analysts alike. This article explores the factors contributing to MTR's earnings decline and its potential implications for the company's future.

Volatile oil and gas prices have played a significant role in MTR's earnings decline. The Trust's distributions are directly affected by commodity prices, and the volatile nature of the oil and gas industry has led to a substantial reduction in earnings. In October 2024, MTR received only US$26,349 from the Colorado portion of its San Juan Basin properties, compared to US$104,196 in October 2023. This decrease in income is likely due to lower oil and gas prices, which have negatively impacted the Trust's financial performance.

Production and development costs have also contributed to MTR's earnings decline. According to the Trust's filings, substantial accumulated excess production costs have decreased distributions, with no distributions in some periods. These costs, along with volatile industry revenues and expenses reported by working interest owners, have directly affected the Trust's ability to pay distributions to unitholders. The decline in production levels and the increase in operational costs have consequently led to a decrease in the Trust's distributions, contributing to the significant drop in EPS for 3Q 2024.

MTR's cash reserves and liquidity have also played a role in its earnings decline. The Trust's distributions were expected to be materially reduced until cash reserves reached US$2.0 million. This policy aims to provide added liquidity, ensuring the Trust's financial stability and ability to pay distributions consistently. However, as of 2024, MTR's cash reserves stood at US$1.5 million, falling short of its target. This shortfall could lead to materially reduced distributions until the Trust increases its cash reserves.

Administrative expenses have also contributed to MTR's earnings decline. In 2023, the Trust's total expenses were $1.37 million, while in 2024, they increased to $1.72 million. This $350,000 increase in expenses, a 25.5% rise, directly contributed to the earnings decrease. The Trust's income distribution for October 2024 was $0.005692813 per unit, down from $0.018 in October 2023, further reflecting the impact of higher expenses on earnings.

The decline in MTR's earnings has raised concerns about the Trust's ability to maintain distributions to unitholders. The Trust's cash reserves and liquidity play a crucial role in its capacity to sustain these distributions. As of 2024, MTR's cash reserves stood at US$1.5 million, falling short of its target of US$2.0 million. This shortfall could lead to materially reduced distributions until the Trust increases its cash reserves.


In conclusion, MTR's earnings decline in 3Q 2024 can be attributed to a combination of factors, including volatile oil and gas prices, production and development costs, cash reserves and liquidity, and administrative expenses. The Trust's ability to maintain distributions to unitholders is directly affected by these factors, which are currently under strain due to reduced earnings and accumulated costs. Investors should closely monitor MTR's financial performance and its efforts to address these challenges as the Trust works to stabilize its earnings and distributions.