CROSS TIMBERS ROYALTY TRUST (CRT) stock intrinsic value fair value estimate & owner earnings analysis

Cross Timbers Royalty Trust is a passive Texas trust with no employees and no ability to buy new assets. It holds net profits interests carved in 1991 out of oil and gas properties in Texas, Oklahoma and New Mexico, now operated by XTO Energy, part of ExxonMobil. About 90 percent of the value sits in royalty and overriding royalty interests, which pay the trust 90 percent of revenue less only taxes and transport, so they cannot run at a loss; the rest is 75 percent interests in working-interest properties in Texas and Oklahoma that also bear operating and drilling costs. Each month the trust collects its share, pays the trustee, and passes everything else to the 6,000,000 units, a count that never changes. There is no debt, no dilution and no growth. What a unit earns. We measure earnings as distributable income per unit, which for a trust like this is simply the cash paid out. Over the last ten years it ran $1.06 (2016), $1.01, $1.43, $0.88, $0.78 (2020), $1.11, $1.96 (2022), $1.92, $0.95 and $0.75 (2025). The 2022-2023 peak reflected unusually high prices, and 2020 the price collapse. The 2025 figure was held down by a one-off $450,000 addition to the trust's cash reserve; before that it was about $0.82, and fourth-quarter 2025 alone ran at $0.227, about $0.91 annualized, helped by firmer gas. Development spending on the working-interest properties fell from $1.4 million in 2024 to $0.17 million in 2025, with only about $0.07 million budgeted net to the trust for 2026. We start the base case at about $0.75 a unit, below both the 2025 underlying figure and the ten-year median of roughly $1.03, because the underlying production falls 6 to 8 percent every year and the ten-year median includes years when there was simply more oil and gas left. Why this is a shrinking asset. The reserve engineers estimate the remaining proved reserves at about 0.93 million barrels of oil and 10.9 billion cubic feet of gas, all already developed, worth $29.2 million at a 10 percent discount at year-end 2025 prices ($63 oil, $3.86 gas), or about $4.87 a unit before trust expenses. Gas now supplies more than half of income, mostly San Juan Basin gas in New Mexico. Nothing replaces what is produced. Meanwhile trust administration costs, about $0.85 to $0.95 million a year, are roughly fixed and rising, so they take a growing bite (about 15 percent of income in 2025 versus about 6 percent in 2016). The Texas working-interest conveyance also carries $4.1 million of unrecovered past costs net to the trust, and pays nothing until those are recovered. The trust deed ends the trust if gross revenue from the underlying properties falls below $1 million a year for two consecutive years, at which point the interests are sold and the proceeds distributed. The cases. Each case is a stream of payments that ends when income no longer covers the trust's costs; there is no value after that. Bear case: we assume a commodity downturn like the one this trust actually lived through in 2019-2020, when net profits income fell from $9.1 million to $5.3 million, roughly 40 percent. Starting from $4.6 million of net profits income, two years run 40 percent lower and one 20 percent lower, production falls 8 percent a year, and costs rise 3 percent a year. Unit payments start around $0.61, drop to about $0.26 in the trough, and the stream runs out after about 14 years, paying about $3.24 a unit in total. Worth about $2.41 a unit. Base case: net profits income of $5.4 million (the 2025 level, $5.74 million, less a year of decline), falling 7 percent a year with costs rising 2 percent; payments start at $0.75 and fade to nothing over about 20 years, about $6.19 a unit in total. Worth about $4.40 a unit, close to the engineers' own valuation less the trust's running costs. Bull case: firmer gas and oil, consistent with the fourth-quarter 2025 run rate and the March 2026 futures strip ($83 oil, $3.84 gas), net profits income of $6.6 million falling 6 percent a year; payments start near $0.96 and last about 25 years. Worth about $6.47 a unit. No case credits new drilling, reserve additions or a recovery of the Texas working-interest conveyance, because none is budgeted. The trust has no debt, so in each case the business value and the unit value are the same: nothing is owed ahead of unitholders. The $1 million cash reserve is held to pay trust expenses and is not added. Since our previous look, nothing material has changed in the business; the figures are rebuilt on a fuller ten-year record and the previous figures are not directly comparable. Margin of safety price. We are fairly sure of the earnings level, because the cash comes from reserves that are already producing and from a contract that cannot be changed; we are not sure of the price of oil and gas, which drives everything. The worst plausible outcome is a long gas-price slump that pushes costs above income on the working-interest properties and drags gross revenue toward the $1 million termination threshold, forcing a sale of the interests at a bad moment. The structure survives a downturn because there is no debt and the royalty interests cannot go negative, but there is no recovery mechanism either: units paid in a downturn are lost value, not deferred value. If we are wrong about prices staying near recent averages and about the 7 percent decline rate, the payments would look like the bear case. All of the return here comes from the distributions themselves, since the units are worth less every year as reserves run down; there is no revaluation to wait for. From $1.75 a unit, the bear-case payments alone imply roughly 15 percent a year over the life of the trust, and the base case implies more than 30 percent a year, with most of the money coming back in the first seven or eight years. That combination, a mild shortfall in a genuine downturn and well above 20 percent in a normal one, with no debt and no dilution to make things worse, is why the margin-of-safety price is $1.75 and not higher.