Forward-Looking Information

Certain information included in this Quarterly Report on Form 10-Q contains, and other materials filed or to be filed by the Trust with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Trust) may contain or include, forward-looking statements. Such forward-looking statements may be or may concern, among other things, capital expenditures, drilling activity, development activities, production efforts and volumes, hydrocarbon prices, estimated future net revenues, estimates of reserves, the results of the Trust's activities, and regulatory matters. Such forward-looking statements generally are accompanied by words such as "may," "will," "estimate," "expect," "predict," "project," "anticipate," "goal," "should," "assume," "believe," "plan," "intend," or other words that convey the uncertainty of future events or outcomes. Such statements reflect the current view of BROG, the working interest owner, with respect to future events; are based on an assessment of, and are subject to, a variety of factors deemed relevant by the Trustee and BROG; and involve risks and uncertainties. These risks and uncertainties include volatility of oil and gas prices, product supply and demand, competition, regulation or government action, litigation and uncertainties about estimates of reserves. Should one or more of these risks or uncertainties occur, actual results may vary materially and adversely from those anticipated.

Business Overview

The Trust is an express trust created under the laws of the state of Texas by the San Juan Basin Royalty Trust Indenture (the "Original Indenture") entered into on November 3, 1980 between Southland Royalty Company ("Southland Royalty") and The Fort Worth National Bank. Effective as of September 30, 2002, the Original Indenture was amended and restated (the Original Indenture, as amended and restated, the "First Restated Indenture") and, effective as of December 12, 2007 the First Restated Indenture was amended and restated (the First Restated Indenture, as amended and restated, the "Indenture"). The Trustee of the Trust is Compass Bank (as a result of the merger discussed below).

On October 23, 1980, the stockholders of Southland Royalty approved and authorized that company's conveyance of a 75% net overriding royalty interest (equivalent to a net profits interest) to the Trust for the benefit of the stockholders of Southland Royalty of record at the close of business on the date of the conveyance (the "Royalty") carved out of that company's oil and gas leasehold and royalty interests (the "Underlying Properties") in properties located in the San Juan Basin of northwestern New Mexico. Pursuant to the Net Overriding Royalty Conveyance (the "Conveyance") the Royalty was transferred to the Trust on November 3, 1980 effective as to production from and after November 1, 1980 at 7:00 a.m.

As a result of a merger on March 24, 2006, Compass Bank succeeded TexasBank as Trustee of the Trust. On September 7, 2007, Compass Bank's parent company, Compass Bancshares, Inc., was acquired by and is now a wholly-owned subsidiary of Banco Bilbao Vizcaya Argentaria, S.A.

The Royalty constitutes the principal asset of the Trust. The beneficial interests in the Royalty are divided into that number of Units of Beneficial Interest (the "Units") of the Trust equal to the number of shares of the common stock of Southland Royalty outstanding as of the close of business on November 3, 1980. Each stockholder of Southland Royalty of record at the close of business on November 3, 1980 received one freely tradable Unit for each share of the common stock of Southland Royalty then held. Holders of Units are referred to herein as "Unit Holders." Subsequent to the Conveyance of the Royalty, through a series of assignments and mergers, Southland Royalty's successor became BROG. On March 31, 2006, a subsidiary of ConocoPhillips completed its acquisition of Burlington Resources, Inc., BROG's parent. As a result, ConocoPhillips became the parent of Burlington Resources, Inc., which in turn, is the parent of BROG.

The function of the Trustee is to collect the net proceeds attributable to the Royalty ("Royalty Income"), to pay all expenses and charges of the Trust and distribute the remaining available income to the Unit Holders. The Trust does not operate the Underlying Properties and, in fact, is not empowered to carry on any business activity. The Trust has no employees, officers or directors. All administrative functions of the Trust are performed by the Trustee.

BROG is the principal operator of the Underlying Properties. A very high percentage of the Royalty Income is attributable to the production and sale by BROG of natural gas from the Underlying Properties. Accordingly, the market price for natural gas produced and sold from the San Juan Basin heavily influences the amount of Royalty Income distributed by the Trust and, by extension, the price of the Units.

Three Months Ended September 30, 2009 and 2008

The Trust received Royalty income of $7,232,890 and interest income of $194,481 during the third quarter of 2009. There was no change in cash reserves. After deducting administrative expenses of $435,690, distributable income for the quarter was $6,991,681 ($0.150007 per Unit). In the third quarter of 2008, Royalty income was $52,541,763, interest income was $32,508, administrative expenses were $351,221 and distributable income was $52,223,050 ($1.120455 per Unit). In August 2008, the Trust recovered $40,930 previously escheated to the State of Texas in the name of the Trust, and those funds were temporarily added to cash reserves pending further research as to the origin of the funds. Based on 46,608,796 Units outstanding, the per-Unit distributions during the third quarter of 2009 were as follows:

                            July            $ .035394
                            August            .061470
                            September         .053143

                            Quarter Total   $ .150007

The Royalty income distributed in the third quarter of 2009 was lower than that distributed in the third quarter of 2008, primarily due to a decrease in the average gas price from $10.62 per Mcf for the third quarter of 2008 to $2.98 per Mcf for the third quarter of 2009. Gas volumes, however, increased in the quarter ended September 30, 2009 as compared to the quarter ended September 30, 2008. Interest income was higher for the quarter ended September 30, 2009 as compared to the quarter ended September 30, 2008, due to interest BROG paid to the Trust in August 2009 as a result of the granting of certain audit exceptions. Administrative expenses were higher in 2009 primarily as a result of differences in timing in the receipt and payment of these expenses and also due to increased costs associated with the litigation described below.

The capital costs attributable to the Underlying Properties for the third quarter of 2009 and deducted by BROG in calculating Royalty income were approximately $7.4 million. BROG has informed the Trust that the 2009 budget for capital expenditures for the Underlying Properties is $25.2 million. In addition, BROG estimates that during 2009 it will incur capital expenses in the amount of approximately $12.1 million attributable to the capital budgets for 2008 and prior years. Approximately 12% of the planned expenditures attributable to the 2009 budget will be on Fruitland Coal formation projects with the remainder to be spent on conventional projects. BROG reports that based on its actual capital requirements, the pace of regulatory approvals, the mix of projects and swings in the price of natural gas, the actual capital expenditures for 2009 could range from $10 million to $45 million.

BROG anticipates 431 projects in 2009 at an estimated cost of $25.2 million. Approximately $6 million of that budget is allocable to 49 new wells, including 39 wells scheduled to be dually completed in the Mesaverde and Dakota formations and four wells projected to be drilled to formations producing coal seam gas. Approximately $7.1 million will be spent on workovers and facilities projects. Of the $12.1 million attributable to the budgets for prior years, approximately $6.9 million is allocable to new wells, and the $5.2 million balance will be applied to miscellaneous capital projects such as workovers and operated facility projects. BROG also anticipates that the possible implementation of new rules minimizing surface disturbances, requiring the implementation of closed-loop systems for the disposal of drilling fluids and cuttings, and restricting the use of open reserve pits could reduce the number of projects due to increased compliance costs.

BROG has informed the Trust that lease operating expenses and property taxes were $7,756,942 and $213,289, respectively, for the third quarter of 2009, as compared to $7,947,438 and $276,732, respectively, for the third quarter of 2008. BROG reports that lease operating expenses were lower in the third quarter of 2009 compared to the third quarter of 2008 primarily because of lower contract services and maintenance costs. Furthermore, BROG reports that the decrease in costs related to the property taxes are due to the fact that property tax amounts are accrued based on the prior year's actual costs. In 2009, $71,096 per month in property taxes is accrued, based on the

amount of the actual property tax bill paid in early 2009, as compared with $92,244 per month accrued in 2008, based on the amount of the actual property tax bill paid in early 2008.

BROG has reported to the Trustee that during the third quarter of 2009, 22 gross (4.58 net) conventional wells, two gross (0.84 net) recompletions, 16 gross (8.23 net) coal seam wells and one gross (.85 net) coal seam recompletion were completed on the Underlying Properties. Seven gross (2.20 net) conventional wells were in progress at September 30, 2009.

There were, based on revised information from BROG, seven gross (2.22 net) coal seam wells and 33 gross (4.24 net) conventional wells completed on the Underlying Properties as of September 30, 2008. Five gross (0.92 net) coal seam wells and seven gross (1.42 net) conventional wells were in progress at September 30, 2008.

There were 3,903 gross (1,137 net) producing wells being operated subject to the Royalty as of December 31, 2008, calculated on a well bore basis and not including multiple completions as separate wells.

"Gross" acres or wells, for purposes of this discussion, means the entire ownership interest of all parties in such properties, and BROG's interest therein is referred to as the "net" acres or wells. A "payadd" is the completion of an additional productive interval in an existing completed zone in a well.

Royalty income for the quarter ended September 30, 2009 is associated with actual gas and oil production during May 2009 through July 2009 from the Underlying Properties. Gas and oil sales from the Underlying Properties for the three months ended September 30, 2009 and 2008 were as follows:

                                               Three Months Ended
                                                  September 30,
                                              2009            2008

                Gas:
                Total sales (Mcf)           8,916,522       8,737,027
                Mcf per day                    96,919          94,968
                Average price (per Mcf)   $      2.98     $     10.62
                Oil:
                Total sales (Bbls)             17,414          12,793
                Bbls per day                      189             139
                Average price (per Bbl)   $     56.08     $    120.99

Gas and oil sales attributable to the Royalty for the quarters ended September 30, 2009 and 2008 were as follows:

                                            Three Months Ended
                                               September 30,
                                           2009            2008

                    Gas sales (Mcf)      2,563,130       5,326,507
                    Oil sales (Bbls)         5,004           7,724

Sales volumes attributable to the Royalty are determined by dividing the net profits received by the Trust and attributable to oil and gas, respectively, by the prices received for sales volumes from the Underlying Properties, taking into consideration production taxes attributable to the Underlying Properties. Since the oil and gas sales attributable to the Royalty are based on an allocation formula that is dependent on such factors as price and cost, including capital expenditures, the aggregate production volumes from the Underlying Properties may not provide a meaningful comparison to volumes attributable to the Royalty.

During the third quarter of 2009, average gas prices were $7.64 per Mcf lower than the average prices reported during the third quarter of 2008 due in part to the global economic contraction which has depressed energy demand and contributed to lower natural gas wellhead prices, including the posted index prices applicable to gas sold from the San Juan Basin. In addition, many experts attribute the decline in gas prices to record or near record inventories in storage and increased domestic production from the various shale formations. The average price per barrel of oil during the third quarter of 2009 was $64.91 per barrel lower than that received for the third quarter of 2008.

BROG previously entered into three contracts for the sale of all volumes of gas produced from the Underlying Properties to ChevronTexaco Natural Gas, a division of Chevron U.S.A. Inc. ("ChevronTexaco"), Coral Energy Resources, L.P. ("Coral"), and PNM Gas Services ("PNM"), respectively. In March 2008, both ChevronTexaco and Coral notified BROG of their election to terminate their respective contracts effective March 31, 2009. Requests for proposal were circulated to potential purchasers of the packages of gas covered by the expiring contracts. Neither BROG nor PNM gave notice of termination with respect to the PNM contract and, by agreement of the parties, the term of that contract has been extended through at least March 31, 2011. On December 11, 2008, the New Mexico Public Regulatory Commission approved the sale of the gas utility assets of PNM to New Mexico Gas Company, Inc. ("NMGC") and, effective as of January 30, 2009, the PNM contract was assigned to and assumed by NMGC.

BROG entered into four new contracts effective April 1, 2009, for the sale of all gas produced from the Underlying Properties other than the gas covered by the NMGC contract. The new purchasers are Chevron Natural Gas, a division of Chevron USA, Inc., Pacific Gas and Electric Company, BP Energy Company and Macquarie Cook Energy LLC. All four of the new contracts and the pre-existing NMGC contract provide for (i) the delivery of such gas at various delivery points through March 31, 2011 and from year-to-year thereafter, until terminated by either party on 12 months' notice; and (ii) the sale of such gas at prices which fluctuate in accordance with the published indices for gas sold in the San Juan Basin of northwestern New Mexico. Although the primary term of the Chevron contract continues until March 31, 2011, a portion of that contract will be remarketed for sale after March 2010.

Confidentiality agreements with purchasers of gas produced from the Underlying Properties prohibit public disclosure of certain terms and conditions of gas sales contracts with those entities, including specific pricing terms and gas receipt points. Such disclosure could compromise the ability to compete effectively in the marketplace for the sale of gas produced from the Underlying Properties.

Nine Months Ended September 30, 2009 and 2008

For the nine months ended September 30, 2009, the Trust received Royalty income of $19,257,575 and interest income of $197,892. After deducting administrative expenses of $1,706,123, distributable income was $17,749,344 ($0.380814 per Unit) for the nine months ended September 30, 2009. There was no change in cash reserves. For the nine months ended September 30, 2008, the Trust received Royalty income of $113,730,327 and interest income of $216,621. Cash reserves increased in August 2008 by $40,930, the amount recovered from the State of Texas. After deducting administrative expenses of $1,554,074, distributable income was $112,392,874 ($2.411409 per Unit) for the nine months ended September 30, 2008.

The decrease in distributable income from 2008 to 2009 resulted primarily from lower gas prices during the first nine months of 2009. However, gas volumes were higher in the nine months ended September 30, 2009, in part, due to unplanned down-time at a facility operated by a third party in the second quarter of 2008. Interest earnings were lower for the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008, primarily due to a decrease in funds available for investment and to lower interest rates. General and administrative expenses were higher for the nine months ended September 30, 2009, as compared to the same period in 2008, primarily as a result of differences in timing in the receipt and payment of the expenses, but also due to an increase in legal expenses incurred in the litigation between BROG and the Trust described in Part II, Item I, below.

Capital expenditures incurred by BROG, attributable to the Underlying Properties, for the first nine months of 2009 amounted to approximately $28.3 million. Capital expenditures were approximately $19.9 million for the first nine months of 2008. Lease operating expenses and property taxes first nine months of 2009 totaled $24,563,067 and $703,310, respectively, as compared to $23,767,528 and $798,760, respectively, for 2008.

BROG has reported to the Trustee that during the nine months ended September 30, 2009, 68 gross (13.28 net) conventional wells, two gross (0.84 net) recompletions, 36 gross (19.55 net) coal seam wells and one gross (0.85 net) coal seam recompletion were completed on the Underlying Properties. There were 33 gross (13.25 net) coal seam wells and 108 gross (11.69 net) conventional wells completed on the Underlying Properties during the nine months ended September 30, 2008.

Royalty income for the nine months ended September 30, 2009 is associated with actual gas and oil production during November 2008 through July 2009 from the Underlying Properties. Gas and oil sales from the Underlying Properties for the nine months ended September 30, 2009 and 2008 were as follows:

                                                Nine Months Ended
                                                  September 30,
                                              2009             2008

               Gas:
               Total sales (Mcf)           25,986,144       25,133,676
               Mcf per day                     95,187           91,729
               Average price (per Mcf)   $       3.28     $       8.72
               Oil:
               Total Sales (Bbls)              43,689           36,168
               Bbls per day                       160              132
               Average price (per Bbl)   $      45.34     $     101.88

Gas and oil sales attributable to the Royalty for the nine months ended September 30, 2009 and 2008 were as follows:

                                            Nine Months Ended
                                              September 30,
                                          2009             2008

                   Gas sales (Mcf)      6,034,462       14,579,826
                   Oil sales (Bbls)         9,820           20,787

During the first nine months of 2009 gas and oil prices were lower than during the first nine months of 2008. Since the oil and gas sales attributable to the Royalty are based on an allocation formula that is dependant on such factors as price and cost, including capital expenditures, the aggregate sales amounts from the Underlying Properties may not provide a meaningful comparison to sales attributable to the Royalty.

Calculation of Royalty Income

Royalty Income received by the Trust for the three months and nine months ended September 30, 2009 and 2008, respectively, was computed as shown in the following table:

                         CALCULATION OF ROYALTY INCOME


                                          Three Months Ended                     Nine Months Ended
                                            September 30,                          September 30,
                                       2009                2008              2009                2008

Gross proceeds of sales from the
Underlying Properties:
Gas proceeds                       $ 26,539,822 (1)    $ 92,813,502      $ 85,149,264        $ 212,607,028 (2)
Oil proceeds                            976,542           1,547,800         1,980,659            3,684,910

Total                                27,516,364          94,361,302        87,129,923          216,291,938

Less production costs:
Severance tax - gas                   2,381,417           8,391,694         7,685,851           19,856,326
Severance tax - oil                      94,969             152,033           193,945              369,512
Other                                         -                   -             1,020 (3)                -
Lease operating expense and
property tax                          7,970,231           8,224,170        25,266,377           24,566,288
Capital expenditures                  7,425,894           7,537,721        28,305,963           19,859,376

Total                                17,872,511          24,305,618        61,453,156           64,651,502

Net profits                           9,643,853          70,055,684        25,676,767          151,640,436
Net overriding royalty interest              75 %                75 %              75 %                 75 %

Royalty Income                     $  7,232,890        $ 52,541,763      $ 19,257,575        $ 113,730,327

(1) In August 2009, gas proceeds included $540,069 resulting from granted audit exceptions.

(2) In March 2008, gas proceeds were reduced by $6,562,104 as the amount BROG determined to be the Trust's portion of BROG's settlement of a legal matter with the Minerals Management Service and the Bureau of Indian Affairs.

(3) Reflects the fee for BROG volume exchanges during the production month of April 2009.

Contractual Obligations

Under the Indenture governing the Trust, the Trustee is entitled to an administrative fee for its administrative services and the preparation of quarterly and annual statements of: (i) 1/20 of 1% of the first $100 million of the annual gross revenue of the Trust, and 1/30 of 1% of the annual gross revenue of the Trust in excess of $100 million and (ii) the Trustee's standard hourly rates for time in excess of 300 hours annually, provided that the administrative fee due under items (i) and (ii) above will not be less than $36,000 per year (as adjusted annually to reflect the increase (if any) in the Producers Price Index as published by the U.S. Department of Labor, Bureau of Labor Statistics, since December 31, 2003).

Effects of Securities Regulation

As a publicly-traded trust listed on the New York Stock Exchange (the "NYSE"), the Trust is and will continue to be subject to extensive regulation under, among others, the Securities Act of 1933, the Securities Exchange Act of 1934 (which contains many of the provisions of the Sarbanes-Oxley Act of 2002), and the rules and regulations of the NYSE. Issuers failing to comply with such authorities risk serious consequences, including criminal as well as civil and administrative penalties. In most instances, these laws, rules, and regulations do not specifically address their applicability to publicly-traded trusts, such as the Trust. In particular, the Sarbanes-Oxley Act of 2002 provides

for the adoption by the Securities and Exchange Commission (the "Commission") and NYSE of certain rules and regulations that may be impossible for the Trust to literally satisfy because of its nature as a pass-through trust. It is the Trustee's intention to follow the Commission's and NYSE's rulemaking closely, attempt to comply with such rules and regulations and, where appropriate, request relief from these rules and regulations. However, if the Trust is unable to comply with such rules and regulations or to obtain appropriate relief, the Trust may be required to expend presently unknown but potentially material costs to amend the Indenture that governs the Trust to allow for compliance with such rules and regulations. To date, the rules implementing the Sarbanes-Oxley Act of 2002 have generally made appropriate accommodation for passive entities such as the Trust.

Critical Accounting Policies

In accordance with the Commission's rules and regulations and consistent with other royalty trusts, the financial statements of the Trust are prepared on the following basis:

• Royalty Income recorded for a month is the amount computed and paid pursuant to the Conveyance by BROG to the Trustee for the Trust. Royalty Income consists of the proceeds received by BROG from the sale of production from the Underlying Properties less accrued production costs, development and drilling costs, applicable taxes, operating charges, and other costs and deductions, multiplied by 75%. The calculation of net proceeds by BROG for any month includes adjustments to proceeds and costs for prior months and impacts the Royalty Income paid to the Trust and the distribution to Unit Holders for that month.

• Trust expenses recorded are based on liabilities paid and cash reserves established from Royalty Income for liabilities and contingencies.

• Distributions to Unit Holders are recorded when declared by the Trustee.

• The Conveyance which transferred the Royalty to the Trust provides that any excess of development and production costs applicable to the Underlying Properties over gross proceeds from such properties must be recovered from future net proceeds before Royalty Income is again paid to the Trust.

The financial statements of the Trust differ from financial statements prepared in accordance with GAAP because revenues are not accrued in the month of production; certain cash reserves may be established for contingencies which would not be accrued in financial statements prepared in accordance with GAAP; expenses are recorded when paid instead of when incurred; and amortization of the Royalty calculated on a unit-of-production basis is charged directly to the Trust corpus instead of an expense.