Forward Looking Information

Certain information included in this report 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 within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such forward looking statements may be or may concern, among other things, capital expenditures, drilling activity, development activities, production efforts and volumes, hydrocarbon prices and the results thereof, and regulatory matters. Although the Trustee believes that the expectations reflected in such forward-looking statements are reasonable, such expectations are subject to numerous risks and uncertainties and the Trustee can give no assurance that they will prove correct. There are many factors, none of which are within the Trustee's control, that may cause such expectations not to be realized, including, among other things, factors such as actual oil and gas prices and the recoverability of reserves, capital expenditures, general economic conditions, actions and policies of petroleum-producing nations and other changes in the domestic and international energy markets. Such forward looking statements generally are accompanied by words such as "estimate," "expect," "predict," "anticipate," "goal," "should," "assume," "believe," or other words that convey the uncertainty of future events or outcomes.

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

For the quarter ended September 30, 2012 royalty income received by the Trust amounted to $9,120,982 compared to royalty income of $14,879,902 during the third quarter of 2011. The decrease in royalty income is primarily attributable to decreases in both oil and gas production, decreases in oil and gas prices, increased lease operating expenses and increased capital expenditures.

General and administrative expenses during the third quarter of 2012 amounted to $167,683 compared to $150,178 during the third quarter of 2011. The increase in general and administrative expenses can be primarily attributed to increased professional expenses.

These transactions resulted in distributable income for the quarter ended September 30, 2012 of $8,953,411 or $.19 per Unit of beneficial interest. Distributions of $.073765, $.057232 and $.061098 per Unit were made to Unit holders of record as of July 31, 2012, August 31, 2012 and September 28, 2012, respectively. For the third quarter of 2011, distributable income was $14,729,881 or $.32 per Unit of beneficial interest.

Royalty income for the Trust for the third quarter of the calendar year is associated with actual oil and gas production for the period of May, June and July of 2012 from the properties from which the Trust's net overriding royalty interests ("Royalties") were carved. Oil and gas sales attributable to the Royalties and the properties from which the Royalties were carved are as follows:

                                                              Third Quarter
                                                           2012          2011
      Royalties:
      Oil sales (Bbls)                                     102,191       125,747
      Gas sales (Mcf)                                      216,868       413,816

      Properties From Which The Royalties Were Carved:
      Oil:
      Total oil sales (Bbls)                               260,281       191,190
      Average per day (Bbls)                                 2,829         2,078
      Average price per Bbl                              $   81.88     $   94.11

      Gas:
      Total gas sales (Mcf)                                974,074       742,437
      Average per day (Mcf)                                 10,588         8,070
      Average price per Mcf                              $    5.13     $    8.52

The average received price of oil decreased to an average price per barrel of $81.88 per Bbl in the third quarter of 2012 compared to $94.11 per Bbl in the third quarter of 2011 due to worldwide market variables. The Trustee has been advised by ConocoPhillips that for the period of August 1, 1993, through September 30, 2012, the oil from the Waddell Ranch properties was being sold under a competitive bid to a third party. The average price of gas (including natural gas liquids) decreased from $8.52 per Mcf in the third quarter of 2011 to $5.13 in the third quarter of 2012 due to change in overall market variables.

Capital expenditures for drilling, remedial and maintenance activities on the Waddell Ranch properties during the third quarter of 2012 totaled $9.2 million as compared to $1.9 million to the Trust for the third quarter of 2011. ConocoPhillips has informed the Trustee that the 2012 capital expenditures budget has been revised to $75.4 million (gross) for the Waddell Ranch properties. The total amount of capital expenditures for 2011 was $11.5 million. Through the third quarter of 2012, capital expenditures of $17.2 million (gross) have been expended.

The Trustee has been advised that there was 1 well completed and 2 wells in progress, and 20 workover wells completed and 10 workover wells in progress, during the three months ended September 30, 2012 as compared to 0 wells completed and 0 wells in progress, and 11 workover wells completed and 9 workover wells in progress for the three months ended September 30, 2011 on the Waddell Ranch properties. There were 0 facility projects completed and 4 projects in progress for the third quarter of 2012.

Lease operating expenses and property taxes totaled $5.2 million for the third quarter of 2012, compared to $3.2 million in the third quarter of 2011 on the Waddell Ranch properties.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

For the nine months ended September 30, 2012, royalty income received by the Trust amounted to $45,684,941 compared to royalty income of $50,076,877 for the nine months ended September 30, 2011. The decrease in royalty income is primarily due to a decrease in gas prices offset by an increase in oil prices in the first nine months of 2012, compared to the first nine months in 2011. Additionally, substantial increases in capital expenditures greatly impacted the net profits revenues to the Trust. Interest income for the nine months ended September 30, 2012 was $646 compared to $521 for the nine months ended September 30, 2011. The increase in interest income is attributable primarily to the timing of funds available to invest. General and administrative expenses for the nine months ended September 30, 2012 were $978,425. During the nine months ended September 30, 2011, general and administrative expenses were $992,629. The decrease in general and administrative expenses is primarily due to reduced Unit holder reporting and other professional expenses.

These transactions resulted in distributable income for the nine months ended September 30, 2012 of $44,707,162, or $.96, per Unit. For the nine months ended September 30, 2011, distributable income was $49,084,769, or $1.05, per Unit.

                                                            Nine Months Ended
                                                          2012            2011
    Royalties:
    Oil sales (Bbls)                                       420,065         432,352
    Gas sales (Mcf)                                      1,344,735       1,708,150

    Properties From Which The Royalties Were Carved:
    Oil:
    Total oil sales (Bbls)                                 780,809         692,907
    Average per day (Bbls)                                   2,850           2,538
    Average price per Bbl                              $     91.92     $     89.88

    Gas:
    Total gas sales (Mcf)                                3,213,859       3,212,146
    Average per day (Mcf)                                   11,729          11,766
    Average price per Mcf                              $      6.37     $      7.59

The average received price of oil increased during the nine months ended September 30, 2012 to $91.92 per barrel compared to $89.88 per barrel for the same period in 2011. The increase in the average price of oil is primarily due to worldwide market variables. The decrease in the average price of gas (including natural gas liquids) from $7.59 per Mcf for the nine months ended September 30, 2011 to $6.37 per Mcf for the nine months ended September 30, 2012 is primarily the result of a decrease in the spot prices of natural gas.

Since the oil and gas sales volumes attributable to the Royalties are based on an allocation formula that is dependent on such factors as price and cost (including capital expenditures), the production amounts in the Royalties section of the above table do not provide a meaningful comparison. The oil and gas sales volumes from the properties from which the Royalties are carved have fluctuated for the applicable period of 2012 compared to 2011. Due to the 2012 drilling program of 30 workover wells, the production of both oil and gas have increased for the underlying properties.

Capital expenditures for the Waddell Ranch properties for the nine months ended September 30, 2012 totaled $17.2 million compared to $8.2 million net to the Trust for the same period in 2011. ConocoPhillips has previously advised the Trust that the remaining 2012 capital expenditures budget for the Waddell Ranch properties is $58.2 million (gross). However, due to the timing of posting of charges, this budget would be posted in early 2013.

The Trustee has been advised that 1 well was drilled and completed and 2 wells were to be completed on the Waddell Ranch properties during the nine months ended September 30, 2012, as compared to 4 wells drilled and completed and 0 wells completed on the Waddell Ranch properties during the nine months ended September 30, 2011. Approximately 42 workover wells were completed and approximately 10 workover wells were in progress as of September 30, 2012.

Calculation of Royalty Income

The Trust's royalty income is computed as a percentage of the net profit from the operation of the properties in which the Trust owns net overriding royalty interests. These percentages of net profits are 75% and 95% in the case of the Waddell Ranch properties and the Texas Royalty properties, respectively. Royalty income received by the Trust for the three months ended September 30, 2012 and 2011, respectively, were computed as shown in the table below:

                                                                  Three Months Ended September 30,
                                                            2012                                   2011
                                                 Waddell              Texas             Waddell              Texas
                                                  Ranch              Royalty             Ranch              Royalty
                                                Properties         Properties          Properties         Properties
Gross proceeds of sales from the
Underlying Properties
Oil proceeds                                   $ 14,629,657        $ 6,682,631        $ 10,837,042        $ 7,156,526
Gas proceeds                                      4,120,451            878,391           5,037,905          1,289,581

Total                                            18,750,108          7,561,022          15,874,947          8,446,107

Less:
Severance tax:
Oil                                                 605,646            249,669             445,640            273,326
Gas                                                 248,400             24,501             263,532             62,282
Lease operating expenses and property tax:
Oil and gas                                       5,168,596            420,000           3,163,355            420,000
Other                                                19,357                 -               39,848                 -
Capital expenditures                              9,244,812                 -            1,864,001                 -

Total                                            15,286,811            694,170           5,776,376            755,608

Net profits                                       3,463,297          6,866,852          10,098,571          7,690,499
Net overriding royalty interests                         75 %               95 %                75 %               95 %

Royalty income                                 $  2,597,473        $ 6,523,509        $  7,573,928        $ 7,305,974

Critical Accounting Policies and Estimates

The Trust's financial statements reflect the selection and application of accounting policies that require the Trust to make significant estimates and assumptions. The following are some of the more critical judgment areas in the application of accounting policies that currently affect the Trust's financial condition and results of operations.

The financial statements of the Trust are prepared on the following basis:

• Royalty income recorded for a month is the amount computed and paid to the Trustee on behalf of the Trust by the interest owners. Royalty income consists of the amounts received by the owners of the interest burdened by the Royalties from the sale of production less accrued production costs, development and drilling costs, applicable taxes, operating charges and other costs and deductions multiplied by 75% in the case of the Waddell Ranch properties and 95% in the case of the Texas Royalty properties.

• Trust expenses, consisting principally of routine general and administrative costs, recorded are based on liabilities paid and cash reserves established out of cash received or borrowed funds for liabilities and contingencies.

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

• Royalty income is computed separately for each of the conveyances under which the Royalties were conveyed to the Trust. If monthly costs exceed revenues for any conveyance ("excess costs"), such excess costs cannot reduce royalty income from other conveyances, but is carried forward with accrued interest to be recovered from future net proceeds of that conveyance.

• Royalties that are producing properties are amortized using the unit-of-production method. This amortization is shown as a reduction of Trust corpus.

The financial statements of the Trust differ from financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") because revenues are not accrued in the month of production and certain cash reserves may be established for contingencies which would not be accrued in financial statements prepared in accordance with GAAP. Amortization of the Royalties calculated on a unit-of-production basis is charged directly to trust corpus. This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the U.S. Securities and Exchange Commission as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.

Revenue Recognition

Revenues from the royalty interests are recognized in the period in which amounts are received by the Trust. Royalty income received by the Trust in a given calendar year will generally reflect the proceeds, on an entitlement basis, from natural gas produced and sold for the twelve-month period ended October 31st in that calendar year. Royalty income received by the Trust in the third quarter of 2012 generally reflects the proceeds associated with actual oil and gas production for the period of May through July 2012.

As of January 1, 2012, independent petroleum engineers estimated the net proved reserves attributable to the royalty interests. Estimates of future net revenues from proved reserves have been prepared using average 12-month oil and gas prices, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period preceding the end of the most recent fiscal year, unless prices are defined by contractual arrangements. Numerous uncertainties are inherent in estimating volumes and the value of proved reserves and in projecting future production rates and the timing of development of non-producing reserves.

Such reserve estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production may be substantially different from the reserves estimates.

Contingencies

Contingencies related to the Underlying Properties that are unfavorably resolved would generally be reflected by the Trust as reductions to future royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders.

On May 2, 2011, ConocoPhillips, as the parent company of BROG, the operator of the Waddell Ranch properties, notified the Trustee that as a result of inaccuracies in ConocoPhillips' accounting and record keeping relating to the Trust's interest in proceeds from the gas plant production since January 2007, ConocoPhillips overpaid the Trust approximately $5.9 million initially. ConocoPhillips informed the Trustee on September 20, 2011 that it was withholding $4,068,067 (all of the Waddell Ranch portion of the September, 2011 proceeds, which would be reflective of July 2011 production, of approximately 29,796 bbls of oil and 180,425 mcf of gas) in order to recoup this overpayment. This affected the Trust's distribution declared September 20, 2011 and paid October 17, 2011. ConocoPhillips also withheld $474,480 from the proceeds for October 2011, which ConocoPhillips has informed the Trustee completes the recoupment. ConocoPhillips has indicated that these two recoupments will satisfy the initial claim of $5.9 million. Additionally, ConocoPhillips informed the Trustee that beginning with the June 2011 distribution, proceeds to the Trust relating to the gas plant production have been adjusted to reflect ConocoPhillips' calculation of the corrected interest.

The Trustee is continuing to evaluate the matter.

Use of Estimates

The preparation of financial statements in conformity with the basis of accounting described above requires management to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting period. Actual results may differ from such estimates.

The Trustee routinely reviews its royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If an impairment event occurs and it is determined that the carrying value of the Trust's royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely be measured by discounting projected cash flows. There is no impairment of assets as of September 30, 2012.

Distributable Income Per Unit

Basic distributable income per Unit is computed by dividing distributable income by the weighted average of Units outstanding. Distributable income per Unit assuming dilution is computed by dividing distributable income by the weighted average number of Units and equivalent Units outstanding. The Trust had no equivalent Units outstanding for any period presented. Therefore, basic distributable income per Unit and distributable income per Unit assuming dilution are the same.

New Accounting Pronouncements

There are no new accounting pronouncements that are expected to have a significant impact on the Trust's financial statements.