The "Description of the Properties" in the Trust's Annual Report to Unit Holders for the year ended December 31, 2012, is herein incorporated by reference.

Gas and Oil Production

Total gas and oil production from the Underlying Properties for the five years
ended December 31, 2012 were as follows:



                    2012             2011             2010             2009             2008
 Gas - Mcf        32,580,756       32,964,647       33,378,855       35,067,662       34,527,043
 Mcf per Day          89,018           90,314           91,449           96,076           94,336
 Oil-Bbls             50,617           58,908           62,675           58,603           50,323
 Bbls per Day            138              161              172              161              137

Royalty Income for a calendar year is based on the actual gas and oil production during the period beginning with November of the preceding calendar year through October of the current calendar year. Gas and oil sales attributable to the Royalty for the past five years are summarized in the following table:

                                 2012                2011                2010               2009                2008
Gas - Mcf                      10,259,791          15,265,827          17,102,939          9,823,255          19,529,046
Average Price (per Mcf)      $       3.56        $       4.76        $       4.86        $      3.48        $       8.28
Oil - Bbls                         16,369              26,981              31,808             15,961              28,221
Average Price (per Bbl)      $      84.36        $      81.08        $      67.08        $     53.45        $      99.32

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 dependent 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.

Gas produced from the Underlying Properties is processed at one of the following five plants: Chaco, Val Verde, Milagro, Ignacio, and Kutz, all located in the San Juan Basin. All of such gas other than that processed at Kutz is being sold to Chevron USA, Inc. ("Chevron") under a contract with Burlington dated April 1, 2011 which provides for the delivery of gas through March 31, 2013 and from year to year thereafter. Because neither party gave notice of termination, the term of the Chevron contract has automatically been extended through at least March 31, 2014.

Gas produced from the Underlying Properties and processed at Kutz is being sold under three separate contracts with Pacific Gas and Electric Company ("PG&E"), Shell Energy North America (US), LP ("Shell") and New Mexico Gas Company, Inc. ("NMGC"). A fourth contract for the purchase of summer only supplies by Salt River Project Agricultural Improvement and Power District expired October 2012. Both PG&E and Shell have given notice of the termination of their respective contracts effective March 31, 2013, and Burlington has circulated requests for proposal soliciting bids for the purchase of those volumes commencing April 1, 2013. The NMGC contract for the sale of certain winter only supplies of the Kutz gas is for a five-year term expiring March 31, 2017.

All four of the current contracts provide for (i) the delivery of such gas at various delivery points through their respective termination dates and from year-to-year thereafter, until terminated by either party upon notice of between six and twelve months; 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.

Burlington contracts with Williams Four Corners, LLC ("WFC") and Enterprise Field Services, LLC ("EFS") for the gathering and processing of virtually all of the gas produced from the Underlying Properties. Four new contracts were entered into with WFC to be effective for terms of 15 years commencing April 1, 2010. Burlington has also signed a new agreement with EFS effective November 1, 2011 for a term of 15 years. Burlington has disclosed to the Trust a summary of that agreement which the Trust has reviewed with its consultants, subject to conditions of confidentiality.

Confidentiality agreements with gatherers and 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.

Royalty Income

Royalty Income consists of monthly Net Proceeds attributable to the Royalty.
Royalty Income for the five years ended December 31, 2012 was determined as
shown in the following table:



                              2012                    2011                 2010                   2009                 2008
Gross Proceeds From
The Underlying
Properties:
Gas                       $ 109,817,282           $ 156,770,429        $ 164,194,440 (2)      $ 117,091,623        $ 274,759,523
Oil                           4,200,625               4,785,736            4,201,260              2,917,081            4,944,422
Other                          (246,332 )(1)                -0-                  -0-                    -0-                  -0-

Total                     $ 113,771,575           $ 161,556,165        $ 168,395,700          $ 120,008,704        $ 279,703,945

Capital Expenditures      $  22,195,936           $  21,052,419        $  13,101,962          $  33,596,883        $  26,992,650
Severance tax - Gas          10,088,154              14,343,854           14,816,771             10,526,019           25,500,279
Severance Tax - Oil             417,036                 482,396              407,627                283,744              483,725
Other                               -0-                     -0-                  -0-                  1,020                  -0-
Lease Operating
Expenses and
Property Taxes               35,089,413              34,971,165           33,440,339             33,082,796           33,943,082

Total                     $  67,790,539           $  70,849,834        $  61,766,699          $  77,490,462        $  86,919,736

Net Profits               $  45,981,036           $  90,706,331        $ 106,629,001          $  42,518,242        $ 192,784,209
Net Overriding
Royalty Interest                     75 %                    75 %                 75 %                   75 %                 75 %

Royalty Income            $  34,485,777           $  68,029,748        $  79,971,751          $  31,888,681        $ 144,588,156

(1) Funds recovered by Burlington due to an overpayment of compliance audit exceptions.

(2) In May 2010, gas proceeds included $2,600,000 received in settlement of litigation.

Distributable Income

"Distributable Income" (as that term is used herein) consists of Royalty Income plus interest, less the general and administrative expenses of the Trust and any changes in cash reserves established by the Trustee.

For the year ended December 31, 2012, Distributable Income was $33,481,687 as compared to $67,190,000 for the year ended December 31, 2011. Distributable Income in 2010 was $78,355,835.

The Trust received Royalty Income of $34,485,777 and interest income of $570,291 in 2012. After deducting administrative expenses of $1,574,381, Distributable Income for 2012 was $33,481,687 ($0.718358 per Unit). In 2011, Royalty Income was $68,029,748, interest income was $679,952, and administrative expenses were $1,519,700, resulting in Distributable Income of $67,190,000 ($1.441573 per Unit). The decrease in Distributable Income from 2011 to 2012 was primarily attributable to lower natural gas pricing. Interest earnings in 2012 were lower as compared to 2011, primarily due to additional interest received in 2011 on late payments of Gross Proceeds used in the calculation of the Royalty. Administrative expenses were higher in 2012, as compared to 2011 primarily as a result of differences in timing in the receipt and payment of these expenses.

In 2010, the Trust received Royalty Income of $79,971,751 and interest income of $309,437. After deducting administrative expenses of $1,925,353, Distributable Income for 2010 was $78,355,835 ($1.681139 per Unit). The decrease in Distributable Income from 2010 to 2011 was primarily attributable to lower natural gas pricing, but also as a result of material increases in capital expenditures. Interest earnings in 2011 were higher as compared to 2010, primarily due to an increase in the amount of interest received on late payments of

The Trustee has been informed that the New Mexico Oil and Gas Proceeds and Pass-Through Entity Withholding Tax Act (the "Withholding Tax Act") requires remitters who pay certain oil and gas proceeds from production on New Mexico wells, to withhold income taxes from such proceeds in the case of certain nonresident recipients. The Trustee, on advice of New Mexico counsel, has observed that "net profits interests," such as the Royalty, and other types of interests, the extent of which cannot be determined with respect to a specific share of the oil and gas production, as well as amounts deducted from payments that are for expenses related to oil and gas production, are excluded from the withholding requirements of the Withholding Tax Act. Unit Holders are reminded to consult with their tax advisors regarding the applicability of New Mexico income tax to distributions received from the Trust by a Unit holder.

Operating Expenses

Monthly operating expenses of the Underlying Properties, exclusive of property taxes, in 2012 averaged approximately $2,900,336, as compared to the $2,854,144 average in 2011. Operating expenses averaged higher in 2012 primarily because of compliance with increased regulation requirements. The average for 2010 was $2,701,368.

Settlements

As part of the September 4, 1996, settlement of the litigation filed by the Trustee on June 4, 1992 against Burlington and Southland, the Trustee and Burlington established a formal protocol pursuant to which compliance auditors retained by the Trustee gained improved access to Burlington's books and records as applicable to the Underlying Properties. The audit process was initiated in 1996 and, since inception, has resulted in audit exceptions being granted by and payments or credits received from Burlington totaling approximately $41.8 million.

Following mediation conducted on April 8 and 23, 2010, Burlington and the Trust entered into a settlement of previously reported litigation styled San Juan Basin Royalty Trust vs. Burlington Resources Oil & Gas Company, L.P. No. D1329-CV08-751, in the District Court of Sandoval County, New Mexico, 13th Judicial District. The dispute subject to the mediation arose out of an arbitrator's award in 2005 in favor of the Trust. That award effectively resolved five compliance audit issues, but Burlington argued in subsequent litigation that one of those issues was beyond the scope of the matters agreed to be submitted to arbitration. Pursuant to the settlement, the litigation was dismissed, Burlington paid $2,600,000 to the Trust in May 2010, and released its claims for attorneys' fees.

Capital Expenditures

Capital expenses of $22.2 million were included in calculating Royalty Income paid to the Trust in calendar year 2012, and included expenditures for the drilling and completion of 28 gross (7.97 net) conventional wells. There were six gross (4.39 net) conventional wells in progress as of December 31, 2012. The Yert 1-H is an exploratory well. Burlington indicates it expects to have production data on the Yert 1-H by the end of the first quarter of 2013. All of the other wells were development wells. There were no dry exploratory or development wells drilled in 2012.

Approximately $14.1 million of capital expenditures covered 114 projects budgeted for 2012. Approximately $13.2 million of those costs were incurred in drilling 24 new wells commenced in 2012 to be operated by Burlington and none to be operated by third parties. The balance of the expenditures allocable to 2012 projects was attributable to the workover of existing wells and the maintenance and improvement of production facilities.

Results of the 4th Quarters of 2012 and 2011

For the three months ended December 31, 2012, Distributable Income was $3,860,972 ($0.082838 per Unit), which was less than the $18,936,560 ($0.406288 per Unit) of income distributed during the same period in 2011. The decrease in Distributable Income resulted primarily from a decrease in the average gas price, but also due to increased capital costs and lease operating expenses in the fourth quarter of 2012. In addition, there was a miscalculation by Burlington for the months of April through July 2012 which caused lease operating expenses and capital expenditures to be understated by approximately 25% (the "2012 Calculation Error"). The 2012 Calculation Error caused capital costs to be understated by $333,644 in July 2012 and to be overstated by a total of $985,356 in August and September 2012 as that error was corrected.

As a result of the 2012 Calculation Error, the Royalty income due the Trust for the four months of April through July 2012 was overpaid by approximately $3,386,861. As permitted under the terms of the Royalty conveyance document, Burlington offset the overpayment against Royalty income payable to the Trust over four consecutive months beginning with August 2012. Royalty income distributions to the Trust were reduced by $742,779 in August, $1,090,583 in September, $767,122 in October and $786,377 in November 2012.

Royalty Income of the Trust for the fourth quarter is based on actual gas and oil production during August through October of each year. Gas and oil sales for the quarters ended December 31, 2012 and 2011 were as follows:

                                               2012            2011
              Underlying Properties
              Gas - Mcf                       7,734,664       8,575,777
              Mcf per Day                        84,072          93,215
              Average Price (per Mcf)       $      3.40     $      4.87
              Oil - Bbls                         12,287          15,590
              Bbls per Day                          134             169
              Average Price (per Bbl)       $     81.26     $     76.03
              Attributable to the Royalty
              Gas - Mcf                       1,179,548       4,218,794
              Oil - Bbls                          1,965           7,594

The average price of gas decreased in the fourth quarter of 2012 compared to the same period of 2011. The price per barrel of oil during the fourth quarter of 2012 was $5.23 higher than that received in the fourth quarter of 2011. Gas production decreased in the fourth quarter of 2012 because new production brought on line in 2012 failed to completely offset the natural decline in production from existing wells.

                                         2012           2011
                      October         $  .054593     $  .122104
                      November           .001119        .135166
                      December           .027126        .149018

                      Quarter Total   $ 0.082838     $ 0.406288