Introduction
The following discussion and analysis is intended to help the reader understand the Trust's business, financial condition, results of operations, liquidity and capital resources. This discussion and analysis should be read in conjunction with other sections of this report, including: "Business" in Item 1 and "Financial Statements and Supplementary Data" in Item 8. The discussion and analysis relate to the following subjects: • Trust Termination and Overview: • Recent Developments; • Results of Trust Operations; • Liquidity and Capital Resources; • Critical Accounting Policies and Estimates; and • Off-Balance Sheet Arrangements
Trust Termination and Overview
The following is a brief overview of certain matters discussed more thoroughly elsewhere in this report.
The Trust Agreement requires the Trust to dissolve and commence winding up of its business and affairs if cash available for distribution for any four consecutive quarters, on a cumulative basis, is less than$5.0 million . Pursuant to the Trust Agreement, cash that the Trust receives as proceeds from sales of assets is not included in the calculation of cash available for distribution. As cash available for distribution for the four consecutive quarters endedDecember 31, 2020 , on a cumulative basis, totaled approximately$2.4 million , due in part to Avalon's inability to make theMay 2020 Quarterly Payment to the Trust (as discussed below under "-TheMay 2020 Quarterly Payment"). Because Avalon's inability to make theMay 2020 Quarterly Payment contributed to the insufficient cumulative cash available for distribution over the four-quarter period, the Trustee and Avalon submitted to an arbitration panel, in accordance with the Trust Agreement, the question of whether the Trust nonetheless remains required to dissolve following the end of that period. OnFebruary 25, 2021 , the arbitration panel determined that the existence of the unpaidMay 2020 Quarterly Payment does not alter the requirement of the Trust to terminate under the provisions of the Trust Agreement. As a result, the Trust was required to dissolve and commence winding up beginning as of the close of business onFebruary 26, 2021 . Accordingly, the Trustee is required to sell all of the Royalty Interests, either by private sale or public auction, and distribute the net proceeds of such sale to the Trust unitholders after payment, or reasonable provision for payment, of all Trust liabilities, which is expected to include the establishment of cash reserves in such amounts as the Trustee in its discretion deems appropriate for the purpose of making reasonable provision for all claims and obligations of the Trust, including any contingent, conditional or unmatured claims and obligations, in accordance with the Delaware Statutory Trust Act. The sale process will involve costs that will reduce the amount of any distributions to unitholders during the winding up period. As required by the Trust Agreement, the Trustee has engaged a third-party advisor to assist with the marketing and sale of the Royalty Interests. As provided in the Trust Agreement, Avalon has a right of first refusal with respect to any sale of the Royalty Interests to a third party. The Trustee expects to complete the sale of the Trust's assets by the end of the third quarter of 2021 and distribute the net proceeds of such sale (together with any cash reserves in excess of the amount necessary to pay or provide for the payment of future known, anticipated or contingent expenses or liabilities of the Trust) to the Trust unitholders on the following quarterly payment date, and the Trust units are expected to be canceled shortly thereafter. Pending the sale or sales of the Royalty Interests, and subject to the effective date and other terms of such sale or sales, the Trust anticipates that it will continue to receive income from the royalty interests and will continue to make quarterly distributions to unitholders to the extent there is available cash after payment of Trust expenses and additions to cash reserves. The Trust will remain in existence until the filing of a certificate of cancellation with the Secretary of State of theState of Delaware following the completion of the winding up process. 50 The value of the petroleum reserves attributable to the Trust's Royalty Interests and the amount of cash available for distribution to Trust unitholders are each highly dependent upon the prices realized from the sale of oil, natural gas and NGL. The markets for these commodities are volatile and experienced significant fluctuations during 2019 and have declined sharply in 2020 in response to the economic effects of the dispute over production levels betweenRussia and the members of theOrganization of Petroleum Exporting Countries and the global outbreak of the novel form of coronavirus known as COVID-19. These actions led to an immediate and steep decrease in oil prices, which reached a closing WTI price low of negative$36.98 per barrel of crude oil inApril 2020 . The spot price for WTI crude oil has decreased from$61.17 per barrel onJanuary 2, 2020 to$48.35 per barrel onDecember 31, 2020 . A buildup in inventories, lower global demand, political unrest, or other factors, such as the economic effects of the COVID-19 pandemic, could cause prices forU.S. oil, natural gas and NGL to fluctuate significantly in the future. As a result, prices for oil, natural gas and NGL might not be maintained at a constant level for any significant period of time. TheMay 2020 Quarterly Payment. InApril 2020 , Avalon informed the Trustee that Avalon had been using its commercially reasonable efforts to preserve the oil and gas leases burdened by the Royalty Interests so that in the future, assuming that oil prices returned to a profitable level, the Trust would still hold itsRoyalty Interests, and Trust unitholders might have the opportunity to receive future quarterly distributions. Avalon also informed the Trustee that it believed that continuing production from those Trust Wells required to preserve such leases was preferable to stopping production, as the failure to continue production would result in a termination of Avalon's working interest in such Trust Wells and, therefore, the Royalty Interests, which would have a material adverse effect on the Trust's financial condition. Avalon reported to the Trustee that Avalon therefore used revenues it received during the production period fromDecember 1, 2019 toFebruary 29, 2020 to pay the operating expenses necessary to maintain production from the Trust Wells and to pay oil and gas lessor royalties, as the proceeds attributable to Avalon's net revenue interest in theUnderlying Properties was insufficient to cover all such costs. Avalon had anticipated that revenues from production during the quarterly production period commencingMarch 1, 2020 would be sufficient to fund the quarterly payment to the Trust for the quarter endedMarch 31, 2020 in the amount of approximately$4.65 million (the "May 2020 Quarterly Payment"); however, revenues from production during that quarterly production period were insufficient to generate the cash needed to make theMay 2020 Quarterly Payment to the Trust due to the sharp drop in crude oil prices during the first quarter of 2020. Consequently, the Trustee was unable to make any quarterly distribution to unitholders at the end ofMay 2020 . In accordance with Section 5.02 of the Conveyances, the unpaidMay 2020 Payment amount due and owing to the Trust has been accruing interest sinceMay 15, 2020 at the rate of interest per annum publicly announced from time to time byThe Bank of New York Mellon Trust Company, N.A. as its "prime rate" in effect at its principal office inNew York City until paid to the Trust. The accrued interest fromMay 15, 2020 toDecember 31, 2020 was approximately$94,000 . As ofDecember 31, 2020 , Avalon had not paid any of theMay 2020 Quarterly Payment, or any interest accrued thereon through such date, to the Trust. OnMarch 1, 2021 , the Trust and Avalon entered into a repayment agreement setting forth the terms by which Avalon has agreed to pay theMay 2020 Quarterly Payment to the Trust, together with accrued interest (the "Repayment Agreement"). Beginning with the quarterly distribution paid to Trust unitholders on or aboutFebruary 26, 2021 (the "February Distribution"), Avalon will apply towards the payment of theMay 2020 Quarterly Payment the full amount of each quarterly cash distribution, if any, to which Avalon, as a unitholder of the Trust, is entitled (each such cash distribution, a "Company Distribution Amount"), until theMay 2020 Quarterly Payment, together with accrued interest, has been paid in full to the Trust, subject to any obligations Avalon may have to repay the WaFed Loan that are not waived as provided in the Repayment Agreement. Promptly upon receipt, Avalon deposited the$984,375 received as its portion of the February Distribution into a repayment account established by the Trustee on behalf of the Trust (the "Repayment Account") pursuant to the terms of the Repayment Agreement. Avalon will deposit each additional Company Distribution Amount into the Repayment Account promptly, but in no event later than the next business day, after the Company's receipt of any such Company
Distribution Amount. 51 The Repayment Agreement also provides that if any third party agrees to acquire Avalon, whether pursuant to a merger, consolidation, purchase of all or substantially all of the assets of Avalon, or other similar transaction or series of transactions (an "Avalon Sale Transaction"), then, subject to any obligations Avalon may have to repay the WaFed Loan in connection with any such transaction that is not waived as provided in the Repayment Agreement, Avalon will pay to the Trust from cash received in an Avalon Sale Transaction an amount equal to (i) the difference between (A) the aggregate amounts deposited in the Repayment Account pursuant to the Agreement at the time the Avalon Sale Transaction is consummated and (B) the then outstanding balance of theMay 2020 Quarterly Payment together with all accrued and unpaid interest thereon to the date of payment of such outstanding balance (the "Balance Amount") or (ii) where the amount of cash received in the Avalon Sale Transaction is less than the Balance Amount, all of the cash received in the Avalon Sale Transaction. Avalon agrees that it will pay such amount to the Trust promptly, but in no event later than the next business day, after the closing of any suchAvalon Sale Transaction. If Avalon is unable to pay the Balance Amount in full upon the closing of an Avalon Sale Transaction, Avalon has agreed, subject to any obligations Avalon may have to repay the WaFed Loan in connection with any such transaction that are not waived as provided in the Repayment Agreement, to pledge to the Trust, to secure the payment of the outstanding portion of the Balance Amount, any non-cash consideration that Avalon receives from such Avalon Sale Transaction or similar transaction. Results of Trust Operations
Results of the
The primary factors affecting the Trust's revenues and costs are the quantity of oil, natural gas and NGL production attributable to the Royalty Interests and the prices received for such production. Royalty income, post-production expenses and certain taxes are recorded on a cash basis when the Trust receives net revenue distributions from Avalon. Information regarding the Trust's revenues, expenses, production and pricing for the years endedDecember 31 ,
2020 and 2019 is presented below. Year Ended December 31, 2020 (1) 2019 (2) Production data Oil (MBbls) 241 414 NGL (MBbls) 29 57 Natural gas (MMcf) 107 181
Combined equivalent volumes (MBoe)(3) 288 501 Average daily total volumes (MBoe/d) 1.0 1.4 Well data Initial and Trust Development Wells producing - average 863
1,035
Revenues (in thousands) Royalty income$ 9,704 $ 22,442 Proceeds from sale of Trust assets 4,874
- Total revenue$ 14,578 $ 22,442 Expenses (in thousands) Post-production expenses $ 33$ 50 Property taxes 2,979 - Production taxes 465 1,061 Franchise taxes 36 47
Trust administrative expenses 1,985
1,734
Cash reserves (used) withheld for current Trust expenses, net of amounts withheld (used)
(2,391 )
2,261
Total expenses$ 3,107 $ 5,153 Less proceeds from sale of Trust assets 4,874 - Distributable income available to unitholders$ 6,597
$ 17,289 Average prices Oil (per Bbl)$ 38.10 $ 50.77 NGL (per Bbl)$ 14.82 $ 20.00 Natural gas (per Mcf)$ 0.68 $ 1.22 Total (per Boe)$ 33.68 $ 44.66 Average prices - including impact of post-production expenses Natural gas (per Mcf)$ 0.37 $ 0.95 Total (per Boe)$ 33.56 $ 44.56 Expenses (per Boe) Post-production$ 0.11 $ 0.10 Production taxes$ 1.62 $ 2.12 52
(1) Production volumes and related revenues and expenses for the year ended
oil, natural gas and NGL production from
2019 and
payment to the Trust for the production period fromDecember 1, 2019 toFebruary 29, 2020 .
(2) Production volumes and related revenues and expenses for the year ended
oil, natural gas and NGL production fromSeptember 1, 2018 toAugust 31, 2019 .
(3) Barrel of oil equivalent, determined using the ratio of six Mcf of natural
gas to one Bbl of oil, which approximates the relative energy content of oil
as compared to natural gas.
Comparison of Results of the
Revenues Royalty Income. Royalty income is a function of production volumes attributable to the Royalty Interests sold and associated prices received by Avalon. Royalty income received during the year endedDecember 31, 2020 totaled$9.7 million compared to$22.4 million received during the year endedDecember 31, 2019 . The decrease is partially the result of Avalon's failure to pay proceeds owed to the Trust for the production period fromDecember 1, 2019 toFebruary 29, 2020 in the amount of approximately$4.7 million . Of the remaining portion of the decrease in royalty income, approximately$3.3 million was attributable to a decrease in prices received from the sale of oil, gas and NGL attributable to the Royalty Interests and approximately$4.7 million was attributable to a decrease in total volumes produced from wells burdened by the Royalty Interests. Expenses
Post-Production Expenses. The Trust bears post-production expenses related to production attributable to the Royalty Interests. Post-production expenses generally consist of costs incurred to gather, store, compress, transport, process, treat, dehydrate and market, as applicable, the oil, natural gas and NGL produced from wells burdened by and attributable to the Royalty Interests. Post-production expenses for the year endedDecember 31, 2020 decreased to approximately$33,000 from approximately$50,000 for the year endedDecember 31, 2019 primarily as a result of a decrease in gas production volumes. Property Taxes. Property taxes paid during the year endedDecember 31, 2020 were approximately$3.0 million , which related to 2020 and 2019 property taxes. No property tax payments were made during 2019, as approximately$1.7 million in 2019 property taxes were paid inJanuary 2020 . Production Taxes. Production taxes are calculated as a percentage of oil, natural gas and NGL revenues, excluding the net amount of any applicable tax credits. Production taxes for the year endedDecember 31, 2020 totaled$0.5 million , or$1.62 per Boe, and were approximately 4.8% of royalty income. Production taxes for the year endedDecember 31, 2019 totaled$1.1 million , or$2.12 per Boe, and were approximately 4.7% of royalty income. Texas Franchise Tax. The Trust paid itsTexas franchise tax for the year endedDecember 31, 2019 of approximately$36,000 , or approximately 0.2% of 2019 royalty income, during the year endedDecember 31, 2020 . The Trust paid itsTexas franchise tax for the year endedDecember 31, 2018 of approximately$47,000 , or approximately 0.2% of 2018 royalty income, during the year endedDecember 31, 2019 . The Trust's estimatedTexas franchise tax for the year endedDecember 31, 2020 of approximately 0.2% of 2020 royalty income, is expected to be paid during the year endingDecember 31, 2021 . 53 Distributable Income
Distributable income for the year endedDecember 31, 2020 was$6.6 million , which included a net reduction of approximately$2.4 million to the cash reserve for the payment of future Trust expenses reflecting approximately$5.0 million used to pay Trust expenses during the period partially offset by approximately$2.6 million withheld in aggregate from 2020 cash distributions to Trust unitholders. Distributable income for the year endedDecember 31, 2019 was$17.3 million , which included a net addition of approximately$2.3 million to the cash reserve for the payment of future Trust expenses reflecting approximately$4.0 million withheld in aggregate from 2019 cash distributions to Trust unitholders partially offset by approximately$1.7 million used to pay Trust expenses during the period.
Liquidity and Capital Resources
The Trust has no source of liquidity or capital resources other than cash flow generated from the Royalty Interests and borrowings as needed to fund administrative expenses, including any amounts borrowed from Avalon, under the loan commitment described in Note 6 to the financial statements contained in Item 8 of this report, or from the Trustee. The Trust's primary uses of cash are distributions to Trust unitholders, payment of Trust administrative expenses, including any reserves established by the Trustee for future liabilities, payment of applicable taxes, and payment of expense reimbursements to Avalon for out-of-pocket expenses incurred on behalf of the Trust. The Trust is not obligated to pay any operating expenses or capital costs related to the operation of the wells. Administrative expenses include payments to the Trustee and theDelaware Trustee, as well as a quarterly fee of$75,000 to Avalon pursuant to the terms of the Administrative Services Agreement. Each quarter, the Trustee determines the amount of funds available for distribution. Available funds are the excess cash, if any, received by the Trust from the sale of production attributable to the Royalty Interests that quarter, over the Trust's expenses for the quarter. If at any time the Trust's cash on hand (including available cash reserves) is not sufficient to pay the Trust's ordinary course administrative expenses as they become due, the Trust may borrow funds from the Trustee or other lenders, including Avalon (pursuant to the terms set forth in the Trust Agreement), to pay such expenses. The Trustee has not loaned and does not intend to lend funds to the Trust. Pursuant to the Trust Agreement, if at any time the Trust's cash on hand (including available cash reserves) is not sufficient to pay the Trust's ordinary course administrative expenses as they become due, Avalon will, at the Trustee's request, loan funds to the Trust necessary to pay such expenses. Any funds loaned by Avalon pursuant to this commitment will be limited to the payment of current accounts payable or other obligations to trade creditors in connection with obtaining goods or services or the payment of other current liabilities arising in the ordinary course of the Trust's business, and may not be used to satisfy Trust indebtedness, or to make distributions. If Avalon loans funds pursuant to this commitment, no further distributions will be made to unitholders (except in respect of any previously determined quarterly cash distribution amount) until such loan is repaid in full, with interest, unless Avalon consents to any further distributions. Any such loan will be on an unsecured basis, and the terms of such loan will be substantially the same as that which would be obtained in an arm's length transaction between Avalon
and an unaffiliated third party. Commencing with the distribution to Trust unitholders paid in the first quarter of 2019, the Trustee has withheld the greater of$190,000 or 3.5% of the funds otherwise available for distribution to Trust unitholders each quarter to gradually increase cash reserves for the payment of future known, anticipated or contingent expenses or liabilities by a total of approximately$3,275,000 . In 2019 and 2020, the Trustee withheld$760,000 and$570,000 , respectively, from the funds otherwise available for distribution. In light of the fact that there would be no distribution from production for the three-month period endedDecember 31, 2020 (with respect to production attributable to the Trust's Royalty Interest fromSeptember 1, 2020 toNovember 30, 2020 ), the Trustee withheld approximately$884,000 , the remaining amount needed to reach its targeted cash reserve, in connection with the cash distribution made inFebruary 2021 from funds received by the Trust as fair value for the portion of the Trust's Royalty Interests required to be released in connection with the Montare Sale. The Trustee may increase or decrease the targeted cash reserve amount at any time, and may increase or decrease the rate at which it withholds funds to build the cash reserve at any time, without advance notice to Trust unitholders. 54 Following the closing of the Sale Transaction, the Trust is highly dependent on Avalon for multiple services, including the operation of the wells burdened by the Royalty Interests, remittance of net proceeds to the Trust from the sale of hydrocarbon production attributable to the Royalty Interests, administrative services such as accounting, tax preparation, bookkeeping and reporting services performed on behalf of the Trust, and potentially for loans to pay Trust administrative expenses. Avalon is a relatively new oil and gas company formed inAugust 2018 with no prior operating history. Avalon's ability to continue operating theUnderlying Properties depends on its future financial condition and economic performance, access to capital, and other factors, many of which are out of Avalon's control. If the reduced demand for crude oil in the global market resulting from the economic effects of the coronavirus pandemic and the dramatic reduction from mid-February to lateApril 2020 in the benchmark price of crude oil, which continued to fluctuate through 2020, persist for the near term or longer, such factors are likely to continue to have a negative impact on Avalon's financial condition. This negative impact could affect Avalon's ability to operate the wells and provide services to the Trust.
Trust Distributions to Unitholders. During the years ended
Covered Production Total Period Date Declared Date Paid Distribution Paid (in millions)
Calendar Quarter 2020 September 1, 2019 - November 30, First Quarter 2019 January 23, 2020 February 22, 2020 $ 4.2 December 1, 2019 - February 29, Second Quarter (1) 2020 April 23, 2020 N/A - March 1, 2020 - Third Quarter May 31, 2020 July 23, 2020 August 31, 2020 $ 0.6 June 1, 2020 - Fourth Quarter August 31, 2020 October 22, 2020 November 25, 2020 $ 1.7Calendar Quarter 2019 September 1, 2018 - November 30, First Quarter 2018 January 24, 2019 February 22, 2019 $ 5.0 December 1, 2018 - February 28, Second Quarter 2019 April 25, 2019 May 24, 2019 $ 3.7 March 1, 2019 - Third Quarter May 31, 2019 July 24, 2019 August 23, 2019 $ 4.7 June 1, 2019 - Fourth Quarter August 31, 2019 October 24, 2019 November 24, 2019 $ 3.8
(1) Avalon did not make a distribution of revenue to the Trust for the
production period from
OnFebruary 28, 2021 , the Trust paid a cash distribution of$0.075 per Trust unit reflecting the fair value to the Trust, less cash reserves withheld by the Trustee, received by the Trust for the portion of the Trust's Royalty Interests required to be released in connection with the Montare Sale. There was no distribution paid for the three-month period endedDecember 31, 2020 , which primarily related to production attributable to the Trust's royalty interests fromSeptember 1, 2020 toNovember 30, 2020 , as costs, charges and expenses attributable to theUnderlying Properties were more than the revenue received from the sale of oil, natural gas and other hydrocarbons produced from such properties, as reported by Avalon. Continued relatively low oil, natural gas, and NGL prices will reduce proceeds to which the Trust is entitled and may ultimately reduce the amount of oil, natural gas and NGL that is economic to produce from theUnderlying Properties . As the Trust cannot acquire or cause additional wells to be drilled on its behalf, the production from theUnderlying Properties attributable to the Royalty Interests is expected to decline each quarter during the remainder
of the Trust's life. Contractual Obligations. Pursuant to the terms of the Administrative Services Agreement, the Trust is obligated to pay Avalon an annual administrative services fee of$300,000 ($75,000 payable quarterly in arrears) for accounting, tax preparation, bookkeeping, and informational services to be performed on behalf of the Trust for the remaining life of the Trust. Pursuant to the Trust Agreement, the Trust pays the Trustee an annual administrative fee, which untilApril 1, 2017 was$150,000 . The annual fee can be adjusted for inflation by no more than 3% in any year through 2030. The annual administrative fee, which was adjusted for inflation inJuly 2020 , currently is approximately$163,000 . In addition, under the Trust Agreement the Trust is obligated to pay theDelaware Trustee an annual fee of$2,400 throughout the life of the Trust. 55
Critical Accounting Policies and Estimates
The financial statements of the Trust are significantly affected by its basis of accounting and estimates related to the Royalty Interests and proved reserves, as summarized below. Basis of Accounting. The financial statements of the Trust differ from financial statements prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP") as the Trust records revenues when cash is received (rather than when earned) and expenses when paid (rather than when incurred) and may also establish cash reserves for contingencies, which would not be accrued in financial statements prepared in accordance with GAAP. This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by theSEC as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts. Amortization of investment in the Royalty Interests, calculated on a unit-of-production basis, and any impairment thereto is charged directly to trust corpus. Distributions to Trust unitholders are recorded when declared. Because the Trust's financial statements are prepared on a modified cash basis, most accounting pronouncements are not applicable to the Trust's financial statements. Proved Reserves. The proved oil, natural gas and NGL reserves attributable to the Royalty Interests are estimated by independent petroleum engineers. Estimates of proved reserves are based on the quantities of oil, natural gas and NGL that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions. However, there are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future revenues, production volumes, rates of production and timing of development expenditures, including many factors beyond the Trust's control. Estimating reserves is very complex and relies on assumptions and subjective interpretations of available geologic, geophysical, engineering and production data, and the accuracy of reserve estimates is a function of the quality and quantity of available data, engineering and geological interpretation and judgment. In addition, as a result of volatility of changing market conditions, commodity prices will vary from period to period, causing estimates of proved reserves to vary, as well as causing estimates of future net revenues to vary. Estimates of proved reserves are key components of the Trust's most significant financial estimates as discussed further below. Amortization of Investment in Royalty Interests. Amortization of investment in the Royalty Interests is calculated on a calendar-based units-of-production basis, whereby the Trust's cost basis is divided by the proved reserves attributable to the Royalty Interests to derive an amortization rate per reserve unit. The rate used to record amortization is dependent upon the estimate of total proved reserves attributable to the Royalty Interests, which incorporates various assumptions and future projections. If the estimates of total proved reserves decline significantly, the rate at which the Trust records amortization would increase, reducing trust corpus. Such a decline in reserves may result from lower commodity prices, which may make it uneconomic for Avalon to produce from theUnderlying Properties , or from other factors, including changes to estimates for other reasons. Changes in reserve quantity estimates are dependent on future economic and operational conditions and cannot be predicted. Impairment of Investment in Royalty Interests. The investment in the Royalty Interests is assessed to determine whether net capitalized cost is impaired whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Potential impairments of the investment in the Royalty Interests are determined by comparing the net capitalized costs of investment in the Royalty Interests to undiscounted future net revenues attributable to the Trust's interest in the proved oil, natural gas and NGL reserves attributable to the Royalty Interests. The Trust provides a write-down to the extent that the net capitalized costs exceed the fair value of the Royalty Interests, which is determined using either a market-based or income-based approach, depending on which is deemed more relevant in the circumstances. The income-based approach uses future cash flows of the oil, natural gas and NGL reserves attributable to the Royalty Interests, discounted at a relevant market participant discount rate. Different pricing assumptions or discount rates could result in a different calculated impairment. During the year endedDecember 31, 2020 , due to the decline in oil and gas prices, the Trust recorded impairments in the carrying value of the Investment in Royalty Interests in aggregate of$83.5 million . The impairments resulted in non-cash charges to trust corpus and did not affect the Trust's distributable income. No impairments were recorded in 2019. Material write-downs in subsequent periods may occur if commodity prices decline significantly on a sustained basis.
Refer to Note 3 to the financial statements included in Item 8 of this report for the Trust's significant accounting policies.
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