UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to
Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
Check the appropriate box:
| ☐ | Preliminary Proxy Statement | |
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| ☐ | Definitive Proxy Statement | |
| ☐ | Definitive Additional Materials | |
| ☒ | Soliciting Material Pursuant to § 240.14a-12 | |
SAN JUAN BASIN ROYALTY TRUST
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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On November 1, 2016, the San Juan Basin Royalty Trust gave the following presentation to representatives of Institutional Shareholder Services Inc.:
| San Juan
Basin Royalty Trust Compass Bank, Trustee
Presentation to ISS:
Solicitation of Proxies Against
Southwest Bank’s Takeover as Trustee
November 1, 2016
Name Title [telephone] [email] [Month Year] |
 Table of Contents 1. The San Juan Basin Royalty Trust 2. The Trustee Has a Limited Role 3. Neither the Trust Nor the Unit Holders Benefit From a Change in Trustee 4. Compass Bank Is Well Equipped to Serve as Trustee 5. Compass Bank’s Royalty Trust Team 6. Southwest Bank 7. Southwest Bank Does Not Offer Any Substantial Benefit to the Trust 8. Southwest Bank’s Strategy 9. Disclaimer |
| The
San Juan Basin Royalty Trust •
The Trust was formed in 1980, and Compass Bank became the trustee in
2006.
In 2007, BBVA acquired Compass Bank’s parent company. • The Trust’s principal asset is a 75% net overriding royalty interest in certain
oil and gas interests located in the San Juan Basin of New Mexico. The
royalty interest entitles the Trust to receive 75% of the net
proceeds from the oil and gas interests, subject to certain
adjustments. •
Burlington Resources Oil & Gas Company LP, a wholly-owned subsidiary of
ConocoPhillips, is the principal operator of the oil and gas
interests underlying the royalty.
• The Trust has no operations other than receiving royalty revenues and interest income, which it audits and distributes to unit holders periodically.
• The units of the Trust are publicly traded on the New York Stock Exchange. |
| The
Trustee Has a Limited Role •
The Trust, including the duties of the trustee, are governed by a trust
indenture.
• The trustee’s primary function is to collect royalty revenue, pay the
expenses of the Trust and distribute the remainder to the unit holders.
• The trustee may establish cash reserves for future liabilities. • The trustee may engage consultants and legal counsel to audit royalty payments and address public company disclosure and governance requirements. Such expenses are borne by the Trust. • The trustee has no role in operating the oil and gas interests underlying the
royalty. • The fees paid to the trustee are fixed by the trust indenture. |
 Neither the Trust Nor the Unit Holders Benefit from a Change in Trustee
• Southwest Bank points to no defects in Compass Bank’s performance at any time in
Compass Bank’s 10-year tenure as trustee.
Compass Bank has demonstrated that it can administer all aspects of the Trust.
This has been true during the last year since Lee Ann Anderson, a
former Compass Bank trust officer, left to join Southwest
Bank. Compass Bank’s team administering the Trust is robust,
with the right experience, skill set, and size for efficient
administration. This model has worked for over 10 years.
|
 Neither the Trust Nor the Unit Holders Benefit from a Change in Trustee
(cont’d)
• The potential benefits Southwest Bank purports to offer will have no impact on the
Trust or the unit holders and do not merit a change in trustee:
Southwest Bank admits that since trustee fees are defined by the trust
indenture, there is not a significant difference between the fees
charged by Southwest Bank compared to Compass Bank.
Lee Ann Anderson is not an essential component of administration of the Trust.
If Southwest Bank is appointed trustee, it would continue to rely
on the same team of external litigation, audit, accounting and
reserve engineering experts Compass Bank currently uses.
Contrary to Southwest Bank’s implications in its letters to
unit holders, based on the general and administrative expenses of
other trusts administered by Southwest Bank in their SEC filings,
Southwest Bank’s model of “collective trust
administration” does not
have a track record of reducing costs. |
 Compass Bank Is Well Equipped to Serve as Trustee • Compass Bank, together with its consultants and advisors, has administered the
Trust for more than 10 years.
• Trust management is a core business of Compass Bank, which: Administers the Trust with two trust officers supported by 40 trust personnel, in
addition to internal securities law and oil and gas asset expert
support. Has approximately $4.5 billion in managed assets and $3.9
billion in non- managed assets.
• Although the Trust is Compass Bank’s only royalty trust, we believe that a dedicated model of trust administration is superior: We are able to better address the unique elements of the Trust and avoid the
risk of falling into a one-size-fits-all or assembly line
mentality. Southwest Bank’s model of administering multiple
trusts increases the risk of conflicts of interest and favoritism
among trusts in its portfolio. •
Compass Bank’s size is an asset. Compass Bank and its parent, BBVA, have
total capital of $9 billion, compared to Southwest Bank’s
$224 million, as of June 30, 2016.
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 Compass Bank’s Royalty Trust Team • Two trust officers are assigned to the Trust. • Joshua Peterson serves as the primary trust officer. He has a law degree and was a practicing lawyer in the oil and gas industry. He has served as the oil and gas manager for special assets at Compass Bank for nearly 3 years, which involves all aspects of administering oil
and gas assets held in trust.
• The trust officers are supported by a Compass Bank team of 40 additional
trust personnel and a legal department well versed in trust law, SEC and
NYSE requirements.
• In addition, the Compass Bank team is supported by many of the same
legal, oil and gas, accounting and audit experts that Southwest Bank
proposes using.
• Compass Bank’s model of trust administration has worked well for over 10
years. |
 Southwest Bank • A Texas regional bank • Acquired all of its royalty trusteeships in 2014 • Has attempted to acquire the trusteeship of the Trust for several years:
Originally approached Compass Bank in 2014 about taking over as
trustee of the Trust
Attempted again in 2015 when Lee Ann Anderson (a trust officer
overseeing the Trust) left Compass Bank to join Southwest Bank and
proposed, in connection with her departure, that Compass Bank
resign as trustee so that she could take the trusteeship with her
to Southwest Bank
Began the current campaign to remove Compass Bank in August 2016
without advising Compass Bank of any concerns.
• Has only a token ownership interest in the Trust through one of its business
development officers who holds 0.0004% of the outstanding units
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 Southwest Bank Does Not Offer Any Substantial Benefit to the Trust For the expense and effort resulting from its unusual campaign to become
trustee, Southwest Bank offers no substantial benefits to the Trust and the
unit holders.
• It is important to remember that a trustee has a limited role, which is
largely to disburse funds and audit accounts. Southwest Bank can offer no
unique capabilities of substance.
• It is typical—and advisable—for the trustee to rely on outside legal, oil and
gas, accounting and audit experts. Southwest Bank and Ms. Anderson
acknowledge that they would continue to rely on the same experts
that Compass Bank currently uses.
• In recent letters to unit holders, Southwest Bank suggests without specificity or supporting evidence that as trustee it would reduce certain
costs and give a higher interest rate for the Trust. These benefits, if they
materialize, are immaterial to the Trust and the unit holders.
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 Southwest Bank Does Not Offer Any Substantial Benefit to the Trust (cont’d) Lee Ann Anderson is not necessary to the administration of the Trust: • Ms. Anderson left Compass Bank to join Southwest Bank a year ago, and since then,
Compass Bank has ably administered all aspects of the Trust,
including: Addressing all SEC filings, Sarbanes-Oxley Act
requirements, tax reporting and other public company functions,
as well as staying current on accounting and oil and gas
developments; and Prosecuting claims against Burlington and
raising new audit exceptions. |
 Southwest Bank Does Not Offer Any Substantial Benefit to the Trust (cont’d) Lee Ann Anderson is not necessary to the administration of the Trust (cont’d):
• Ms. Anderson was only one member of the robust Compass Bank team that continues to administer the Trust. Southwest Bank acknowledges that Ms. Anderson would simply “reconnect”
with the team of legal, accounting and audit consultants that Ms.
Anderson once relied upon and that Compass Bank currently
engages. Despite all of her claims of experience and
historic knowledge of the Trust, Ms. Anderson has not identified
any concrete improvements she would make in the Trust’s
administration. Southwest Bank also acknowledges that, even if Ms.
Anderson has historic knowledge useful to pending litigation, she
has been available to provide testimony as needed.
Ms. Anderson has no formal business, accounting or legal credentials. Her oil
and gas experience is limited to what she learned as a trust
officer, which is now at least twelve months out of date with
regard to the Trust. •
Although Ms. Anderson has had a long career, she abruptly left the Trust in
2015, and Southwest Bank can give no assurance as to her
continued employment or when she may retire.
|
 Southwest Bank Does Not Offer Any Substantial Benefit to the Trust (cont’d) Southwest Bank’s claimed benefits are insubstantial to the Trust and likely will not materialize:
• In listing its trusteeships, Southwest Bank fails to note that one of its trusts, the Dominion
Resources Black Warrior Trust, has been delisted and is about to be
terminated. •
Southwest Bank provides few details in terms of its plan for the Trust or what
“substantial benefits” it would offer. Given the cost
of Southwest Bank’s campaign, unit holders should expect
concrete and substantive plans to radically improve the administration of the Trust. Southwest Bank does not propose to provide this. • Likewise, despite claims of cost savings, Southwest Bank has provided no details as to the nature of these savings or the basis for their estimates. • According to SEC reports of the trusts Southwest Bank does administer, in the two years that Southwest Bank has served as trustee, no consistent decline in general and administrative expenses is discernible, and in many cases expenses have increased during Southwest Bank’s tenure. • Each of the trusts in Southwest Bank’s portfolio are unique and do not lend themselves to
large-scale cost savings, shared knowledge or other synergies with the
Trust: The trusts have a variety of operators and royalty payors,
each with different accounting systems and operating agreements;
and The trust properties are scattered—located offshore in
the Gulf of Mexico, in Florida, Kansas, Louisiana, Mississippi,
New Mexico, Oklahoma, Texas and Wyoming. •
Given the lack of synergies in its trust portfolio, it is not surprising that
Southwest Bank acknowledges that in order to add another trust it
would need to engage the same team of experts that Compass Bank
currently uses. |
 Southwest Bank Does Not Offer Any Substantial Benefit to the Trust (cont’d) Southwest Bank’s other claimed benefits will have no impact on the Trust or unit
holders: • Southwest Bank did not describe these “benefits” in its proxy statement filed
with the SEC. This suggests that it is now trying to identify concrete benefits
as an afterthought.
• Southwest Bank claims to be able to save the Trust on Sarbanes-Oxley compliance
costs. Since the Trust’s operations are fairly simple, SOX compliance
costs are already immaterial.
• Southwest Bank claims to be able to provide higher interest rates for reserve
funds (without describing the extent of any premium). Even if this proves true,
it would likely result in a difference of only a few thousands
dollars to the Trust because interest income is an insignificant
component of the Trust’s distributable income.
• Compass Bank currently provides individual tax letters to registered unit holders.
There is little more that Southwest Bank could offer in terms of tax reporting.
|
 Southwest Bank Does Not Offer Any Substantial Benefit to the Trust (cont’d) Compass Bank is effectively managing Trust audit exceptions and litigation with
ConocoPhillips: • One of the audit exceptions approved by the current trust officer resulted in a
net credit adjustment to the Trust of about $760,000 in October 2016 alone.
• Ms. Anderson was never a key component of the audit or litigation process:
The claims for which she takes credit were filed based on audit exceptions
identified by outside audit consultants who have been working
with the Trust for approximately 20 years. The same audit
consultants continue to review royalty payments and raise audit
exceptions. Ms. Anderson’s presence or absence would not
change this process. The claims have been litigated by the same
law firm engaged by Compass Bank. Southwest Bank says it would
continue to use this same firm. The current primary trust officer
continues to be actively involved in the litigation and brings
the benefit of legal training and understanding of the oil and
gas industry. He is well versed in the details of the audit process and litigation and will continue to effectively prosecute claims. Ms. Anderson has already provided testimony as to historic periods, where
relevant, and will be available to provide future testimony if needed.
|
 Southwest Bank Does Not Offer Any Substantial Benefit to the Trust (cont’d) Contrary to Southwest Bank’s suggestions, there are no conflicts of interest in
Compass Bank serving as Trustee:
• Neither Compass Bank nor its parent BBVA are aware of any conflicts or potential conflicts of interest that could affect Compass Bank’s administration of the Trust.
• No claims of conflicts of interest have been made. • The fact that Compass Bank aggressively pursues audit exceptions and is pursuing
litigation against ConocoPhillips is proof that Compass Bank does not have
conflicts of interest with ConocoPhillips.
• Compass Bank became the trustee of the Trust in 2006. BBVA acquired Compass Bank in 2007. In that time, there have been no conflicts of interest between the
Trust and the trustee. |
 Southwest Bank’s Strategy • Southwest Bank’s aggressive approach to taking over as trustee is unusual and
detrimental to unit holders, the Trust, and the royalty trust industry
generally. Southwest Bank’s self-interested proxy
campaign has been burdensome to the Trust and Compass
Bank. The Trust estimates it will incur $250,000 to respond to
Southwest Bank’s proxy campaign, including expenses incurred
by Compass Bank in fulfilling its fiduciary duties as trustee.
This amount does not include other
costs incurred by Compass Bank for its own account, which Compass Bank has elected to pay. The costs borne by the Trust result in reduced distributions to unit holders. In
return, Southwest Bank offers only minor, hypothetical benefits.
Southwest Bank appears not to be concerned that its self-interested
campaign is costing the Trust and unit holders.
If Southwest Bank is successful, there is little to keep it from using the same
approach to acquire other trusteeships. Competing banks may be
encouraged to take a similar approach to expanding their trust
portfolios. Changes in trustee would result in substantial,
unnecessary costs imposed on trusts and ultimately unit holders,
with minimal benefit in return. |
|
Disclaimer
In response to the demand by Southwest Bank and Robert Lansford, a senior
business development officer at Southwest Bank, the Trust has
called a special meeting and filed with the U.S. Securities and
Exchange Commission (“SEC”) on October 25, 2016, a
definitive proxy statement in connection with the solicitation of proxies from unit holders of the Trust at the special meeting. The Trust will furnish copies of proxy
materials to the unit holders, together with a BLUE proxy card. UNIT HOLDERS
ARE URGED TO READ CAREFULLY THE PROXY STATEMENT AND ANY OTHER
RELEVANT DOCUMENTS FILED WITH THE SEC AS THEY BECOME AVAILABLE
BECAUSE THEY CONTAIN IMPORTANT INFORMATION. These documents,
including the proxy statement (and amendments and supplements
thereto) and other documents filed by the Trust with the SEC,
will be available for no charge on the SEC’s website at
www.sec.gov and at the Trust’s website at www.sjbrt.com. Copies may also be obtained by contacting Kaye Wilke by phone at (866) 809-4553, by email at sjt.us@bbva.com or by mail at San Juan Basin Royalty Trust, c/o Compass Bank, Trust Department, Attn: Investor Relations, 300 W. 7th Street, Suite B, Fort Worth, Texas
76102. Compass Bank, as trustee of the Trust, may be deemed to be a participant in the
solicitation of proxies in connection with the special meeting. Information
regarding Compass Bank’s interests in the Trust by security
holdings and otherwise is set forth in the Trust’s Annual
Report on Form 10-K for the year ended December 31, 2015, and
in the Trust’s subsequent Quarterly Reports on Form 10-Q.
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