Gulf Coast Ultra Deep Royalty (GULTU) Risk Analysis

Because the holders of Royalty Trust units will be taxed directly on their pro-rata share of the taxable income attributable to the assets of the Royalty Trust and such taxable income could be different in amount than the cash the Royalty Trust distributes, Royalty Trust unitholders will be required to pay any U.S. federal income taxes and, in some cases, state and local income taxes on such taxable income even if they receive no cash distributions from the Royalty Trust. Royalty Trust unitholders may not receive cash distributions from the Royalty Trust equal to their pro-rata share of the taxable income attributable to the assets of the Royalty Trust or even equal to the actual tax liability that results from that income.

Payments out of production that are received by a Royalty Trust unitholder in respect of a mineral royalty interest for U.S. federal income tax purposes are taxable under current law as ordinary income subject to an allowance for cost or percentage depletion in respect of such income. The rules with respect to this depletion allowance are complex and must be computed separately by each Royalty Trust unitholder and not by the Royalty Trust for each natural gas property. As a result, the availability or extent of percentage depletion deductions to the Royalty Trust unitholders for any taxable year is uncertain. The Royalty Trust encourages Royalty Trust unitholders to consult their own tax advisors to determine whether and to what extent percentage depletion would be available to them for both U.S. federal income tax and state income tax purposes.

The Royalty Trust units are a passive investment that entitle the Royalty Trust unitholders only to receive cash distributions, if any, from the overriding royalty interests. Royalty Trust unitholders have no voting rights with respect to HOGA and, therefore, have no managerial, contractual or other ability to influence HOGA's activities or the development or operations of the onshore Highlander subject interest. Additionally, HOGA is not under any obligation to fund or to commit any resources to the exploration or development of the onshore Highlander subject interest.

The Royalty Trust will dissolve on the earliest to occur of (i) June 3, 2033, (ii) the sale of all of the overriding royalty interests, (iii) the election of the Trustee following its resignation for cause (as more fully described in the Royalty Trust Agreement), (iv) a vote of the holders of 66?% or more of the outstanding Royalty Trust units held by persons other than FCX, any of its affiliates, or HOGA, at a duly called meeting of the Royalty Trust unitholders at which a quorum is present, or (v) the exercise by HOGA of the right to call all of the Royalty Trust units as described in the next paragraph. The overriding royalty interests terminate upon the termination of the Royalty Trust, other than in certain limited circumstances where the Royalty Trust has been permitted to transfer the overriding royalty interests to a third party pursuant to the terms of the Royalty Trust Agreement (in which case the overriding royalty interests may extend through June 3, 2033). HOGA has a call right with respect to the outstanding Royalty Trust units at $10 per Royalty Trust unit. In addition, if the Royalty Trust units are then listed for trading or admitted for quotation on a national securities exchange or any quotation system and the volume-weighted average price per Royalty Trust unit is equal to $0.25 or less for the immediately preceding consecutive nine-month period, HOGA may purchase all, but not less than all, of the outstanding Royalty Trust units at a price of $0.25 per Royalty Trust unit so long as HOGA tenders payment within 30 days following the end of such nine-month period.

On February 5, 2019, McMoRan completed the sale of all of its rights, title and interest in and to the onshore Highlander subject interest pursuant to a purchase and sale agreement with HOGA. The onshore Highlander subject interest was sold subject to the overriding royalty interest in future production held by the Royalty Trust. As a result of the Highlander Sale, HOGA has a 72 percent working interest and an approximate 48 percent net revenue interest in the onshore Highlander subject interest. The Royalty Trust continues to hold a 3.6 percent overriding royalty interest in the onshore Highlander subject interest. HOGA is the operator of the Highlander subject interest. The onshore Highlander subject interest is the only subject interest in which HOGA has an interest, as McMoRan previously had relinquished, allowed to expire or sold all of the other subject interests. HOGA may at any time transfer all or part of the onshore Highlander subject interest. The Royalty Trust unitholders are not entitled to vote on any transfer, and the Royalty Trust will not receive any proceeds from the transfer of the subject interest. Following any such transfer, the onshore Highlander subject interest would continue to be subject to the overriding royalty interests, but the net proceeds from the transferred subject interests would be calculated separately and paid by the transferee. Unless HOGA and the transferee agree otherwise, the transferee would be responsible for all of HOGA's obligations relating to the overriding royalty interests on the subject interest transferred, and HOGA would have no continuing obligation to the Royalty Trust for the subject interest. Any purchaser could have a weaker financial position and/or be less experienced in natural gas development and production than HOGA.

HOGA's interests and the interests of the Royalty Trust unitholders are not completely aligned. For example, in setting budgets for development and production expenditures for HOGA's properties, including the onshore Highlander subject interest, HOGA may make decisions that could adversely affect future production from the onshore Highlander subject interest, including a decision not to drill another well on the onshore Highlander subject interest.

Trading in the Royalty Trust units is subject to material limitations as a consequence of regulations that limit the activities of broker-dealers effecting transactions in "penny stocks." Pursuant to Rule 3a51-1 under the Exchange Act, the Royalty Trust units are a "penny stock" because (i) they are not listed on any national securities exchange, (ii) they have a market price of less than $5.00 per unit, and (iii) their issuer (the Trust) has net tangible assets less than $2,000,000 (if the issuer has been in business for at least three years) or $5,000,000 (if the issuer has been in business for less than three years). Rule 15g-9 promulgated under the Exchange Act imposes limitations upon trading activities on "penny stocks," which makes selling the Royalty Trust units more difficult compared to selling securities that are not "penny stocks." Rule 15a-9 restricts the solicitation of sales of "penny stocks" by broker-dealers unless the broker first (i) obtains from the purchaser information concerning his or her financial situation, investment experience, and investment objectives, (ii) reasonably determines that the purchaser has sufficient knowledge and experience in financial matters that the person is capable of evaluating the risks of investing in "penny stocks," and (iii) delivers and receives back from the purchaser a manually signed written statement acknowledging the purchaser's investment experience and financial sophistication. Rules 15g-2 through 15g-6 promulgated under the Exchange Act require broker-dealers who engage in transactions in "penny stocks" first to provide their customers with a series of disclosures and documents, including (i) a standardized risk disclosure document identifying the risks inherent in investing in "penny stocks," (ii) all compensation received by the broker-dealer in connection with the transaction, (iii) current quotation prices and other relevant market data, and (iv) monthly account statements reflecting the fair market value of the securities. Any broker-dealer that initiates quotations for the Royalty Trust units might not continue to do so, and the loss of any such broker-dealer likely would have a material adverse effect on the market price of the Royalty Trust units.

The Royalty Trust units are quoted on the OTCID Basic Market (OTCID), operated by OTC Markets Group, Inc. The OTCID is a significantly more limited market than the national securities exchanges, which could adversely affect the market price, trading volume, liquidity and resale price of the Royalty Trust units. Meanwhile, an active market in the Royalty Trust units may not continue at present levels or increase in the future. In addition, securities that trade on the OTCID may experience more volatility compared to securities that trade on a national securities exchange. This volatility may be caused by a variety of factors, including the lack of readily available price quotations, the absence of consistent administrative supervision of bid and ask quotations, lower trading volumes, and market conditions. Because there is a limited public market for the Royalty Trust units, the market price and trading volume of the Royalty Trust units may be volatile. The Royalty Trust unitholders may experience fluctuations in the market price and volume of the trading market for the Royalty Trust units for many reasons, including, without limitation: - as a result of other risk factors discussed in this Form 10-K;         - the failure of the onshore Highlander subject interest to produce hydrocarbons;         - decisions by HOGA to delay or not to pursue the exploration or development of the onshore Highlander subject interest;         - reasons unrelated to operational performance, such as reports by industry analysts, investor perceptions, or announcements by competitors regarding their own performance;         - legal or regulatory changes that could impact the business of HOGA; and         - general economic, securities markets and industry conditions. Fluctuations in the volume of the trading market may have a negative effect on the market price for the Royalty Trust units. Accordingly, Royalty Trust unitholders may not be able to realize a fair price when they determine to sell their Royalty Trust units or may have to hold them for a substantial period of time until the market for the Royalty Trust units improves, if it does at all. HOGA has a call right with respect to the outstanding Royalty Trust units at $10 per Royalty Trust unit. This call right could impose a ceiling on the price of the Royalty Trust units. In addition, if the Royalty Trust units are then listed for trading or admitted for quotation on a national securities exchange or any quotation system and the volume-weighted average price per Royalty Trust unit is equal to $0.25 or less for the immediately preceding consecutive nine-month period, HOGA may purchase all, but not less than all, of the outstanding Royalty Trust units at a price of $0.25 per Royalty Trust unit so long as HOGA tenders payment within 30 days following the end of such nine-month period. See Part I, Items 1. and 2. "Business and Properties – The Royalty Trust – The Royalty Trust Agreement – HOGA Call Rights" of this Form 10-K. In addition, Royalty Trust unitholders may incur brokerage charges in connection with the resale of the Royalty Trust units, which in some cases could exceed the proceeds realized by a holder from the resale of its Royalty Trust units.