Business Context and Reporting Period
Company: Permian Basin Royalty Trust (PBT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2026
Trustee: Argent Trust Company
Outstanding Units: 46,608,796
The Trust is a passive entity holding net overriding royalty interests in oil and gas properties in Texas. It does not engage in business operations but distributes net proceeds from royalties to unitholders. The Trust's income is heavily influenced by commodity prices and the operational performance of the underlying properties (Waddell Ranch and Texas Royalty properties).
Key Financial Metrics
| Metric | Three Months Ended June 30, 2026 |
Three Months Ended June 30, 2025 |
Six Months Ended June 30, 2026 |
Six Months Ended June 30, 2025 |
|---|---|---|---|---|
| Royalty Income | $4,158,812 | $3,089,889 | $7,709,894 | $6,144,586 |
| Total Income | $4,175,131 | $3,105,640 | $7,743,089 | $6,176,860 |
| General & Admin Expenses | $(304,569) | $(708,385) | $(845,726) | $(1,183,393) |
| Distributable Income | $3,870,562 | $2,397,255 | $6,897,363 | $4,993,467 |
| Distributable Income per Unit | $0.08 | $0.05 | $0.15 | $0.11 |
| Cash and Short-term Investments | $2,249,988 (as of June 30, 2026) | |||
| Net Overriding Royalty Interests (Net) | $161,721 (as of June 30, 2026) | |||
| Commitments and Reserves | $1,100,000 (as of June 30, 2026) |
Material Changes vs. Prior Period
- Revenue Increase: Royalty income increased by 34.6% for the quarter and 25.5% for the six-month period compared to the prior year. This increase is primarily driven by two partial settlement payments of $1.125 million each received from Blackbeard (operator of Waddell Ranch properties) in January and April 2026.
- Expense Reduction: General and administrative expenses decreased significantly (57% for the quarter, 28% for the six months) due to lower legal fees associated with the Blackbeard litigation, which were higher in the prior year.
- Commodity Prices: Average realized oil prices for Waddell Ranch properties decreased to $68.79/Bbl (Q2 2026) from $70.27/Bbl (Q2 2025). Texas Royalty oil prices increased to $74.46/Bbl from $68.61/Bbl. Gas prices declined for both property groups.
- Production Volumes: Oil and gas volumes for Waddell Ranch properties increased compared to the prior year, while volumes for Texas Royalty properties decreased.
Guidance, Outlook, Risks, and Unusual Items
Business Combination Proposal
On July 28, 2026, SoftVest, L.P. (a unitholder) and affiliates entered into a definitive Combination Agreement with Blackbeard Holdings, LLC to combine the Trust's assets with Blackbeard's assets to form a new publicly traded corporation, "PBT Land and Minerals, Inc." (New PBT). This transaction requires a vote of Trust Unitholders. The Trustee is not a party to the agreement and makes no recommendation.
Legal Proceedings and Settlements
Blackbeard Settlement: A $9 million settlement regarding royalty calculation disputes was reached in August 2025. Payments are being made in installments. If the Business Combination closes, the settlement agreement will be assigned to New PBT and expire.
Trust Indenture Amendment: On May 8, 2026, a court approved amendments to the Trust Indenture requested by SoftVest. These amendments lower the voting threshold for future amendments from 75% to a simple majority, facilitating the proposed Business Combination.
Operational Risks and Contingencies
- Excess Costs: The Waddell Ranch properties remain in a deficit position due to "excess costs" (costs exceeding revenues). As of June 30, 2026, cumulative excess costs net to the Trust were approximately $39.7 million, plus accrued interest of $6.3 million. These must be recovered from future net proceeds before royalties are paid.
- Commodity Price Volatility: Income is highly sensitive to oil and gas prices, which are subject to geopolitical events (e.g., conflicts in Eastern Europe and the Middle East) and global supply/demand dynamics.
- Liquidity: The Trust is a passive entity with no borrowing capacity other than for specific liabilities. Liquidity depends entirely on royalty receipts.
Investor Verification Checklist
- Business Combination Terms: Review the Form S-4 and proxy statement filed by New PBT to understand the exchange ratio, valuation, and risks of the proposed merger with Blackbeard.
- Excess Cost Recovery: Monitor the status of the $46 million+ (including interest) deficit on Waddell Ranch properties, as this delays future royalty distributions from that asset.
- Settlement Payment Schedule: Verify the receipt of remaining settlement payments from Blackbeard ($1.125 million in July and the remainder in October 2026, contingent on the merger status).
- Trust Indenture Changes: Understand the implications of the May 2026 amendment allowing majority-vote changes to the Trust Indenture, which reduces unitholder protection against future structural changes.
- Operator Reporting: Note that Waddell Ranch royalty income reporting is one month in arrears and subject to operator (Blackbeard) calculations of net proceeds.