Business Context and Reporting Period
Company: Permian Basin Royalty Trust (PBT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2023
Trustee: Argent Trust Company (effective December 30, 2022)
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 activities other than holding these assets. Income is derived from a 75% net overriding royalty on the Waddell Ranch properties and a 95% net overriding royalty on Texas Royalty properties.
Key Financial Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Royalty Income | $3,317,431 | $27,323,759 | $14,598,202 | $39,032,624 |
| Interest Income | $24,119 | $11,452 | $61,191 | $14,470 |
| Total Income | $3,341,550 | $27,335,211 | $14,659,393 | $39,047,094 |
| G&A Expenses | $(139,520) | $(136,712) | $(955,607) | $(755,594) |
| Distributable Income | $3,202,030 | $27,198,499 | $13,703,786 | $38,291,500 |
| Distributable Income per Unit | $0.07 | $0.58 | $0.29 | $0.82 |
| Cash & Short-term Investments | $2,146,065 | $2,855,444 | (As of Sep 30, 2023) | |
| Net Overriding Royalty Interests | $159,433 | $279,433 | (As of Sep 30, 2023) | |
| Total Assets | $2,305,498 | $3,134,877 | (As of Sep 30, 2023) |
Material Changes vs. Prior Period
- Significant Revenue Decline: Royalty income dropped 87.8% in Q3 2023 compared to Q3 2022 ($3.3M vs $27.3M). For the nine-month period, the decline was 62.6% ($14.6M vs $39.0M).
- Waddell Ranch Deficit: The primary driver of the decline was zero royalty income from the Waddell Ranch properties in Q3 2023. High capital expenditures and operating costs resulted in a Net Profits Interest (NPI) deficit, meaning costs exceeded revenues for the period. A cumulative NPI deficit of $213,227 (at 75%) existed as of September 3, 2023, which must be recovered before future distributions from these properties.
- Commodity Prices: Average oil prices fell from $108.75/Bbl in Q3 2022 to $70.82/Bbl in Q3 2023. Average gas prices dropped from $6.60/Mcf to $2.06/Mcf.
- Production Volumes: Despite price declines, production volumes increased. Oil sales from underlying properties rose to 775,044 Bbls in Q3 2023 from 612,050 Bbls in Q3 2022. Gas sales increased to 4,281,577 Mcf from 3,434,117 Mcf.
- Capital Expenditures: Gross capital expenditures on Waddell Ranch properties were $31.8M in Q3 2023, slightly down from $34.7M in Q3 2022. However, for the nine months ended Sep 30, 2023, expenditures were $96.7M compared to $87.3M in the prior year period.
Outlook, Risks, and Commentary
- Commodity Price Sensitivity: The Trust's income is heavily dependent on oil and gas prices, which are volatile and subject to global economic conditions, geopolitical conflicts (e.g., Ukraine, Israel/Hamas), and OPEC production decisions.
- Deficit Recovery: Future distributions from the Waddell Ranch properties are contingent upon recovering the current NPI deficit. Until this deficit is cleared, no royalty income will be generated from these assets regardless of production levels.
- Subsequent Event: On October 20, 2023, the Trust declared a distribution of $0.042862 per Unit, payable November 14, 2023, to holders of record on October 31, 2023.
- Accounting Basis: Financial statements are prepared on a modified cash basis, not GAAP. Revenues are recorded when paid, and expenses when paid.
Investor Verification Checklist
- NPI Deficit Status: Verify the current status of the Net Profits Interest deficit on the Waddell Ranch properties and the timeline for recovery.
- Operator Capital Plans: Review Blackbeard Operating's approved 2023 capital budget ($96.8M gross) and actual spending to assess future cost pressures on royalty income.
- Commodity Price Exposure: Monitor current oil and gas prices relative to the Trust's break-even thresholds, given the significant price drop from 2022 levels.
- Production Trends: Confirm if the increase in production volumes (oil and gas) is sustainable or if it is offset by declining well productivity.
- Trustee Changes: Note the transition to Argent Trust Company as the new trustee effective December 30, 2022, and review any operational changes resulting from this transition.