Business Context and Reporting Period
Company: Permian Basin Royalty Trust (PBT)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended March 31, 2021
Trustee: Simmons Bank
Outstanding Units: 46,608,796 (as of May 17, 2021)
The Trust holds net overriding royalty interests in producing oil and gas properties in Texas, specifically the Waddell Ranch properties (75% interest) and Texas Royalty properties (95% interest). The Trust is a passive entity taxed as a grantor trust, with income distributed monthly to unit holders.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Royalty Income | $2,124,157 | $6,254,509 |
| Total Income | $2,125,470 | $6,258,870 |
| General & Administrative Expenses | $(285,740) | $(328,863) |
| Distributable Income | $1,839,730 | $5,930,007 |
| Distributable Income Per Unit | $0.04 | $0.13 |
| Cash and Short-term Investments | $1,637,532 | $1,725,449 (Dec 31, 2020) |
| Net Overriding Royalty Interests (Net) | $373,055 | $382,876 (Dec 31, 2020) |
| Total Assets | $2,010,587 | $2,108,325 (Dec 31, 2020) |
| Distributions Payable | $537,532 | $625,449 (Dec 31, 2020) |
| Commitments and Reserves | $1,100,000 | $1,100,000 (Dec 31, 2020) |
Material Changes vs. Prior Period
- Revenue Decline: Royalty income decreased by approximately 66% year-over-year, dropping from $6.25 million in Q1 2020 to $2.12 million in Q1 2021.
- Waddell Ranch Deficiency: Despite an increase in oil production volumes and higher gas prices, the Waddell Ranch properties generated zero royalty income in Q1 2021. This was caused by a Net Profit Interest (NPI) deficit due to significantly increased capital expenditures ($9.5 million in Q1 2021 vs. $0.5 million in Q1 2020).
- Texas Royalty Properties: These properties contributed the entirety of the Trust's royalty income ($2.12 million) for the quarter.
- Commodity Prices: Average oil prices decreased to $44.08/Bbl in Q1 2021 from $58.13/Bbl in Q1 2020. Average gas prices increased to $2.67/Mcf from $1.60/Mcf.
- Expense Reduction: General and administrative expenses decreased by approximately 13% due to reduced professional service costs and timing of payments.
Outlook, Risks, and Unusual Items
- Cumulative Deficit: As of March 31, 2021, the cumulative NPI deficit for the Waddell Ranch properties is $7,645,016 (at 75%). This deficit must be recovered from future proceeds before any royalties are paid to the Trust from these properties.
- Capital Expenditures: The operator (Blackbeard Operating, LLC) has a 2021 capital expenditure budget of $88.6 million (gross) for the Waddell Ranch properties. High drilling activity continues to suppress distributable income from this asset.
- Commodity Price Risk: The Trust's income is heavily influenced by oil and gas prices, which are subject to global economic conditions, supply/demand shifts, and geopolitical factors. The Trustee notes that future price movements are unpredictable.
- Subsequent Event: On April 20, 2021, the Trust declared a distribution of $0.018156 per Unit, payable on May 14, 2021.
- 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
- Verify the status of the $7.6 million cumulative NPI deficit on the Waddell Ranch properties and the timeline for its recovery.
- Monitor the 2021 capital expenditure budget ($88.6 million gross) for the Waddell Ranch properties to assess future impact on distributable income.
- Review the monthly distribution history to understand the volatility caused by the NPI deficit carry-forward mechanism.
- Confirm the operator's production volumes versus the Trust's actual royalty receipts, noting the lag between production and payment.
- Assess the impact of fluctuating oil prices on the Texas Royalty properties, which currently provide 100% of the Trust's income.