Business Context and Reporting Period
Company: PermRock Royalty Trust (PRT)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2024
Trustee: Argent Trust Company
Business Overview: The Trust is a Delaware statutory trust holding an 80% Net Profits Interest in oil and natural gas properties (the "Underlying Properties") located in the Permian Basin, Texas. The Trust is passive; it has no employees and relies on Boaz Energy II, LLC ("Boaz Energy") as the operator. The Trust distributes substantially all cash receipts to unitholders monthly.
Key Financial Metrics
| Metric | 2024 | 2023 | 2022 |
|---|---|---|---|
| Net Profits Income | $5,959,482 | $7,127,379 | $13,160,845 |
| Total Revenue | $6,018,264 | $7,186,191 | $13,177,436 |
| Distributable Income | $5,161,498 | $6,262,256 | $12,303,956 |
| Distributable Income Per Unit | $0.424259 | $0.514745 | $1.011357 |
| General & Administrative Expenses | $(856,766) | $(923,935) | $(873,480) |
| Cash and Short-Term Investments | $1,612,261 | $1,368,611 | N/A |
| Cash Reserves | $1,000,000 | $1,000,000 | N/A |
| Trust Corpus (Net Profits Interest) | $72,379,939 | $75,876,170 | $80,041,113 |
Production & Pricing (2024):
- Total Production: 346.7 MBoe (Oil: 289.9 MBbls; Natural Gas: 341.1 MMcf).
- Average Realized Price: $65.93/Boe (Oil: $75.33/Bbl; Natural Gas: $2.54/Mcf).
- Proved Reserves (Dec 31, 2024): 1,821.9 MBoe (87% proved developed).
- PV-10 (Standardized Measure): $64,445,500.
Material Changes vs. Prior Period
- Revenue Decline: Net profits income decreased by approximately 16% from 2023 to 2024. This was driven by lower oil and natural gas sales volumes and decreased realized sales prices.
- Production Decline: Total production volumes decreased due to natural decline in production and decreased demand. Average net daily production fell to 950.08 Boe/d in 2024 from 1,047.67 Boe/d in 2023.
- Cost Reductions: Direct operating expenses and lease operating expenses decreased in 2024 compared to 2023, primarily due to fewer capital projects to return wells to production and fewer drilling/recompletion projects.
- Reserve Revisions: A material revision to reserves in 2024 resulted in the recognition of $3,496,231 in amortization of Trust Units. Despite this, no impairment was recorded for the year.
Guidance, Outlook, and Risks
Outlook and Management Commentary
- 2025 Capital Budget: Boaz Energy estimates a $4 million capital budget for 2025, focusing on two new drill wells in Crane County (one producer, one injector), workovers, and waterflood pattern conformance.
- Operational Plans: Plans include participating in non-operated drilling and waterflood conformance in Crane and Glasscock Counties. These plans are subject to modification by a successor operator following a pending sale.
Material Contingencies and Unusual Items
- Pending Sale of Underlying Properties: On January 10, 2025, Boaz Energy entered into a Purchase and Sale Agreement with T2S Permian Acquisition II LLC ("T2S"). Boaz Energy will sell all rights to the Underlying Properties (burdened by the Trust's Net Profits Interest) and its 4,884,861 Trust units to T2S. Closing is anticipated by the end of March 2025. Post-closing, T2S (or an affiliate) will become the operator.
- Legal Proceedings: A long-standing lawsuit (Marston v. Blackbeard Operating) was resolved in the Trust's favor. The Court of Appeals affirmed the trial court's judgment in favor of the defendants on February 5, 2025.
Risk Factors
- Commodity Price Volatility: Distributions are highly sensitive to oil and natural gas prices.
- Depleting Assets: Reserves are depleting; production will diminish over time without successful development.
- Operator Risk: The Trust has no control over operations. The pending sale introduces uncertainty regarding the financial strength and operational strategy of the new operator (T2S).
- Environmental Regulation: Operations are subject to stringent federal, state, and local environmental laws, including those regarding hydraulic fracturing, methane emissions, and water disposal.
Investor Verification Checklist
- Verify Closing of T2S Transaction: Confirm if the sale of the Underlying Properties and Boaz Energy's Trust units to T2S Permian Acquisition II LLC closes as anticipated in March 2025.
- Assess New Operator Strategy: Evaluate the capital expenditure plans and operational priorities of T2S (the new operator) compared to Boaz Energy's historical performance.
- Monitor Commodity Prices: Track realized oil and natural gas prices, as the Trust's 2024 revenue decline was directly linked to price and volume decreases.
- Review Reserve Estimates: Note the 15% increase in proved reserves due to revisions in 2024; verify future reserve reports for consistency in the Peak Victor and Roepke fields.
- Check Distribution Consistency: Monitor monthly distributions to ensure they align with the Trust's cash flow from the Net Profits Interest under the new operator.