Business Context and Reporting Period
Company: Permianville Royalty Trust (PVL)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2019
Structure: A Delaware statutory trust holding an 80% net profits interest in oil and natural gas properties in Texas, Louisiana, and New Mexico. The Trust is passive; it has no management control over operations, which are managed by third-party operators and the Sponsor, COERT Holdings 1 LLC.
Outstanding Units: 33,000,000 as of August 9, 2019.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 |
|---|---|---|
| Distributable Income | $3,304,785 | $4,350,388 |
| Distributable Income Per Unit | $0.100145 | $0.131830 |
| Income from Net Profits Interest | $3,316,206 | $4,571,710 |
| Income from Sale/Lease of Acreage | $177,292 | $177,292 |
| General & Administrative Expenses | $(177,275) | $(553,201) |
| Cash and Cash Equivalents | $751,969 (as of June 30, 2019) | |
| Total Assets | ||
| Net Profits Interest (Net) | $80,100,892 (as of June 30, 2019) | |
| Total Liabilities | ||
| Advances to Trust | $69,500 (as of June 30, 2019) | |
| Trust Corpus |
Material Changes vs. Prior Period
Three Months Ended June 30, 2019 vs. 2018:
- Distributable Income: Decreased 25% to $3.3 million from $4.4 million.
- Oil Sales: Decreased 12% to $8.9 million. While production volumes increased 15% (due to three new wells and delayed payments from prior periods), realized oil prices dropped 24% to $45.11/Bbl from $59.06/Bbl.
- Natural Gas Sales: Increased 9% to $3.8 million due to higher realized prices ($3.22/Mcf vs $2.83/Mcf), offsetting a 4% volume decline.
- Development Expenses: Increased significantly by 3,158% to $2.2 million, driven by workovers and completion costs for three new horizontal wells.
- Lease Operating Expenses: Decreased 26% to $4.7 million due to reduced workover and maintenance activity.
Six Months Ended June 30, 2019 vs. 2018:
- Distributable Income: Decreased 36% to $4.4 million from $6.8 million.
- Production Volumes: Oil volumes decreased 27% and natural gas volumes decreased 25%. This variance is partially attributed to the 2018 period including eight months of results (due to a prior period shortfall) compared to six months in 2019.
- Realized Prices: Oil prices realized decreased 7% to $47.83/Bbl; natural gas prices realized increased 3% to $2.92/Mcf.
- Development Expenses: Increased 40% to $3.5 million due to new well completions.
Outlook, Risks, and Management Commentary
Outlook and Capital Expenditures:
- The outlook for 2019 development activity is uncertain due to commodity price volatility.
- The Sponsor anticipates 2019 capital expenditures attributable to the Trust's interest to range between $3 million and $6 million.
- Recent oil price declines could lead to a pullback in capital expenditures by operators.
Liquidity and Financing:
- The Trust holds $751,969 in cash as of June 30, 2019.
- COERT has provided a $1.2 million letter of credit to cover administrative expenses if cash is insufficient. No amounts have been drawn.
- An advance of $69,500 from COERT was outstanding as of June 30, 2019, but was repaid in July 2019.
- A $750,000 holdback amount from a 2017 divestiture is retained by the Trustee until October 2019 to cover potential indemnification obligations.
Risks and Contingencies:
- Commodity Prices: Distributions are highly sensitive to oil and natural gas prices and price differentials.
- Production Decline: As a royalty trust, production volumes naturally decline over time unless offset by new development.
- Operator Control: The Trust has no control over the timing or cost of development activities, which are managed by third-party operators.
- Termination: The Trust may dissolve if annual cash proceeds fall below $2 million for two consecutive years.
Investor Verification Checklist
- Price Realization: Verify the widening differential between NYMEX benchmark prices and realized wellhead prices, which significantly impacted revenue despite volume increases in Q2.
- Development Activity: Confirm the status and production contribution of the three new horizontal wells completed in the Permian area.
- Holdback Release: Monitor the release of the $750,000 holdback amount in October 2019 and whether it is distributed or retained as a reserve.
- Operator Budgets: Assess operator capital expenditure plans for the remainder of 2019 given recent oil price volatility.
- Amortization Impact: Note that amortization is charged directly to Trust Corpus and does not affect distributable income, but reduces the book value of the trust.