PermRock Royalty Trust: Q1 2024 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2024, for PermRock Royalty Trust (PRT), a Delaware statutory trust. The Trust holds an 80% Net Profits Interest in oil and natural gas properties (the Underlying Properties) located in the Permian Basin, Texas, conveyed by Boaz Energy II, LLC. The Trust is a passive entity with no management control over operations and distributes substantially all cash receipts to unitholders. As of May 14, 2024, there were 12,165,732 trust units outstanding.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net Profits Income | $1,296,408 | $2,366,677 |
| Total Revenue (Net Profits + Interest) | $1,311,370 | $2,380,404 |
| Distributable Income | $1,122,502 | $2,203,286 |
| Distributable Income Per Unit | $0.092268 | $0.181106 |
| General & Administrative Expenses | $188,868 | $177,118 |
| Cash and Short-Term Investments (Mar 31, 2024) | $1,279,462 | $1,368,611 (Dec 31, 2023) |
| Cash Reserves (Retained for expenses) | $1,000,000 | $1,000,000 |
| Net Profits Interest Asset Value | $75,050,326 | $75,876,170 (Dec 31, 2023) |
Material Changes vs. Prior Period
- Revenue Decline: Net profits income decreased by approximately 45% year-over-year, driven by lower oil and natural gas sales volumes and realized prices.
- Production Volumes: Oil sales volumes dropped 13.3% (74,510 Bbls vs. 85,917 Bbls) and natural gas volumes dropped 19.5% (83,942 Mcf vs. 104,286 Mcf). The Trust attributes this to natural decline in producing properties and decreased demand.
- Price Realization: Average realized oil price fell to $73.06/Bbl from $76.79/Bbl. Average realized natural gas price fell to $3.14/Mcf from $4.94/Mcf.
- Cost Reductions: Total costs decreased from $5.19 million in Q1 2023 to $3.77 million in Q1 2024, primarily due to fewer capital projects and lower operating expenses.
- Capital Reserve Activity: Boaz Energy increased the capital reserve held back for future expenses, resulting in a $280,000 reduction to net profits income received by the Trust in Q1 2024 (compared to an $812,000 addition in Q1 2023). The reserve balance net to the Trust was $930,157 as of March 31, 2024.
Outlook, Risks, and Management Commentary
- Capital Budget: Boaz Energy's estimated capital budget for 2024 is $4.5 million. Approximately $0.9 million has been expended as of March 31, 2024. Planned activities include non-operated drilling in Crane and Glasscock Counties and one new operated well in Crane County.
- Subsequent Event: On April 19, 2024, the Trust declared a distribution of $0.030674 per unit based on February 2024 production.
- Litigation: The Trust remains a defendant in the "2018 Litigation" (Marston v. Blackbeard Operating). While the trial court granted summary judgment in favor of the defendants, the plaintiff has appealed. Briefs were filed in early 2024, and the appeal is pending.
- Risks: The Trust's income is highly sensitive to commodity prices, production volumes, and the ability of Boaz Energy to manage development costs. The Trust has no control over operations or capital expenditures.
Investor Verification Checklist
- Verify the impact of the pending appeal in the Marston v. Blackbeard Operating litigation on future cash flows.
- Monitor Boaz Energy's execution of the $4.5 million 2024 capital budget and its effect on the capital reserve balance.
- Track realized oil and gas prices against benchmark prices (WTI and Henry Hub) to assess margin compression.
- Confirm the sustainability of production volumes given the reported natural decline in the Underlying Properties.
- Review the Trust's cash reserve utilization to ensure it remains within the $1.0 million authorized limit for administrative expenses.