Business Context and Reporting Period
Company: Permian Basin Royalty Trust (PBT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2021
Trustee: Simmons Bank
Outstanding Units: 46,608,796 (as of August 2, 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 | Three Months Ended June 30, 2021 |
Six Months Ended June 30, 2021 |
|---|---|---|
| Royalty Income | $2,941,146 | $5,065,303 |
| Total Income | $2,942,419 | $5,067,889 |
| General & Administrative Expenses | $(284,304) | $(570,044) |
| Distributable Income | $2,658,115 | $4,497,845 |
| Distributable Income per Unit | $0.06 | $0.10 |
| Cash and Short-term Investments | $1,922,140 | $1,922,140 (Balance Sheet) |
| Net Overriding Royalty Interests (Net) | $361,333 | $361,333 (Balance Sheet) |
| Distributions Payable | $822,140 | $822,140 (Balance Sheet) |
Material Changes vs. Prior Period
- Quarterly Comparison (Q2 2021 vs. Q2 2020):
- Royalty Income: Increased by approximately 20% to $2.94 million from $2.45 million, driven by higher oil and gas prices and increased production volumes.
- Commodity Prices: Average oil price rose to $59.35/Bbl (from $32.31) and gas to $2.69/Mcf (from $0.80).
- Expenses: Total expenses decreased to $284,304 from $520,893 due to lower professional service and printing costs.
- Distributable Income: Increased to $2.66 million ($0.06/unit) from $1.93 million ($0.04/unit).
- Six-Month Comparison (YTD 2021 vs. YTD 2020):
- Royalty Income: Decreased to $5.07 million from $8.70 million. This decline is primarily attributed to the Waddell Ranch properties being in a Net Profit Interest (NPI) deficit, preventing them from contributing to royalty income for the period.
- Production: Despite the deficit, underlying production volumes for both oil and gas increased compared to the prior year.
- Distributable Income: Decreased to $4.50 million ($0.10/unit) from $7.86 million ($0.17/unit).
Outlook, Risks, and Unusual Items
- Waddell Ranch NPI Deficit: As of June 30, 2021, the Waddell Ranch properties held a cumulative NPI deficit of approximately $9.99 million. Future proceeds from these properties must first recover this deficit before any royalty income is paid to the Trust.
- Capital Expenditures: Significant drilling activity occurred on the Waddell Ranch properties in Q2 2021, with gross capital expenditures of ~$10 million (vs. ~$0.7 million in Q2 2020). The 2021 budget is approved at $88.6 million.
- Commodity Price Risk: The Trust's income is heavily dependent on oil and gas prices, which are volatile and subject to global economic conditions, supply/demand shifts, and geopolitical factors.
- Subsequent Event: A distribution of $0.021355 per unit was declared on July 20, 2021, and paid on August 13, 2021.
Investor Verification Checklist
- NPI Deficit Status: Verify the current status of the $9.99 million deficit on the Waddell Ranch properties and the timeline for recovery.
- Operator Activity: Confirm the progress of the $88.6 million capital expenditure budget and the production output from new wells drilled in 2021.
- Commodity Exposure: Assess the sensitivity of future distributions to fluctuations in oil and natural gas prices, given the Trust's lack of hedging.
- Reserve Life: Review the Trust's remaining reserve life estimates, as the Trust is a declining asset with no ability to acquire new properties.