PBT

Business Context and Reporting Period

Company: Permian Basin Royalty Trust (PBT)
Reporting Period: Quarter and nine months ended September 30, 2019
Trustee: Simmons Bank
Structure: 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 passed through to unit holders. There are 46,608,796 Units of Beneficial Interest outstanding.

Key Financial Metrics

Note: The filing does not provide explicit debt figures; the Trustee is authorized to borrow funds to pay liabilities, but no borrowings are listed in the liabilities section.

Material Changes vs. Prior Comparable Period

• Revenue Decline: Royalty income decreased by 16.3% in the quarter and 37.5% in the nine-month period compared to 2018. This is primarily due to lower oil and gas prices, partially offset by increased oil production in the quarter.
• Price Volatility:
  • Quarterly: Average oil price dropped from $60.19 to $54.30 per barrel; average gas price dropped from $3.64 to $1.82 per Mcf.
  • Nine-Month: Average oil price dropped from $59.11 to $51.25 per barrel; average gas price dropped from $3.51 to $2.68 per Mcf.
• Production Volumes:
  • Quarterly: Oil sales attributable to royalties increased (104,258 Bbls vs. 101,892 Bbls), while gas sales decreased (310,106 Mcf vs. 329,291 Mcf).
  • Nine-Month: Both oil (296,923 Bbls vs. 354,843 Bbls) and gas (723,334 Mcf vs. 1,204,229 Mcf) sales attributable to royalties decreased.
• Expenses: General and administrative expenses decreased in both periods, attributed to reduced professional service costs and timing of payments.
• Capital Expenditures (Waddell Ranch): Increased significantly in the quarter ($351,706 vs. $5,200) and nine months ($2.9 million vs. $0.6 million) compared to 2018, driven by facility projects and maintenance.

Outlook, Risks, and Unusual Items

• Subsequent Event: On October 21, 2019, the Trust declared a distribution of $0.027711 per Unit, payable November 15, 2019.
• Capital Budget: ConocoPhillips has approved a 2019 capital expenditures budget of $6.6 million (gross) for the Waddell Ranch properties.
• Operational Activity: During the nine months ended September 30, 2019, 1 workover well and 2 new wells were completed on the Waddell Ranch properties. No new or workover wells were completed in the third quarter alone.
• Risks: The Trust's income is highly sensitive to commodity prices and production volumes, which are outside the Trustee's control. Unfavorable resolution of contingencies related to underlying properties would reduce future royalty income and distributions. The filing references risk factors in the 2018 10-K, noting no material changes.
• 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

• Commodity Price Sensitivity: Verify current oil and gas market prices against the Trust's historical performance to assess future distribution potential.
• Production Trends: Monitor the "Properties From Which The Royalties Were Carved" production data, as the Trust's income is a percentage of net profits from these specific assets.
• Capital Expenditure Impact: Review how increased capital expenditures (drilling and maintenance) on the Waddell Ranch properties affect net profits and subsequent royalty calculations.
• Reserve Life: Assess the remaining life of the underlying oil and gas reserves, as the Trust is a depleting asset with no ability to acquire new properties.
• Contingencies: Review Note 6 regarding commitments and contingencies, as unfavorable legal or operational resolutions directly reduce distributions.