Business Context and Reporting Period
Company: Permian Basin Royalty Trust
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three months ended March 31, 2002
Trustee: Bank of America, N.A.
Outstanding Units: 46,608,796 (as of May 1, 2002)
The Trust holds net overriding royalty interests in producing oil and gas properties, specifically the Waddell Ranch properties in Crane County, Texas (75% interest) and Texas Royalty properties (95% interest). Financial statements are prepared on a modified cash basis.
Key Financial Metrics
| Metric | Q1 2002 | Q1 2001 |
|---|---|---|
| Royalty Income | $4,574,228 | $12,092,419 |
| Total Income | $4,579,062 | $12,118,596 |
| Distributable Income | $4,418,310 | $11,952,614 |
| Distributable Income per Unit | $0.09 | $0.26 |
| General & Administrative Expenses | $160,752 | $165,982 |
| Cash and Short-term Investments | $1,634,721 | $1,842,420 |
| Net Overriding Royalty Interests (Net Book Value) | $2,329,575 | $2,371,187 |
| Total Assets | $3,964,296 | $4,213,607 |
Material Changes vs. Prior Period
- Revenue Decline: Royalty income decreased by approximately 62% year-over-year, dropping from $12.09 million to $4.57 million. This is primarily attributed to significant decreases in oil and gas prices.
- Price Volatility: Average oil prices fell from $27.90 per barrel in Q1 2001 to $16.97 per barrel in Q1 2002. Average gas prices dropped from $6.69 per Mcf to $2.36 per Mcf.
- Production Volumes: Oil sales attributable to the underlying properties decreased from 382,186 Bbls to 323,909 Bbls. Gas sales decreased from 1,590,793 Mcf to 1,555,506 Mcf.
- Capital Expenditures: Capital expenditures on Waddell Ranch properties dropped significantly to $885,649 in Q1 2002 compared to $2.38 million in Q1 2001. Only 1 well was completed or in progress in Q1 2002, compared to 10 in progress in Q1 2001.
- Operating Expenses: Lease operating expenses and property taxes on Waddell Ranch properties decreased to $2.0 million from $2.7 million, attributed to more efficient operations.
Outlook, Risks, and Management Commentary
- Forward-Looking Statements: The Trustee notes that future results depend on factors outside its control, including hydrocarbon prices, production volumes, and regulatory matters. No assurance is given that expectations will be realized.
- Capital Budget: The 2002 capital expenditures budget for the Waddell Ranch has been revised to $2.8 million, down from the $4.6 million total spent in 2001.
- Subsequent Events: On April 19, 2002, the Trust declared a distribution of $0.030655 per unit, payable on May 14, 2002.
- Accounting Basis: The filing utilizes a modified cash basis of accounting, differing from GAAP as revenues are not accrued in the month of production.
Investor Verification Checklist
- Price Sensitivity: Verify current oil and gas market prices against the Q1 2002 averages ($16.97/Bbl oil, $2.36/Mcf gas) to assess future income potential.
- Production Trends: Confirm if the decline in production volumes (both oil and gas) is a temporary fluctuation or a long-term depletion trend.
- Capital Spending: Monitor the execution of the revised $2.8 million capital budget for the Waddell Ranch to ensure maintenance of production levels.
- Distribution History: Review the significant drop in per-unit distributions from $0.26 (Q1 2001) to $0.09 (Q1 2002) and the subsequent declaration of $0.030655.
- Underlying Asset Ownership: Note that the Trustee relies on third parties (Burlington Resources and River hill Energy) for operations and accounting; verify their financial stability and operational reports.