VOC Energy Trust 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report on Form 10-Q for VOC Energy Trust, a Delaware statutory trust, for the period ended June 30, 2022. The Trust holds an 80% net profits interest in oil and natural gas properties operated by VOC Brazos Energy Partners, LP, primarily in Texas and Kansas. The Trust is a passive entity with no management control over operations. As of June 30, 2022, 17,000,000 Units of Beneficial Interest were outstanding.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 |
|---|---|---|
| Income from Net Profits Interest | $5,183,181 | $9,895,367 |
| Distributable Income | $4,760,000 | $9,010,000 |
| Distributions per Unit | $0.28 | $0.53 |
| Cash and Cash Equivalents | $561,607 | $561,607 |
| Total Assets | $15,320,205 | $15,320,205 |
| Trust Corpus | $15,320,205 | $15,320,205 |
| Debt | $0 | $0 |
Production Data (Three Months Ended June 30, 2022):
- Oil Sales: 124,939 Bbls at an average price of $78.89/Bbl.
- Natural Gas Sales: 80,423 Mcf at an average price of $6.44/Mcf.
- Total Gross Proceeds: $10,374,559.
Material Changes vs. Prior Period
Financial performance improved significantly compared to the same periods in 2021, driven primarily by higher commodity prices.
- Income Growth: Income from the net profits interest increased 122.2% for the quarter and 242.6% for the six-month period compared to 2021.
- Price Increases: Average oil prices rose 62.6% (quarterly) and 81.4% (six-month) year-over-year. Natural gas prices rose 129.2% (quarterly) and 151.0% (six-month).
- Volume Changes: Oil sales volumes increased slightly (3.2% quarterly, 1.2% six-month), while natural gas volumes decreased (9.8% quarterly, 10.8% six-month).
- Cost Increases: Lease operating expenses and production taxes increased due to higher activity levels and sales prices. Development expenses increased 16.6% for the quarter but decreased 11.1% for the six-month period.
Outlook, Risks, and Unusual Items
Subsequent Events: On July 20, 2022, the Trust announced a distribution of $0.38 per unit ($6,460,000 total) for the second quarter, payable August 12, 2022. This amount is net of $221,666 withheld for the cash reserve.
Liquidity and Reserves: The Trustee is building a cash reserve of approximately $1.175 million for future expenses. As of June 30, 2022, $561,607 was held in reserve. VOC Brazos maintains a $1.7 million letter of credit to cover potential Trust expenses.
Risks: The Trust has no control over operations or development of underlying properties. Income is dependent on VOC Brazos's production and commodity prices. The Trust is a smaller reporting company and is not required to provide quantitative market risk disclosures.
Investor Verification Checklist
- Commodity Price Sensitivity: Verify current oil and natural gas prices against the Trust's historical performance, as revenue is highly correlated with market rates.
- Production Volumes: Monitor VOC Brazos's production reports to confirm the trend of declining natural gas volumes and stable oil volumes.
- Reserve Build-up: Track the Trustee's progress in building the $1.175 million cash reserve, as withholdings reduce immediate distributions.
- Termination Triggers: Note that the Trust terminates on the later of December 31, 2030, or the production of 10.6 million barrels of oil equivalent (MMBoe). As of June 30, 2022, 7.8 MMBoe had been produced.
- Related Party Transactions: Confirm that MV Purchasing, LLC (an affiliate of VOC Brazos) continues to purchase a significant portion of production under short-term market-sensitive arrangements.