PRT

Business Context and Reporting Period

PermRock Royalty Trust (PRT) is a Delaware statutory trust holding an 80% Net Profits Interest in oil and natural gas properties located in the Permian Basin, Texas. The Trust is passive, with no control over operations, which are managed by Boaz Energy. This Form 10-Q covers the quarterly period ended June 30, 2022. As of August 15, 2022, 12,165,732 trust units were outstanding.

Key Financial Metrics

The filing does not provide explicit debt figures as the Trust generally does not incur debt for operations, though it has the authority to borrow for administrative expenses if necessary. Liquidity is derived primarily from cash flow generated by the Net Profits Interest.

Material Changes Versus Prior Period

• Revenue Growth: Net profits income increased significantly compared to the prior year periods. For the three months ended June 30, 2022, income rose to $3.50 million from $2.18 million in 2021. For the six-month period, income increased to $6.28 million from $3.46 million in 2021.
• Price Drivers: The increase in income was primarily driven by higher realized sales prices for oil and natural gas. Average realized oil prices increased to $100.34 per Bbl (3 months) and $88.23 per Bbl (6 months) compared to $59.67 and $51.41 in the prior year, respectively.
• Volume Decline: Despite higher prices, production volumes declined. Oil sales volumes decreased by 6.4% (3 months) and 10.8% (6 months) year-over-year. Natural gas volumes decreased by 17.9% (3 months) and 24.1% (6 months), attributed to natural decline in producing properties.
• Expense Increases: General and administrative expenditures increased by $78,956 for the quarter and $98,145 for the six months, primarily due to the timing of payments. Operating costs also rose due to well repairs, material pricing, and higher severance taxes.

Outlook, Risks, and Unusual Items

• Capital Expenditures: Boaz Energy estimates a 2022 capital budget of $7.0 million for the Underlying Properties, with approximately $3.8 million expended as of June 30, 2022. Activities include non-operated drilling, recompletions, and well reactivations.
• Divestitures: Boaz Energy completed two Qualified De Minimis Sales in the second quarter (Stonewall and Glasscock counties), receiving $452,269 and $638,118 respectively, which were included in Trust distributions.
• Litigation: The "2018 Litigation" (Marston v. Blackbeard Operating) was effectively disposed of via summary judgment in May 2022. The only remaining issue is a pending court decision on attorneys' fees as of August 11, 2022.
• Risks: The Trust's revenue is highly sensitive to commodity price volatility. The filing notes that while prices were higher in the first half of 2022, fluctuations could continue. The Trust relies entirely on Boaz Energy for operational data and capital decisions.
• Subsequent Event: On July 19, 2022, the Trust declared a distribution of $0.090702 per unit based on May 2022 production.

Investor Verification Checklist

• Verify the realized oil and gas prices used in the Net Profits calculation against current market benchmarks (WTI and Henry Hub) to assess sustainability.
• Confirm the status of the pending attorneys' fees decision in the Marston litigation to determine potential liability impact.
• Monitor Boaz Energy's capital expenditure progress against the $7.0 million budget to ensure continued production support.
• Review the natural decline rates of the Underlying Properties to understand the trajectory of future volume reductions absent new drilling.
• Check the Trust's cash reserve balance ($1.0 million) to ensure it remains sufficient for administrative expenses if cash flow tightens.