PRT

PermRock Royalty Trust (PRT) - 10-Q Summary

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2024, for PermRock Royalty Trust, a Delaware statutory trust. The Trust holds an 80% Net Profits Interest in oil and natural gas properties (the "Underlying Properties") located in the Permian Basin, Texas, conveyed by Boaz Energy II, LLC. The Trust is a passive entity with no management control over operations. As of August 9, 2024, there were 12,165,732 trust units outstanding.

Key Financial Metrics

Note: The filing does not provide specific debt figures as the Trust generally does not incur debt, though it has the authority to borrow for administrative expenses if necessary.

Material Changes vs. Prior Period

• Quarterly Comparison (Q2 2024 vs. Q2 2023): Net profits income increased by approximately 5.4% ($1.66M vs. $1.57M). This increase was driven by higher realized oil prices and lower development expenses, despite a decline in production volumes (Oil: -8.5%; Gas: -11.6%).
• Semi-Annual Comparison (YTD 2024 vs. YTD 2023): Net profits income decreased by approximately 25% ($2.95M vs. $3.94M). The decline was primarily attributed to lower oil and gas prices and higher production costs during the period.
• Production Volumes: Oil sales volumes decreased 11.0% and natural gas sales volumes decreased 15.8% for the six months ended June 30, 2024, compared to the prior year, due to natural decline and decreased demand.
• Costs: Development expenses decreased significantly for both the three and six-month periods due to fewer capital projects. Lease operating expenses increased in Q2 due to well plugging costs but decreased for the six-month period.

Outlook, Risks, and Management Commentary

• Capital Expenditures: Boaz Energy's estimated capital budget for 2024 is $4.5 million. Approximately $1.5 million has been expended as of June 30, 2024. Planned activities include non-operated drilling, waterflood conformance, and one new operated well in Crane County.
• Capital Reserves: Boaz Energy is entitled to reserve up to $3.0 million from net profits for future taxes and expenses. As of June 30, 2024, the balance held back was $1,100,109 net to the Trust.
• Litigation: The Trust is involved in ongoing litigation (Marston v. Blackbeard Operating). While the trial court granted summary judgment in favor of the defendants in 2022 and awarded attorney's fees, the plaintiff has appealed. The parties are awaiting an opinion from the Eighth Court of Appeals.
• Risks: Primary risks include volatility in oil and natural gas prices, natural decline in production volumes, and the passive nature of the Trust which relies entirely on Boaz Energy for operational data and capital decisions.
• Subsequent Event: On July 19, 2024, the Trust declared a distribution of $0.040021 per unit based on May 2024 production.

Investor Verification Checklist

• Production Decline: Verify the rate of natural decline in the Underlying Properties and the impact of Boaz Energy's capital spending on stabilizing or increasing volumes.
• Capital Reserve Utilization: Monitor the $1.1 million capital reserve held by Boaz Energy and the timing of its release to the Trust.
• Litigation Outcome: Track the status of the appeal in the Marston litigation, as an unfavorable resolution could impact future cash flows.
• Commodity Price Sensitivity: Assess the Trust's exposure to fluctuations in WTI crude and Henry Hub natural gas prices, given the significant volume declines.
• Boaz Energy Ownership: Note that Boaz Energy retains a significant portion of trust units (approx. 40% as of August 2024), aligning their interests with public unitholders but concentrating voting power.