Business Context and Reporting Period
Company: Permianville Royalty Trust (PVL)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2021
Business Model: The Trust is a passive entity holding a Net Profits Interest (NPI) entitling it to 80% of the net profits from oil and natural gas production on underlying properties in Texas, Louisiana, and New Mexico. The Trust has no management control over operations or costs. As of November 15, 2021, 33,000,000 units were outstanding.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 |
|---|---|---|
| Income from Net Profits Interest | $1,399,460 | $1,399,460 |
| Distributable Income | $429,000 | $429,000 |
| Distributable Income Per Unit | $0.013000 | $0.013000 |
| Cash and Cash Equivalents | $1,091 | $1,091 |
| Net Profits Interest Asset (Net) | $66,500,234 | $66,500,234 |
| Advances to Trust (Liability) | $0 | $0 |
Note: The Trust utilizes a modified cash basis of accounting. Amortization of the Net Profits Interest ($1,533,839 for the quarter; $4,764,799 for the nine months) is charged directly to Trust Corpus and does not impact Distributable Income.
Material Changes vs. Prior Period
- Quarter-over-Quarter (Q3 2021 vs. Q3 2020): Distributable income increased 242% to $429,000 from $125,400. This significant increase was driven by higher commodity prices and production volumes in 2021. In Q3 2020, negative net profits in August and September resulted in no distributions for those months and a carried-forward shortfall.
- Year-to-Date (9M 2021 vs. 9M 2020): Distributable income decreased 91% to $429,000 from $5,023,590. The 2020 period included seven months of positive distributions prior to the Q3 shortfall, whereas the 2021 period was heavily impacted by the repayment of a $1.7 million cumulative Net Profits Interest shortfall and $0.8 million in Sponsor advances from prior periods.
- Production and Pricing: For the three months ended September 30, 2021, oil sales increased 292% and natural gas sales increased 422% compared to the same period in 2020. Realized oil prices rose 97% to $61.60/Bbl, and realized natural gas prices rose 92% to $2.54/Mcf.
- Liquidity: Cash on hand decreased from $29,639 at year-end 2020 to $1,091 at September 30, 2021, primarily due to distributions and expense payments. However, all outstanding advances from the Sponsor were fully repaid during the period.
Outlook, Risks, and Management Commentary
- Outlook: The Trustee notes improved development activity in 2021 compared to the 2020 downturn. West Texas Intermediate (WTI) crude prices rallied to $81.34/barrel in November 2021. However, the Sponsor expects 2021 capital expenditures to be at the high end of the $2 million to $4 million range, which may impact future net profits.
- Reserves: In November 2021, the Trustee announced an intent to build a cash reserve for future liabilities commencing with the January 2022 distribution. This withholding may reduce immediate distributions to unitholders.
- Risks: Key risks include volatility in oil and natural gas prices, the lingering effects of the COVID-19 pandemic on demand, uncertainty regarding OPEC production levels, and the passive nature of the Trust which prevents it from controlling operating costs or development timing.
- Subsequent Events: A distribution of $0.021000 per unit was paid on October 15, 2021. A distribution of $0.02700 per unit was declared on October 18, 2021, payable November 15, 2021.
Investor Verification Checklist
- Shortfall Repayment: Verify that the $1.7 million Net Profits Interest shortfall and $0.8 million in Sponsor advances have been fully cleared, allowing for resumed regular distributions.
- Reserve Withholding: Monitor upcoming monthly reports for the implementation of the new cash reserve policy announced in November 2021, which will reduce distributable cash flow.
- Capital Expenditures: Track the Sponsor's actual capital spending against the projected $2 million to $4 million range, as higher development expenses directly reduce the Trust's net profits.
- Commodity Prices: Assess the impact of current oil and natural gas price differentials on the realized prices received by the Trust, as these fluctuate significantly from benchmark NYMEX prices.