Business Context and Reporting Period
Company: Permianville Royalty Trust (PVL)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2020
Structure: A Delaware statutory trust holding an 80% net profits interest in oil and natural gas properties in Texas, Louisiana, and New Mexico. The Trust is passive; it has no management control over operations or costs.
Outstanding Units: 33,000,000 as of August 7, 2020.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2020 |
|---|---|---|
| Distributable Income | $2,814,900 | $4,898,190 |
| Distributable Income Per Unit | $0.085300 | $0.148430 |
| Income from Net Profits Interest | $3,103,364 | $5,392,196 |
| Cash and Cash Equivalents | $92 | $92 |
| Net Profits Interest (Asset Value) | $74,363,788 | $74,363,788 |
| Advances to Trust (Liability) | $19,100 | $19,100 |
| General & Administrative Expenses | $(213,354) | $(569,303) |
Material Changes vs. Prior Period
- Revenue Mix: For the three months ended June 30, 2020, oil sales increased 7% ($9.5M vs. $8.9M) due to higher realized prices, while natural gas sales decreased 56% ($1.7M vs. $3.8M) due to lower volumes and prices.
- Costs: Development expenses dropped significantly by 67% ($0.7M vs. $2.2M) for the quarter, reflecting reduced capital projects in the Permian Basin. Lease operating expenses increased 13% due to routine maintenance.
- Production Volumes: Oil production decreased 12% (173,526 Bbls vs. 196,674 Bbls) and natural gas production decreased 26% (875,623 Mcf vs. 1,187,547 Mcf) compared to the prior year quarter.
- YTD Performance: Despite lower gas volumes, total distributable income for the six months ended June 30, 2020, increased 13% to $4.9M compared to $4.4M in the prior year period, driven by higher realized oil prices.
Outlook, Risks, and Unusual Items
- COVID-19 Impact: The pandemic caused significant volatility in commodity prices and operational disruptions. West Texas Intermediate crude prices dropped sharply in early 2020, briefly trading negative in April.
- August 2020 Distribution: Due to reduced sales volumes and lower commodity prices, direct operating and development expenses exceeded cash receipts for the July distribution period. Consequently, no distribution will be paid in August 2020. A shortfall of $892,782 will be deducted from future net profits.
- Capital Expenditures: The Sponsor (COERT) expects 2020 capital expenditures to be at the low end or below the previously projected range of $3M to $5M (net to Trust) due to reduced spending by operators.
- Liquidity: The Trust holds minimal cash ($92) but has a $1.2 million letter of credit from the Sponsor and an agreement for additional loans if necessary to cover administrative expenses. No distributions are made until any borrowed funds are repaid.
- Impairment Risk: While no impairment was recorded in the period, future downward revisions in production volumes or commodity prices could trigger impairment charges.
Investor Verification Checklist
- August 2020 Shortfall: Verify the $892,782 shortfall deduction and its impact on future distribution calculations.
- Production Volumes: Monitor operator shut-ins and production curtailments in the Permian Basin and Haynesville shale due to low commodity prices.
- Commodity Prices: Track realized oil and natural gas prices versus NYMEX benchmarks, noting the widening or narrowing of price differentials.
- Capital Spending: Confirm if operator capital expenditures remain below the $3M-$5M net range, affecting long-term production sustainability.
- Advances Repayment: Confirm repayment of the $19,100 advance from the Sponsor from the July 2020 operational update funds.