Business Context and Reporting Period
Company: Permian Basin Royalty Trust (PBT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2022
Trustee: Simmons Bank (resignation effective December 30, 2022; Argent Trust Company appointed as successor)
Outstanding Units: 46,608,796 (as of November 1, 2022)
The Trust holds net overriding royalty interests in producing oil and gas properties in Texas, specifically the Waddell Ranch properties (75% interest) and Texas Royalty properties (95% interest). Financial statements are prepared on a modified cash basis of accounting.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 |
|---|---|---|
| Royalty Income | $27,323,759 | $39,032,624 |
| Total Income (Royalty + Interest) | $27,335,211 | $39,047,094 |
| General & Administrative Expenses | $(136,712) | $(755,594) |
| Distributable Income | $27,198,499 | $38,291,500 |
| Distributable Income Per Unit | $0.58 | $0.82 |
| Cash and Short-Term Investments | $11,524,889 | N/A (Balance Sheet Item) |
| Distributions Payable | $10,424,889 | N/A (Balance Sheet Item) |
| Trust Corpus | $310,139 | N/A (Balance Sheet Item) |
Note: The Trust has no debt. Liquidity is derived from royalty receipts and cash reserves.
Material Changes vs. Prior Period
- Revenue Surge: Royalty income for the three months ended September 30, 2022, increased to $27.3 million from $3.3 million in the same period in 2021. For the nine-month period, income rose to $39.0 million from $8.4 million.
- Price and Volume Drivers: The increase is attributed to higher commodity prices and increased production.
- Oil Prices: Average price per barrel rose to $108.75 (Q3 2022) and $96.49 (9M 2022) compared to $68.34 and $58.79 in 2021, respectively.
- Gas Prices: Average price per Mcf rose to $6.60 (Q3 2022) and $5.56 (9M 2022) compared to $3.36 and $2.92 in 2021, respectively.
- Waddell Ranch Recovery: The Waddell Ranch properties contributed $21.6 million to royalty income in Q3 2022. In Q3 2021, these properties contributed $0 due to a Net Profit Interest (NPI) deficit, which has now been fully recovered.
- Expense Reduction: General and administrative expenses decreased to $136,712 in Q3 2022 from $361,096 in Q3 2021, primarily due to lower professional service and printing costs.
Outlook, Risks, and Unusual Items
- Trustee Transition: Simmons Bank is resigning as Trustee, with Argent Trust Company appointed as the successor effective December 30, 2022, subject to closing conditions.
- Capital Expenditures: Gross capital expenditures on Waddell Ranch properties totaled $34.7 million in Q3 2022 and $87.3 million for the nine months ended September 30, 2022. The 2022 budget is $92.6 million, with approximately 67% expended as of August 31, 2022.
- Subsequent Event: A distribution of $0.208587 per Unit was declared on October 21, 2022, payable November 15, 2022.
- Risk Factors: Income is heavily dependent on volatile oil and gas prices. The Trustee notes that future prices are unpredictable and influenced by global economic conditions, geopolitical events, and supply/demand dynamics. Contingencies related to underlying properties could reduce future royalty income.
Investor Verification Checklist
- Commodity Price Sensitivity: Verify current oil and gas prices against the Trust's historical performance to gauge future distribution potential.
- Capital Expenditure Impact: Monitor the $92.6 million 2022 capital expenditure budget for the Waddell Ranch properties, as high costs can delay royalty income recognition until the NPI deficit is recovered.
- Trustee Transition: Confirm the completion of the transition from Simmons Bank to Argent Trust Company by the end of 2022.
- Production Volumes: Review operator reports for Waddell Ranch and Texas Royalty properties to confirm sustained production levels (e.g., 6,801 Bbls/day oil average in Q3 2022).
- Tax Status: Confirm the Trust's continued status as a passive entity exempt from Texas franchise tax, which impacts net distributable income.