Business Context and Reporting Period
Company: PermRock Royalty Trust (PRT)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2021
Structure: A Delaware statutory trust holding an 80% Net Profits Interest in oil and natural gas properties (the "Underlying Properties") located in the Permian Basin, Texas. The Trust is passive; Boaz Energy II, LLC operates the properties and pays the Trust 80% of net profits. The Trust has no employees and is administered by Simmons Bank (Trustee).
Key Financial Metrics
| Metric | 2021 | 2020 | 2019 |
|---|---|---|---|
| Net Profits Income | $8,144,472 | $3,183,622 | $10,439,020 |
| Total Revenue | $8,144,652 | $3,188,156 | $10,449,660 |
| Distributable Income | $7,371,061 | $1,910,204 | $8,838,371 |
| Distributable Income Per Unit | $0.6059 | $0.1570 | $0.7265 |
| General & Administrative Expenses | $(773,591) | $(877,952) | $(1,011,289) |
| Cash and Short-Term Investments (Year End) | $1,849,906 | $1,181,449 | N/A |
| Cash Reserves Held | $1,000,000 | $1,000,000 | N/A |
| Trust Corpus (Year End) | $83,821,848 | $87,916,359 | $89,043,803 |
Production & Pricing (2021):
- Total Production: 469.0 MBoe (385.4 MBbls Oil, 501.7 MMcf Natural Gas).
- Average Realized Price: $54.23/Boe (Oil: $60.13/Bbl; Gas: $4.31/Mcf).
- Average Expenses per Boe: $15.58.
Reserves (Dec 31, 2021):
- Total Proved Reserves: 3,383.5 MBoe (1,976.8 MBoe Developed; 1,406.7 MBoe Undeveloped).
- PV-10 (Standardized Measure): $105,613,200.
Material Changes vs. Prior Period
- Revenue Recovery: Net profits income increased 156% from 2020 to 2021, driven primarily by a significant recovery in oil and natural gas prices following the 2020 pandemic lows. Average realized oil prices rose from $40.56/Bbl in 2020 to $60.13/Bbl in 2021.
- Production Volumes: Total production volumes decreased slightly year-over-year (469.0 MBoe in 2021 vs. 557.0 MBoe in 2020) due to the gradual reactivation of wells shut-in during the early pandemic period.
- Costs: Direct operating and lease operating expenses increased in 2021 compared to 2020 due to increased workovers to bring wells back online and higher material costs post-pandemic. However, severance and ad valorem taxes decreased due to lower prior-year valuations.
- Reserve Revisions: Proved reserves increased in 2021 primarily due to positive price revisions (WTI average price used for estimation rose 67% from 2020 levels).
Guidance, Outlook, and Risks
2022 Outlook: Boaz Energy plans to drill new producing wells in the Permian Shelf area, stimulate existing wells, and reactivate inactive wells. The estimated capital budget for 2022 is $7.0 million (up from $4.6 million in 2021).
Management Commentary: - The Trust has no hedging contracts; all derivative contracts expired in 2019. Distributions are fully exposed to commodity price volatility. - A special meeting is scheduled for April 5, 2022, to approve the appointment of Argent Trust Company as the successor trustee to Simmons Bank.
Key Risks: - Commodity Prices: Distributions are highly sensitive to oil and gas prices. - Depleting Assets: Reserves are depleting; production will diminish over time without successful development of proved undeveloped reserves (PUDs). - Secondary Recovery: A significant portion of future production relies on waterflood operations, which carry technical and cost uncertainties. - Operator Risk: The Trust is passive and relies entirely on Boaz Energy's financial health and operational decisions. Boaz Energy may abandon wells or sell properties without unitholder consent. - Legal: Ongoing litigation (Marston v. Blackbeard Operating) regarding surface use damages; trial set for May 2022. Boaz Energy does not anticipate a material impact.
Investor Verification Checklist
- Trustee Transition: Verify the outcome of the April 5, 2022, special meeting regarding the appointment of Argent Trust Company as successor trustee.
- Capital Expenditure Execution: Monitor Boaz Energy's ability to execute the $7.0 million 2022 capital budget, specifically the drilling of three new operated wells and waterflood conformance work.
- Commodity Price Sensitivity: Assess current oil and gas prices against the Trust's break-even costs, noting the lack of hedging protection.
- Reserve Accuracy: Review future reserve reports for the impact of price volatility on the 1,406.7 MBoe of proved undeveloped reserves.
- Legal Proceedings: Track the May 2022 trial date for the Marston litigation to ensure no unexpected liabilities arise.
- Boaz Energy Financial Health: Monitor Boaz Energy's debt covenants and liquidity, as their financial distress could impact operations on the Underlying Properties.