VOC Energy Trust: Q1 2021 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2021. VOC Energy Trust is a Delaware statutory trust holding a term net profits interest in oil and natural gas properties operated by VOC Brazos Energy Partners, LP. The Trust is a passive entity with no management control over operations and is classified as a smaller reporting company. As of May 14, 2021, there were 17,000,000 Units of Beneficial Interest outstanding.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Income from Net Profits Interest | $555,693 | $2,073,260 |
| Distributable Income | $510,000 | $1,870,000 |
| Distribution per Unit | $0.030 | $0.110 |
| Cash and Cash Equivalents | $252,298 | $603,004 (Dec 31, 2020) |
| Total Assets | $17,892,065 | $19,012,202 (Dec 31, 2020) |
| General & Administrative Expenses | $396,399 | $290,458 |
| Debt / Borrowings | $0 | $0 |
Material Changes vs. Prior Period
- Revenue Decline: Income from the net profits interest decreased by approximately 73% year-over-year, dropping from $2.07 million to $555,693. This was driven by a 31.9% decrease in average oil sales prices (from $53.22 to $36.26 per barrel) and an 11.2% decrease in oil sales volumes.
- Cost Reductions: Total costs decreased by 22.9% to $4.46 million, primarily due to lower lease operating expenses ($2.69 million vs. $3.50 million) and development expenses ($1.01 million vs. $1.39 million).
- Impairment: Unlike Q1 2020, which included a significant impairment charge of $41.26 million to Trust corpus due to the pandemic-induced oil price crash, Q1 2021 recorded no impairment expense.
- Distribution Reduction: The quarterly distribution per unit fell from $0.110 in Q1 2020 to $0.030 in Q1 2021.
Outlook, Risks, and Subsequent Events
- Subsequent Distribution: On April 20, 2021, the Trust announced a distribution of $2,040,000 ($0.12 per unit) for the quarter ended March 31, 2021, payable on May 14, 2021. This amount reflects production from October through December 2020.
- Liquidity: The Trust held $252,298 in cash as of March 31, 2021. VOC Brazos maintains a $1.7 million letter of credit to cover potential Trust expenses. No borrowings occurred during the quarter.
- Market Risks: The Trust remains highly sensitive to crude oil and natural gas prices. While WTI prices had recovered to pre-COVID levels by April 2021, management notes that future price declines or OPEC actions could materially reduce cash distributions.
- Operational Risks: The Trust has no control over the operations of the underlying properties. Production volumes are declining as the properties are in mature fields, though development expenses have also decreased.
Key Facts for Investor Verification
- Verify the timing of cash receipts: Q1 2021 income reflects production from September through November 2020, while the subsequent distribution announced in April reflects October through December 2020 production.
- Confirm the status of the $1.0 million cash reserve held by VOC Brazos for future development, which remains fully reserved and did not impact Q1 2021 income.
- Monitor the Trust's termination conditions: The Trust will terminate on the later of December 31, 2030, or when 10.6 million barrels of oil equivalent (MMBoe) have been produced.
- Review the impact of the joint venture with Hawkwood Energy; while no new wells were drilled in 2020 or Q1 2021, future drilling could impact cost structures and production volumes.