Business Context and Reporting Period
Company: Permian Basin Royalty Trust (PBT)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2020
Trustee: Simmons Bank
Outstanding Units: 46,608,796 (as of May 1, 2020)
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). The Trustee manages the Trust, which distributes monthly cash payments to Unit holders based on net profits from these properties. The financial statements are prepared on a modified cash basis of accounting.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Royalty Income | $6,254,509 | $4,530,445 |
| Total Income | $6,258,870 | $4,537,603 |
| General & Administrative Expenses | $(328,863) | $(301,131) |
| Distributable Income | $5,930,007 | $4,236,472 |
| Distributable Income per Unit | $0.13 | $0.09 |
| Cash and Short-term Investments | $2,627,119 | $2,862,570 |
| Total Assets | $3,038,548 | $3,287,077 |
| Distributions Payable | $1,577,119 | $1,812,570 |
| Trust Corpus | $411,429 | $424,507 |
Material Changes vs. Prior Period
- Revenue Increase: Royalty income increased by approximately 38% ($1.72 million) compared to Q1 2019. This was driven by a significant increase in average oil prices ($58.13/bbl in Q1 2020 vs. $44.47/bbl in Q1 2019) and higher oil production volumes (105,936 Bbls vs. 85,893 Bbls).
- Gas Price Decline: Despite the oil price increase, average gas prices dropped significantly to $1.60/Mcf in Q1 2020 from $3.38/Mcf in Q1 2019, partially offsetting the oil gains.
- Expense Growth: General and administrative expenses rose by $27,732, primarily due to increased professional service fees and timing of payments.
- Capital Expenditures: Capital expenditures on the Waddell Ranch properties decreased to $528,000 in Q1 2020 from $881,000 in Q1 2019. No new wells were completed or in progress during Q1 2020.
- Operator Change: The Waddell Ranch properties were sold to Blackbeard Operating, LLC, effective April 1, 2020, changing the operator from Burlington Resources Oil & Gas Company LP.
Outlook, Risks, and Management Commentary
- Commodity Price Volatility: The Trustee highlights that income is heavily influenced by commodity prices. While Q1 2020 saw higher oil prices, the filing notes a subsequent sharp decline in oil and gas prices due to the COVID-19 pandemic and the OPEC-Russia production dispute. Oil prices fell below zero briefly in April 2020 before recovering to $10.01/bbl.
- COVID-19 Impact: The pandemic has caused a rapid decline in demand for crude oil and natural gas. Restrictions on economic activity and reliance on third-party suppliers pose risks to production activities and future distributions.
- Future Distributions: A distribution of $0.023048 per Unit was declared on April 20, 2020, payable May 14, 2020. The Trustee notes that future distributions are unpredictable due to market volatility and the lag between production and royalty income recognition.
- Capital Budget: The 2020 capital expenditure budget for the Waddell Ranch properties was approved at $1.35 million (gross), though this may be revised following the operator change to Blackbeard.
Investor Verification Checklist
- Operator Transition: Verify the impact of the April 1, 2020, operator change (Blackbeard Operating) on the Waddell Ranch properties and future capital expenditure plans.
- Price Sensitivity: Monitor current oil and gas prices closely, as the Trust's income is directly tied to net profits which are highly sensitive to commodity price fluctuations.
- Pandemic Effects: Assess the ongoing impact of COVID-19 on production volumes and the ability of operators to maintain drilling and maintenance activities.
- Distribution Trends: Compare the declared April distribution ($0.023048) against the Q1 average ($0.13) to gauge the immediate effect of the market downturn on cash flow.
- Reserve Life: Review the Trust's remaining reserve life and amortization schedule, as the Trust corpus is reduced by amortization of net overriding royalty interests.