Business Context and Reporting Period
Company: Permian Basin Royalty Trust
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter and six months ended June 30, 1998
Trustee: NationsBank, N.A.
Outstanding Units: 46,608,796 (as of August 13, 1998)
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 and have been reviewed, but not audited, by Deloitte & Touche LLP.
Key Financial Metrics
| Metric | Q2 1998 | Q2 1997 | YTD 1998 | YTD 1997 |
|---|---|---|---|---|
| Royalty Income | $1,599,573 | $4,185,854 | $6,852,540 | $12,890,261 |
| Total Income | $1,606,618 | $4,200,072 | $6,870,453 | $12,915,800 |
| Distributable Income | $1,458,045 | $4,022,537 | $6,597,451 | $12,594,260 |
| Income Per Unit | $0.031283 | $0.086304 | $0.141550 | $0.270211 |
| Cash & Investments | $271,758 | $1,724,192 | $271,758 | $1,724,192 |
| Trust Corpus | $3,411,371 | $3,496,594 | $3,411,371 | $3,496,594 |
Production Data (Properties from which Royalties were carved):
Q2 1998 Average Oil Price: $12.71/Bbl (vs. $19.38 in Q2 1997)
Q2 1998 Average Gas Price: $2.15/Mcf (vs. $2.39 in Q2 1997)
Material Changes vs. Prior Period
- Revenue Decline: Royalty income decreased by approximately 62% in Q2 1998 compared to Q2 1997. This is primarily attributed to lower oil and gas prices and increased allocated capital expenditures.
- Waddell Ranch Excess Costs: In June 1998, costs exceeded revenues for the Waddell Ranch properties by $396,012. These excess costs, plus accrued interest, must be recovered from future net proceeds before these properties contribute to Trust income again.
- Capital Expenditures: Capital expenditures for the Waddell Ranch properties increased to $4.5 million in Q2 1998 from $3.9 million in Q2 1997. The 1998 budget is $17.6 million.
- Production Volume: While total oil and gas sales from the underlying properties remained relatively unchanged, the Trust's share of sales dropped significantly due to the allocation formula dependent on price and cost.
- One-Time Item: YTD 1998 distributable income included approximately $1.1 million from a severance tax refund received by the operator.
Outlook, Risks, and Contingencies
- Year 2000 Issue: The Trust relies on third-party vendors (Burlington Resources Oil & Gas Company and others) for income receipt and disbursement. The Trustee cannot assure that these parties will successfully remediate Year 2000 issues, which could materially impact the Trust.
- Legal Proceedings: A class action lawsuit settlement (Altheide v. Meridian Oil Inc.) remains subject to appeal by objectors. No settlement proceeds can be distributed to the Trust until all appeals are resolved. The Texas Supreme Court denied a petition for review in June 1998, but the Trustee does not know if or when proceeds will be received.
- Market Risk: Distributable income is highly sensitive to fluctuations in oil and gas prices and the level of capital expenditures incurred by the operators.
Investor Verification Checklist
- Verify the status of the Waddell Ranch excess costs ($396,012) and the timeline for recovery from future proceeds.
- Monitor the resolution of the Altheide class action lawsuit to determine potential future settlement distributions.
- Assess the Year 2000 readiness of Burlington Resources Oil & Gas Company and other key vendors.
- Review future capital expenditure budgets for the Waddell Ranch properties, as high spending directly reduces distributable income.
- Track oil and gas price trends, as the Trust's income is directly correlated to net profits after cost deductions.