Business Context and Reporting Period
Company: Permianville Royalty Trust (PVL)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2020
Outstanding Units: 33,000,000
Business Model: The Trust holds a passive Net Profits Interest (NPI) entitling it to 80% of the net profits from oil and natural gas production on underlying properties in Texas, Louisiana, and New Mexico. The Trust has no management control over operations or costs.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 |
|---|---|---|---|---|
| Distributable Income | $125,400 | $5,023,590 | $2,759,856 | $7,110,246 |
| Distributable Income Per Unit | $0.0038 | $0.1522 | $0.0836 | $0.2155 |
| Income from Net Profits Interest | $172,819 | $5,565,015 | $2,955,216 | $7,526,927 |
| General & Administrative Expenses | ($123,887) | ($693,190) | ($202,204) | ($755,405) |
| Cash and Cash Equivalents | $63,598 (as of Sep 30, 2020) $90,665 (as of Dec 31, 2019) |
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| Total Assets | ||||
| Advances to Trust (Liability) | $159,071 (as of Sep 30, 2020) |
Material Changes vs. Prior Period
- Revenue Decline: Distributable income for the three months ended September 30, 2020, decreased by 95% compared to the same period in 2019. For the nine-month period, the decrease was 29%.
- Production and Price Impact: Oil sales volumes decreased 66% and natural gas volumes decreased 65% in the quarter. Realized oil prices dropped 44% and natural gas prices dropped 45% compared to the prior year quarter.
- Net Profits Shortfall: In July and August 2020, direct operating and development expenses exceeded revenues, resulting in negative net profits. Consequently, no distributions were made to unitholders for August and September 2020.
- Accumulated Shortfall: As of September 30, 2020, an aggregate net profits shortfall of approximately $2.2 million (prior to repayment of Sponsor advances) exists. This amount must be recouped from future net profits before distributions can resume.
Outlook, Risks, and Management Commentary
- Delisting Risk: On September 25, 2020, the Trust received notice from the NYSE that it failed to meet the minimum price requirement (average closing price below $1.00 over 30 days). The Trust has a six-month cure period to regain compliance or face delisting to the over-the-counter market.
- COVID-19 Impact: The pandemic caused significant volatility in commodity prices and demand. While prices have stabilized from April lows, prolonged low prices may lead operators to shut-in wells or curtail production.
- Capital Expenditures: The Sponsor expects 2020 capital expenditures to be at the low end or below the previously projected range ($3 million to $5 million net to the Trust) due to reduced spending by operators.
- Subsequent Event: On October 15, 2020, the Trust announced there would be no distribution for November 2020 due to the cumulative outstanding net profits shortfall.
- Liquidity: The Trust holds minimal cash ($63,598) and relies on a $1.2 million letter of credit from the Sponsor (COERT) and potential advances to cover administrative expenses if cash on hand is insufficient.
Investor Verification Checklist
- Distribution Status: Verify the current status of the $2.2 million net profits shortfall and the timeline for its recoupment before distributions resume.
- NYSE Compliance: Monitor the Trust's ability to regain compliance with the NYSE minimum price requirement within the six-month cure period to avoid delisting.
- Production Volumes: Track monthly production reports from the Sponsor to assess if operators are returning to pre-shut-in production levels.
- Commodity Prices: Monitor West Texas Intermediate (WTI) crude oil and natural gas prices, as the Trust's income is directly correlated to these volatile markets.
- Sponsor Advances: Review future filings for any increases in "Advances to the Trust" liabilities, which indicate cash flow deficits requiring Sponsor support.