VOC Energy Trust: 10-Q Filing Summary
Business Context and Reporting Period
This is a Quarterly Report on Form 10-Q for VOC Energy Trust for the period ended June 30, 2021. The Trust is a Delaware statutory trust holding a term net profits interest in oil and natural gas properties located in Texas and Kansas, operated by VOC Brazos Energy Partners, LP. The Trust is passive, with no management control over operations, and is entitled to 80% of the net proceeds from production. The Trust will terminate on the later of December 31, 2030, or upon the production of 10.6 million barrels of oil equivalent (MMBoe). As of June 30, 2021, 17,000,000 units were outstanding.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 |
|---|---|---|
| Income from Net Profits Interest | $2,332,980 | $2,888,673 |
| Distributable Income | $2,040,000 | $2,550,000 |
| Distributions per Unit | $0.12 | $0.15 |
| Cash and Cash Equivalents | $379,832 | $379,832 (as of June 30) |
| Total Assets | $17,334,400 | $17,334,400 (as of June 30) |
| General & Administrative Expenses | $165,446 | $561,845 |
| Debt | $0 | $0 |
Note: The Trust holds no debt. A $1,700,000 letter of credit is provided by VOC Brazos to cover potential future expenses.
Material Changes vs. Prior Period
- Income Growth: Distributable income for the three months ended June 30, 2021, increased to $2,040,000 from $510,000 in the same period in 2020. This represents a 300% increase, driven by higher net proceeds despite lower production volumes.
- Production Volumes: Oil sales volumes decreased 29.3% (121,019 Bbls vs. 171,188 Bbls) and natural gas volumes decreased 12.9% (89,151 Mcf vs. 102,303 Mcf) compared to the prior year quarter.
- Pricing: Average oil prices decreased 10.0% to $48.53 per barrel, while natural gas prices increased 19.1% to $2.81 per Mcf.
- Cost Reductions: Development expenses dropped significantly by 93.2% ($283,643 vs. $4,166,222) due to the absence of large payments for the Hawkwood Development Wells that occurred in 2020. Production and property taxes also decreased by 75.1%.
- Trust Corpus: Total assets decreased from $19,012,202 at December 31, 2020, to $17,334,400 at June 30, 2021, primarily due to amortization of the net profits interest.
Outlook, Risks, and Unusual Items
- Subsequent Distribution: On July 20, 2021, the Trust announced a distribution of $0.16 per unit ($2,720,000 total) for the quarter ended June 30, 2021, payable August 13, 2021.
- Market Risks: The Trust remains exposed to fluctuations in oil and natural gas prices. While prices have recovered from the 2020 pandemic lows, future declines in commodity prices or production volumes could reduce distributions.
- Operational Risks: The Trust has no control over the operations of the underlying properties. VOC Brazos may establish a cash reserve of up to $1.0 million for future development, which could temporarily reduce distributions (currently at $1.0 million).
- Impairment History: A significant impairment of $41.26 million was recorded in Q1 2020 due to the oil market crash; no new impairments were recorded in the current period.
Investor Verification Checklist
- Verify the upcoming distribution payment date of August 13, 2021, and the amount of $0.16 per unit.
- Monitor future oil and natural gas price trends, as the Trust's income is directly tied to commodity prices.
- Review VOC Brazos's production reports to track the decline in oil and gas volumes and its impact on future cash flows.
- Confirm the status of the $1.0 million cash reserve held by VOC Brazos and whether it will be utilized or released in future quarters.
- Check for any updates on the Hawkwood joint venture, as future development costs could impact net proceeds.