Business Context and Reporting Period
Company: Permian Basin Royalty Trust (PBT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2023
Trustee: Argent Trust Company (effective December 30, 2022)
Outstanding Units: 46,608,796 (as of May 1, 2023)
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 of accounting.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Royalty Income | $5,206,602 | $4,078,645 |
| Total Income (Royalty + Interest) | $5,220,709 | $4,079,878 |
| General & Administrative Expenses | $(480,094) | $(345,184) |
| Distributable Income | $4,740,615 | $3,734,694 |
| Distributable Income per Unit | $0.10 | $0.08 |
| Cash and Short-term Investments (End of Period) | $2,199,132 | $2,855,444 |
| Distributions Payable (End of Period) | $1,099,132 | $1,755,444 |
| Net Overriding Royalty Interests (Net of Amortization) | $239,433 | $279,433 |
Material Changes vs. Prior Period
- Revenue Growth: Royalty income increased by approximately 27.7% ($1.13 million) compared to Q1 2022. This was driven by higher oil and natural gas production volumes and pricing.
- Commodity Prices: Average oil prices rose to $77.63 per barrel in Q1 2023 from $75.95 in Q1 2022. Conversely, average gas prices declined to $3.19 per Mcf from $4.52 per Mcf.
- Production Volumes: Oil sales attributable to royalties increased to 519,492 Bbls from 377,243 Bbls. Gas sales increased to 2,829,662 Mcf from 2,180,498 Mcf.
- Expense Increase: General and administrative expenses rose by $134,910, primarily due to increased professional service fees and timing of payments.
- Waddell Ranch Deficit: The Waddell Ranch properties returned to a Net Profit Interest (NPI) deficit position in Q1 2023, resulting in a cumulative deficit of $411,735 (at 75%). Consequently, these properties did not contribute to royalty income for the quarter, whereas they did contribute in Q1 2022 after recovering a prior deficit.
Outlook, Risks, and Management Commentary
- Capital Expenditures: Capital expenditures for the Waddell Ranch properties totaled $35.2 million in Q1 2023, up from $20.5 million in Q1 2022. The proposed 2023 budget is $96.8 million (net).
- Drilling Activity: In Q1 2023, 11.3 new wells and 6.8 workover wells were completed on the Waddell Ranch properties. There were 10.9 new wells and 8 workover wells in progress.
- Market Risks: The Trust's income is heavily influenced by commodity prices, which are subject to volatility due to global economic conditions, geopolitical events (e.g., war in Ukraine), and supply/demand dynamics.
- Contingencies: Unfavorable resolution of contingencies related to underlying properties would reduce future royalty income and cash distributions.
- Subsequent Event: On April 18, 2023, the Trust declared a distribution of $0.026846 per Unit, payable May 12, 2023.
Investor Verification Checklist
- NPI Deficit Status: Verify the impact of the Waddell Ranch NPI deficit ($411,735) on future cash flows and the timeline for recovery.
- Capital Expenditure Budget: Confirm the operator's ability to execute the proposed $96.8 million 2023 capital budget for the Waddell Ranch properties.
- Commodity Price Sensitivity: Assess the Trust's exposure to potential declines in oil and gas prices, particularly given the recent drop in gas prices.
- Trustee Transition: Review the operational impact of the trustee change from Simmons Bank to Argent Trust Company effective December 30, 2022.
- Production Volumes: Monitor the sustainability of increased oil production volumes (519,492 Bbls) compared to the prior year.