Business Context and Reporting Period
Company: Permian Basin Royalty Trust (PBT)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2021
Trustee: Simmons Bank (resignation announced Nov 4, 2021; Argent Trust Company nominated as successor)
Outstanding Units: 46,608,796
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 Trust is a passive entity taxed as a grantor trust, with income distributed monthly to unit holders.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 |
|---|---|---|
| Royalty Income | $3,344,086 | $8,409,389 |
| Interest Income | $1,273 | $3,859 |
| Total Income | $3,345,359 | $8,413,247 |
| General & Administrative Expenses | $(361,096) | $(931,140) |
| Distributable Income | $2,984,263 | $7,482,108 |
| Distributable Income Per Unit | $0.06 | $0.16 |
| Cash and Short-term Investments | $2,178,062 | N/A (Balance Sheet Item) |
| Distributions Payable | $1,078,062 | N/A (Balance Sheet Item) |
| Trust Corpus | $347,243 | N/A (Balance Sheet Item) |
Material Changes vs. Prior Period
- Quarterly Performance (Q3 2021 vs. Q3 2020): Royalty income increased significantly from $1.36 million to $3.34 million, driven by higher oil and gas prices and increased production on Texas Royalty properties. However, the Waddell Ranch properties contributed $0 royalty income in Q3 2021 due to a cumulative Net Profit Interest (NPI) deficit caused by high capital expenditures and workovers.
- Year-to-Date Performance (9M 2021 vs. 9M 2020): Royalty income decreased from $10.06 million to $8.41 million. While average oil prices rose from $40.05 to $58.79 per barrel, the Waddell Ranch properties generated no royalty income for the nine-month period due to the NPI deficit, offsetting gains from the Texas Royalty properties.
- Commodity Prices: Average oil prices for Q3 2021 were $68.34/Bbl compared to $28.55/Bbl in Q3 2020. Average gas prices were $3.36/Mcf compared to $1.74/Mcf.
- Capital Expenditures: Gross capital expenditures on Waddell Ranch properties surged to $26.8 million in Q3 2021 (vs. $2.8 million in Q3 2020) and $46.8 million for the nine months (vs. $3.8 million in 2020), reflecting an aggressive drilling and workover program.
Outlook, Risks, and Unusual Items
- Waddell Ranch NPI Deficit: As of September 30, 2021, the cumulative NPI deficit for the Waddell Ranch properties was $16,193,781 (at 75%). This deficit must be recovered from future proceeds before any royalty income is paid to the Trust from these properties.
- Trustee Change: On November 4, 2021, Simmons Bank announced an agreement to resign as Trustee, nominating Argent Trust Company as the successor. This is subject to unit holder approval.
- Subsequent Distribution: A distribution of $0.022354 per Unit was declared on October 19, 2021, payable November 15, 2021.
- Risk Factors: Income is heavily dependent on volatile commodity prices and the operational decisions of third-party operators (Blackbeard Operating for Waddell Ranch; Riverhill Energy for Texas Royalty properties). High capital expenditures by operators can delay or eliminate distributions if they exceed revenues.
Investor Verification Checklist
- NPI Deficit Recovery: Monitor future reports for the reduction of the $16.2 million Waddell Ranch NPI deficit, which currently blocks income from this asset class.
- Operator Activity: Verify the progress of Blackbeard Operating's $88.6 million 2021 capital budget and its impact on future production volumes versus costs.
- Trustee Transition: Confirm the status of the unit holder vote regarding the appointment of Argent Trust Company as the new Trustee.
- Commodity Exposure: Assess sensitivity of future distributions to fluctuations in oil and gas prices, given the Trust's reliance on net profit calculations.