Business Context and Reporting Period
Company: PermRock Royalty Trust (PRT)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2022
Trustee: Simmons Bank (Pending resignation; Argent Trust Company approved as successor)
Business Model: The Trust holds an 80% Net Profits Interest in oil and natural gas properties (Underlying Properties) located in the Permian Basin, Texas, conveyed by Boaz Energy. The Trust is a passive entity with no control over operations or costs.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net Profits Income | $2,787,336 | $1,289,640 |
| Total Revenue | $2,787,373 | $1,289,702 |
| Distributable Income | $2,526,890 | $1,048,425 |
| Distributable Income Per Unit | $0.207704 | $0.086177 |
| General & Administrative Expenses | $(260,483) | $(241,274) |
| Cash and Short-Term Investments | $1,863,635 | $1,849,906 |
| Cash Reserves | $1,000,000 | $1,000,000 |
| Net Profits Interest (Asset Value) | $82,854,559 | $83,821,848 |
Material Changes vs. Prior Period
- Revenue Surge: Net profits income increased 116% year-over-year, driven primarily by significantly higher realized oil and natural gas prices.
- Price Realization: Average realized oil price rose to $76.02 per Bbl (from $44.03), and natural gas rose to $7.14 per Mcf (from $2.93).
- Volume Decline: Despite higher prices, production volumes decreased. Oil sales dropped 14.7% (90,673 Bbls vs. 106,328 Bbls) and natural gas dropped 29.5% (103,264 Mcf vs. 146,489 Mcf), attributed to slowed drilling on non-operated properties.
- Cost Increases: Direct operating expenses and lease operating expenses increased due to well repair costs and higher material costs. Development expenses rose due to costs in Schleicher County to return wells to production.
- Trust Corpus: Decreased to $82.85 million from $83.82 million due to amortization of the Net Profits Interest ($967,259) and distributions declared.
Outlook, Risks, and Unusual Items
- Capital Budget: Boaz Energy estimates a 2022 capital budget of $7.0 million for the Underlying Properties. Approximately $1.4 million was expended as of March 31, 2022. Plans include non-operated drilling and waterflood conformance work.
- Trustee Transition: Unitholders approved the appointment of Argent Trust Company as the successor trustee to Simmons Bank. The effective date depends on regulatory and court approvals.
- Litigation Resolution: The "2018 Litigation" (Marston v. Blackbeard Operating) was effectively disposed of via summary judgment in May 2022. The only remaining issue is the potential award of attorneys' fees to the prevailing parties.
- Subsequent Distribution: A distribution of $0.062193 per unit was declared on April 19, 2022, based on February 2022 production, reflecting high oil prices ($89.71/Bbl).
- Risks: The Trust's income is highly sensitive to commodity price volatility, production volumes, and the operational decisions of Boaz Energy. The Trust has no control over development costs or production levels.
Investor Verification Checklist
- Production vs. Price Sensitivity: Verify the extent to which future revenue growth relies on sustained high commodity prices versus the ability to offset volume declines.
- Capital Reserve Status: Monitor the balance of funds held back by Boaz Energy for future capital expenses (currently $6,156 net to the Trust) and the $1.0 million cash reserve held by the Trustee.
- Trustee Transition Timeline: Confirm the effective date of Argent Trust Company's appointment and any associated changes to administrative fee structures.
- Boaz Energy Ownership: Note that Boaz Energy retains ownership of 5,878,332 Trust units (approx. 48% of outstanding units) and has filed a registration statement to sell these units.
- Amortization Impact: Understand that amortization of the Net Profits Interest reduces the Trust Corpus but does not affect cash distributions to unitholders.