Business Context and Reporting Period
Company: PermRock Royalty Trust (PRT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter ended March 31, 2026
Trustee: Argent Trust Company
Operator: T2S Permian Acquisition II LLC (T2S), who assumed operations from Boaz Energy on March 31, 2025.
Business Model: The Trust holds an 80% Net Profits Interest in oil and natural gas properties in the Permian Basin, Texas. It is a passive entity with no control over operations or costs.
Key Financial Metrics
| Metric | Q1 2026 | Q1 2025 |
|---|---|---|
| Net Profits Income | $647,433 | $1,710,763 |
| Total Revenue (Net Profits + Interest) | $656,969 | $1,723,303 |
| Distributable Income | $404,068 | $1,466,195 |
| Distributable Income Per Unit | $0.033212 | $0.120517 |
| General & Administrative Expenses | $(252,901) | $(257,108) |
| Cash and Short-term Investments | $1,036,446 | $1,199,573 |
| Cash Reserves (Retained for expenses) | $1,000,000 | $1,000,000 |
| Net Profits Interest (Asset Value) | $26,272,950 | $26,595,875 |
Material Changes vs. Prior Period
- Revenue Decline: Net profits income decreased by approximately 62% ($1.06 million) compared to Q1 2025. This was driven by a 36% drop in oil sales volumes and a 22% drop in natural gas volumes, alongside lower realized commodity prices.
- Production Volumes: Oil sales fell to 44,572 Bbls (from 69,630 Bbls) and natural gas to 61,849 Mcf (from 79,162 Mcf). The decline is attributed to severe winter weather in Texas (January-February 2026) causing well shut-ins and freeze-offs, as well as natural property decline.
- Pricing: Average realized oil price dropped to $57.17/Bbl (from $69.36/Bbl) and natural gas to $1.50/Mcf (from $3.19/Mcf). Gas pricing weakness was exacerbated by negative differentials at the Waha Hub due to pipeline capacity constraints.
- Costs: Total operating costs decreased to $1.94 million (from $3.30 million) due to reduced workover activity and lower service costs, partially offset by an increase in "Other expenses" due to overhead adjustments.
- Capital Reserves: As of March 31, 2026, T2S held no funds in capital reserves for future expenses, down from $74,933 net to the Trust at year-end 2025. A $10,000 scrivener's error in March was reversed in April 2026.
Outlook, Risks, and Management Commentary
- Operational Outlook: T2S has a 2026 workover budget of approximately $0.7 million for 22 shut-in wells and one plugging/abandonment operation. Most weather-affected wells are expected to return to production in Q2 2026.
- Recent Distribution: On April 20, 2026, a distribution of $0.000473 per unit was declared based on February 2026 production.
- Risks: The Trust remains highly sensitive to commodity price volatility, weather events, and pipeline takeaway capacity. The Trustee relies entirely on T2S for operational data and reserve estimates.
- Impairment History: Note 2 references a significant $39.9 million impairment recorded in 2025, which reduced the Net Profits Interest asset value to $26.6 million. No new impairment was recorded in Q1 2026.
Investor Verification Checklist
- Production Recovery: Verify the timeline for the return of shut-in wells to production following the January/February 2026 weather events.
- Gas Pricing Differential: Monitor the Waha Hub pricing differential and pipeline capacity constraints in the Permian Basin, which significantly impacted Q1 gas revenue.
- Capital Expenditure Execution: Track T2S's execution of the $0.7 million workover budget to ensure it supports production stabilization.
- Scrivener's Error Impact: Confirm the net impact of the $10,000 accounting error reversal on April 2026 distributions.
- Asset Valuation: Review future reserve reports to assess if the current Net Profits Interest carrying value ($26.3 million) remains supported by undiscounted future cash flows.