Business Context and Reporting Period
Company: Permianville Royalty Trust (PVL)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2020
Outstanding Units: 33,000,000
The Trust is a Delaware statutory trust holding a net profits interest in oil and natural gas properties in Texas, Louisiana, and New Mexico. It is entitled to 80% of the net profits from the sale of production from these underlying properties. The Trust is passive; it has no management control over operations or costs. COERT Holdings 1 LLC is the Sponsor and owns approximately 26% of the outstanding units.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Income from Net Profits Interest | $2,288,832 | $1,255,504 |
| Distributable Income | $2,083,290 | $1,045,603 |
| Distributable Income Per Unit | $0.063130 | $0.031685 |
| Cash and Cash Equivalents | $6,958 | $90,665 (Dec 31, 2019) |
| Advances to Trust (Liability) | $101,148 | $34,818 (Dec 31, 2019) |
| Trust Corpus | $75,725,079 | $77,221,803 (Dec 31, 2019) |
Production Volumes (Q1 2020 vs Q1 2019):
- Oil: 158,227 Bbls (10% increase)
- Natural Gas: 824,142 Mcf (14% decrease)
- Combined: 295,584 Boe (3% decrease)
Material Changes vs. Prior Period
- Revenue Growth: Distributable income increased 99% year-over-year. This was driven by an 82% increase in net profits allocable to the Trust.
- Oil Sales: Increased by $1.0 million (14%) due to higher production volumes (10% increase) and improved realized prices ($53.38/Bbl vs $51.56/Bbl).
- Gas Sales: Decreased by $0.9 million (39%) due to lower production volumes and significantly lower realized prices ($1.79/Mcf vs $2.55/Mcf).
- Cost Reductions: Total costs decreased 15%. Development expenses dropped 42% ($0.6 million) due to fewer capital projects. Operating expenses and taxes also declined due to lower gas production.
- Liquidity: Cash on hand decreased significantly from $90,665 at year-end 2019 to $6,958 at March 31, 2020, primarily due to distributions paid. Advances from the Sponsor increased to $101,148 to cover administrative expenses.
Outlook, Risks, and Management Commentary
Outlook: The Trustee notes significant uncertainty for the remainder of 2020 due to oil and natural gas price volatility. West Texas Intermediate (WTI) crude prices dropped sharply from $61.17/Bbl in early January to $23.55/Bbl in early May 2020. The Sponsor expects capital expenditures to be at the low end or below the previously projected range ($3 million to $5 million net to the Trust) due to reduced spending by operators.
Risks and Contingencies:
- COVID-19 Impact: The pandemic has caused widespread economic disruption, reduced global demand for energy, and operational challenges. A prolonged period of low prices could lead to production curtailments or well abandonments, potentially reducing or eliminating distributions.
- Commodity Price Volatility: Disputes between OPEC and Russia regarding production levels exacerbated price declines. Future actions by these entities could lead to further volatility.
- Impairment Risk: Future downward revisions in production volumes, higher operating costs, or lower commodity prices could trigger impairment charges against the Net Profits Interest.
Subsequent Events: A distribution of $0.041000 per unit was paid on April 14, 2020. On April 17, 2020, a distribution of $0.029000 per unit was declared for payment on May 12, 2020.
Investor Verification Checklist
- Price Sensitivity: Verify the current WTI and Henry Hub natural gas prices against the Trust's break-even thresholds, given the Trust's 80% net profits interest structure.
- Production Trends: Monitor operator announcements regarding capital expenditure cuts and potential well shut-ins in the Permian Basin and Haynesville Shale.
- Liquidity Position: Confirm the repayment of the $101,148 advance from the Sponsor and the Trust's ability to meet administrative expenses without drawing on the $1.2 million letter of credit.
- Distribution Consistency: Review upcoming monthly distribution declarations to assess the impact of the Q1 2020 price environment on cash flow.
- Reserve Estimates: Check for any updates to proved reserves that could alter the unit-of-production amortization rate charged to the Trust corpus.