VOC Energy Trust 10-Q Summary: Period Ended March 31, 2022
Business Context and Reporting Period
VOC Energy Trust is a Delaware statutory trust holding an 80% net profits interest in oil and natural gas properties operated by VOC Brazos Energy Partners, LP, primarily in Texas and Kansas. The Trust is a passive entity with no management control over operations. This report covers the quarterly period ended March 31, 2022. As of May 10, 2022, 17,000,000 Units of Beneficial Interest were outstanding.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Income from Net Profits Interest | $4,712,186 | $555,693 |
| Distributable Income | $4,250,000 | $510,000 |
| Distribution per Unit | $0.25 | $0.03 |
| Total Gross Proceeds (Underlying) | $10,507,066 | $5,151,821 |
| General & Administrative Expenses | $373,765 | $396,399 |
| Cash and Cash Equivalents | $375,625 | $287,204 |
| Total Assets | $15,594,738 | $16,005,190 |
| Debt / Borrowings | $0 | $0 |
Production Volumes (Q1 2022): Oil: 135,762 Bbls; Natural Gas: 84,632 Mcf; Total BOE: 149,867.
Average Sales Prices (Q1 2022): Oil: $73.79/Bbl; Natural Gas: $5.78/Mcf.
Material Changes vs. Prior Period
- Revenue Surge: Income from the net profits interest increased 748% to $4.71 million, driven by a 103.9% increase in gross proceeds. This was primarily due to higher commodity prices (Oil +103.5%, Natural Gas +179.2%) despite slight declines in production volumes.
- Distribution Increase: Distributable income rose to $4.25 million ($0.25/unit) from $510,000 ($0.03/unit) in the prior year.
- Cost Dynamics: Lease operating expenses increased 28.5% to $3.46 million, while development expenses decreased 51.5% to $492,148. Production and property taxes decreased 11.4% overall, though production taxes specifically rose due to higher sales prices.
- Asset Base: Total assets decreased slightly to $15.6 million due to amortization of the net profits interest ($498,873) and distributions exceeding income for the period.
Outlook, Commentary, and Risks
- Reserve Build-up: The Trustee intends to build a cash reserve of approximately $1.175 million for future expenses. During Q1 2022, $182,917 was withheld from distributions to fund this reserve.
- Subsequent Event: On April 20, 2022, the Trust announced a distribution of $0.28 per unit ($4.76 million total) for the quarter ended March 31, 2022, payable May 13, 2022.
- Liquidity: The Trust holds no debt. VOC Brazos maintains a $1.7 million letter of credit to cover potential Trust expenses if cash on hand is insufficient.
- Risks: The Trust relies entirely on VOC Brazos for operations and data. It has no control over production decisions. The net profits interest will terminate on the later of December 31, 2030, or upon the production of 10.6 million barrels of oil equivalent (MMBoe) from the underlying properties. As of March 31, 2022, 7.7 MMBoe had been produced.
Investor Verification Checklist
- Verify the current status of the $1.175 million cash reserve target and the rate of future withholdings.
- Confirm the remaining life of the Trust based on current production rates versus the 10.6 MMBoe termination threshold.
- Monitor commodity price volatility, as the Trust's income is highly sensitive to oil and natural gas market prices.
- Review the relationship and financial health of VOC Brazos, as the Trust has no operational control and relies on their reporting.
- Check for any changes in the $1.7 million letter of credit provided by VOC Brazos.