Business Context and Reporting Period
Company: Permian Basin Royalty Trust (Trust)
Reporting Period: Quarterly period ended June 30, 2004 (Form 10-Q)
Trustee: Bank of America, N.A.
Outstanding Units: 46,608,796 as of August 1, 2004.
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). Financial statements are prepared on a modified cash basis, not GAAP.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2004 | Six Months Ended June 30, 2004 |
|---|---|---|
| Royalty Income | $9,045,654 | $18,252,328 |
| Interest Income | $3,154 | $6,652 |
| General & Administrative Expenses | $(144,076) | $(328,101) |
| Distributable Income | $8,904,732 | $17,930,879 |
| Distributable Income per Unit | $0.191053 | $0.384710 |
| Total Assets | $4,852,402 (as of June 30, 2004) | |
| Cash and Short-term Investments | $2,949,832 (as of June 30, 2004) | |
| Net Overriding Royalty Interests | $1,902,570 (as of June 30, 2004) | |
| Distributions Payable | $2,949,832 (as of June 30, 2004) |
Material Changes vs. Prior Period
- Revenue Growth: Royalty income increased 5.6% for the quarter and 17.4% for the six-month period compared to the same periods in 2003. This increase is primarily attributed to significant increases in oil prices.
- Oil Prices: Average oil price per barrel rose to $33.89 in Q2 2004 from $29.09 in Q2 2003. For the six months, the average was $31.84 compared to $28.95 in 2003.
- Gas Prices: Average gas price per Mcf decreased to $4.98 in Q2 2004 from $5.30 in Q2 2003, though it increased to $4.92 for the six-month period compared to $4.64 in 2003.
- Production Volumes: Total oil sales from underlying properties decreased slightly (298,568 Bbls in Q2 2004 vs. 300,535 Bbls in Q2 2003). Gas sales also decreased (1,426,463 Mcf in Q2 2004 vs. 1,533,308 Mcf in Q2 2003).
- Capital Expenditures: Expenditures on Waddell Ranch properties increased to $2.68 million in Q2 2004 from $2.59 million in Q2 2003. The 2004 budget was revised upward to $13.2 million from $9.1 million in 2003.
- Operating Expenses: Lease operating expenses and property taxes decreased to $2.4 million in Q2 2004 from $2.6 million in Q2 2003 due to reduced maintenance costs.
Outlook, Risks, and Management Commentary
- Subsequent Events: On July 16, 2004, the Trust declared a distribution of $0.077787 per unit, payable on August 13, 2004.
- Drilling Activity: No wells were completed on the Waddell Ranch properties during the quarter. There were 4 wells in progress and 31 workover wells in progress.
- Market Risk: The Trust's income is highly sensitive to oil and gas prices. The Trustee notes that forward-looking statements regarding production and prices are subject to uncertainties including global market demand and regulatory matters.
- Contingencies: The Trustee is aware of no material contingencies as of June 30, 2004. Unfavorable resolutions of contingencies would reduce future royalty income and distributions.
- Accounting Basis: Investors should note that financial statements are on a modified cash basis. Royalty income is recorded when received, not when produced, and amortization is charged directly to trust corpus.
Key Facts for Investor Verification
- Verify the current market prices of oil and natural gas, as the Trust's distributable income is directly correlated to these commodity prices.
- Confirm the status of the 2004 capital expenditure budget ($13.2 million) for the Waddell Ranch properties and its impact on future net profits.
- Review the allocation formula used to determine royalty income, as it depends on price and cost factors including capital expenditures.
- Monitor the Trust's cash reserves and distribution schedule, as distributions are declared monthly based on cash received.
- Understand that the Trust is taxed as a grantor trust; unit holders are responsible for reporting income as ordinary income from oil and gas royalties.