Business Context and Reporting Period
Company: PermRock Royalty Trust (PRT)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Trustee: Argent Trust Company
Operator: T2S Permian Acquisition II LLC (T2S), effective March 31, 2025
The Trust is a Delaware statutory trust holding an 80% Net Profits Interest in oil and natural gas properties located in the Permian Basin, Texas. On March 31, 2025, the ownership of the Underlying Properties and the operatorship transferred from Boaz Energy II, LLC to T2S Permian Acquisition II LLC. The Trust has no employees and distributes substantially all cash receipts monthly to unitholders.
Key Financial Metrics
| Metric | 2025 | 2024 | 2023 |
|---|---|---|---|
| Net Profits Income | $5,559,315 | $5,959,482 | $7,127,379 |
| Total Revenue | $5,607,416 | $6,018,264 | $7,186,191 |
| Distributable Income | $4,712,736 | $5,161,498 | $6,262,256 |
| Distributable Income Per Unit | $0.3874 | $0.4243 | $0.5147 |
| General & Administrative Expenses | $894,680 | $856,766 | $923,935 |
| Cash and Short-Term Investments | $1,199,573 | $1,612,261 | N/A |
| Net Profits Interest (Carrying Value) | $26,595,875 | $72,379,939 | N/A |
| Proved Reserves (MBoe) | 1,100.2 | 1,822.0 | 1,877.0 |
| PV-10 (in thousands) | $31,406 | $64,445 | $65,037 |
Production Volumes (2025): 252.8 MBbls of oil and 312.4 MMcf of natural gas (Total: 304.9 MBoe).
Average Realized Prices (2025): $64.83/Bbl (Oil) and $2.63/Mcf (Natural Gas).
Material Changes vs. Prior Period
- Significant Impairment: The Trust recognized a non-cash impairment loss of approximately $39.9 million in 2025. This reduced the carrying value of the Net Profits Interest from $72.4 million to $26.6 million. The impairment was driven by lower commodity price forecasts and the operator's lack of a development budget for 2026.
- Change in Operator: On March 31, 2025, T2S Permian Acquisition II LLC acquired the Underlying Properties from Boaz Energy. Concurrently, 4,884,861 Trust units (approx. 40.2% of outstanding units) were transferred to Ustx, LLC, an affiliate of T2S.
- Reserve Reductions: Proved reserves decreased by approximately 23% in 2025 compared to 2024, primarily due to lower oil pricing assumptions and the absence of a development plan by the new operator. Proved undeveloped reserves (PUDs) were reduced to zero.
- Revenue Decline: Net profits income decreased by 6.7% year-over-year, attributed to lower oil sales volumes and realized oil prices, partially offset by a slight increase in natural gas prices.
- Capital Expenditures: T2S revised its 2025 capital budget downward from $4.5 million to approximately $1.0 million. Total capital expenditures for 2025 were $515,530. T2S has not budgeted any capital for 2026, though a $0.75 million workover budget exists.
Guidance, Outlook, and Risks
Outlook: T2S has not established a capital budget for 2026, citing ongoing evaluation of project economics and commodity price forecasts. The operator plans to focus on workovers and waterflood optimization rather than new drilling. The Trust expects distributions to continue based on net cash receipts, but future cash flows are highly sensitive to commodity prices and the operator's capital decisions.
Key Risks and Contingencies:
- Depleting Assets: The Underlying Properties are mature fields with declining production. Without significant capital investment, production and distributions will diminish over time.
- Operator Discretion: The Trust is passive; T2S controls all operational decisions, including the right to abandon wells or properties without unitholder consent if they are not economically viable.
- Commodity Price Volatility: Distributions are directly tied to oil and gas prices. Lower prices reduce net profits and may render certain wells uneconomic to operate.
- Regulatory Environment: Operations are subject to evolving environmental regulations, including methane emission rules and hydraulic fracturing restrictions, which could increase costs or limit production.
- Concentration Risk: All assets are located in the Permian Basin, exposing the Trust to regional operational and regulatory risks.
Investor Verification Checklist
- Impairment Impact: Verify the specific assumptions used in the $39.9 million impairment calculation, particularly the commodity price forecasts and discount rates applied by the Trustee.
- 2026 Capital Plan: Confirm T2S's decision to have no capital budget for 2026 and assess the long-term impact on production decline rates.
- Ownership Structure: Review the implications of Ustx, LLC (T2S affiliate) holding 40.2% of Trust units and its potential influence on future operational decisions.
- Reserve Revisions: Analyze the 23% reduction in proved reserves and the elimination of proved undeveloped reserves (PUDs) to understand the remaining economic life of the assets.
- Operator Financial Health: Assess the financial stability of T2S, as the Trust's cash flow depends entirely on the operator's ability to fund operations and market production.