Business Context and Reporting Period
Company: PermRock Royalty Trust (PRT)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2022
Structure: Delaware statutory trust holding an 80% Net Profits Interest in oil and natural gas properties (Underlying Properties) located in the Permian Basin, Texas. The Trust is passive; Boaz Energy II, LLC operates the properties.
Trustee Change: Argent Trust Company succeeded Simmons Bank as Trustee effective December 30, 2022.
Key Financial Metrics
| Metric | 2022 | 2021 | 2020 |
|---|---|---|---|
| Net Profits Income | $13,160,845 | $8,144,472 | $3,183,622 |
| Total Revenue | $13,177,436 | $8,144,652 | $3,188,156 |
| Distributable Income | $12,303,956 | $7,371,061 | $1,910,204 |
| Distributable Income Per Unit | $1.011357 | $0.605881 | $0.157014 |
| Cash and Short-Term Investments (Dec 31) | $1,981,938 | $1,849,906 | N/A |
| Cash Reserves Held | $1,000,000 | $1,000,000 | N/A |
| Trust Corpus (Dec 31) | $80,041,113 | $83,821,848 | N/A |
Production & Pricing (2022):
- Total Production: 420.0 MBoe (Oil: 351.7 MBbls; Gas: 409.9 MMcf).
- Average Realized Price: $85.74/Boe (Oil: $93.15/Bbl; Gas: $7.94/Mcf).
- Average Expenses per Boe: $22.58.
Material Changes vs. Prior Period
- Revenue Growth: Net profits income increased 61.6% year-over-year, driven primarily by higher realized oil and natural gas prices. Average oil prices rose from $60.13/Bbl in 2021 to $93.15/Bbl in 2022.
- Production Decline: Total production volumes decreased to 420.0 MBoe in 2022 from 469.0 MBoe in 2021 due to natural decline and decreased demand.
- Cost Increases: Direct operating expenses and lease operating expenses increased due to higher industry pricing for materials, services, and workovers to reactivate wells. Development expenses rose to $5.83 million as Boaz Energy pursued capital projects with higher economic benefit in the elevated price environment.
- Reserve Revisions: Proved reserves increased to 3,424.1 MBoe (Trust interest) as of Dec 31, 2022, largely due to positive price revisions. PV-10 value increased to $145.0 million.
Guidance, Outlook, and Risks
2023 Outlook: Boaz Energy plans to drill new producing wells in the Permian Shelf area, stimulate existing wells, and continue waterflood operations. The estimated capital budget for 2023 is $5.2 million. Management anticipates continuing non-operated drilling and reactivating inactive wells to maximize production in the high commodity price environment.
Key Risks and Contingencies:
- Commodity Price Volatility: Distributions are highly sensitive to oil and gas prices. Lower prices could reduce or eliminate cash available for distribution.
- Depleting Assets: Reserves are depleting; production will diminish over time unless offset by development.
- Operator Bankruptcy: A bankruptcy of Boaz Energy could interrupt operations and distributions, though the Net Profits Interest is intended to remain outside the bankruptcy estate under Texas law.
- Secondary Recovery Uncertainty: A significant portion of reserves relies on waterflood techniques, which carry risks of lower-than-expected production or higher costs.
- Legal Proceedings: The "2018 Litigation" (Marston v. Blackbeard Operating) was effectively disposed of via summary judgment in May 2022, with only attorney fee awards pending as of March 2023.
Investor Verification Checklist
- Boaz Energy Capital Expenditures: Verify if the $5.2 million 2023 budget is being executed as planned to offset natural production decline.
- Commodity Price Sensitivity: Monitor WTI and Henry Hub prices, as realized prices directly dictate monthly distributions.
- Boaz Energy Ownership: Note that Boaz Energy owns approximately 42.7% of outstanding Trust units and has pledged these units as security for a loan with First Capital Bank, creating a potential change-of-control risk.
- Reserve Estimates: Review the independent reserve report by Cawley Gillespie for updates on proved developed vs. undeveloped reserves and the impact of price assumptions.
- Trustee Fees: Confirm administrative fee escalations (approx. $200k annually) are being deducted from distributable income.