Business Context and Reporting Period
Company: PermRock Royalty Trust (PRT)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2025
Trustee: Argent Trust Company
Outstanding Units: 12,165,732 (as of May 14, 2025)
The Trust holds an 80% Net Profits Interest in oil and natural gas properties located in the Permian Basin, Texas. On March 31, 2025, the operator of the Underlying Properties changed from Boaz Energy to T2S Permian Acquisition II LLC ("T2S") following a purchase and sale agreement. T2S assumed all obligations under the Conveyance and Trust Agreement.
Key Financial Metrics
| Metric | Q1 2025 | Q1 2024 |
|---|---|---|
| Net Profits Income | $1,710,763 | $1,296,408 |
| Total Revenue (Net Profits + Interest) | $1,723,303 | $1,311,370 |
| Distributable Income | $1,466,195 | $1,122,502 |
| Distributable Income Per Unit | $0.120517 | $0.092268 |
| General & Administrative Expenses | $(257,108) | $(188,868) |
| Cash and Short-Term Investments | $1,486,905 | $1,612,261 |
| Cash Reserves | $1,000,000 | $1,000,000 |
| Net Profits Interest (Asset Value) | $71,286,955 | $72,379,939 |
Material Changes vs. Prior Period
- Revenue Growth: Net profits income increased by approximately 32% ($414,355) compared to Q1 2024. This was driven by slightly higher natural gas prices and lower operating expenses, despite a decrease in oil and gas sales volumes.
- Production Volumes: Oil sales volumes decreased by 6.5% (4,880 Bbls) and natural gas sales volumes decreased by 5.7% (4,780 Mcf) due to natural decline and decreased demand.
- Pricing: Average realized oil price decreased to $69.36/Bbl (from $73.06/Bbl), while natural gas price increased to $3.19/Mcf (from $3.14/Mcf).
- Costs: Development expenses decreased significantly ($720,521 reduction) due to fewer capital projects. Lease operating expenses increased due to plugging two wells in Nolan County, Texas.
- Operator Transition: T2S assumed operations of the Underlying Properties on March 31, 2025, replacing Boaz Energy.
Outlook, Risks, and Management Commentary
- Capital Plan: T2S's estimated capital and workover budget for 2025 is $4.0 million. Approximately $0.1 million has been expended as of March 31, 2025. The plan includes drilling two wells in Crane County, Texas, and workovers.
- Capital Reserves: The operator (T2S) is entitled to reserve up to $3.0 million for future taxes and expenses. As of March 31, 2025, $270,174 was held in reserve net to the Trust.
- Litigation: The "2018 Litigation" (Marston v. Blackbeard Operating) concluded on February 5, 2025, with the Court of Appeals affirming the judgment in favor of the defendants (Boaz Energy and the Trust).
- Risks: The Trust's income is highly dependent on volatile oil and natural gas prices. The Trust has no control over the operation of the properties or the capital expenditure decisions of the operator (T2S).
- Subsequent Event: On April 17, 2025, a distribution of $0.023807 per unit was declared based on February 2025 production.
Investor Verification Checklist
- Operator Transition: Verify the smooth transfer of administrative and operational data from Boaz Energy to T2S and the impact on future reporting timelines.
- Capital Expenditure Execution: Monitor T2S's ability to execute the $4.0 million 2025 capital plan, specifically the drilling of the two new wells in Crane County.
- Production Decline: Assess the long-term impact of the reported natural decline in oil and gas volumes on future distributable income.
- Commodity Price Sensitivity: Evaluate the Trust's exposure to WTI and Henry Hub price fluctuations given the decrease in oil prices and the reliance on gas price increases to offset volume declines.
- Capital Reserve Utilization: Track the $270,174 capital reserve held by T2S to ensure it is utilized for intended future capital expenses and taxes.