VOC Energy Trust - Q1 2018 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2018 for VOC Energy Trust, a Delaware statutory trust. The Trust holds a term net profits interest entitling it to 80% of the net proceeds from oil and natural gas production from underlying properties in Texas and Kansas operated by VOC Brazos Energy Partners, LP. The Trust is a passive entity with no management control over operations. As of May 9, 2018, there were 17,000,000 Trust Units outstanding.
Key Financial Metrics
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Income from Net Profits Interest | $2,030,150 | $1,520,044 |
| Distributable Income | $1,870,000 | $1,360,000 |
| Distribution per Unit | $0.110 | $0.080 |
| Cash and Cash Equivalents | $190,912 | $316,520 (Dec 31, 2017) |
| Total Assets | $75,508,537 | $77,711,186 (Dec 31, 2017) |
| General & Administrative Expenses | $285,758 | $183,210 |
| Debt / Borrowings | $0 | $0 |
Material Changes vs. Prior Period
- Revenue Growth: Income from the net profits interest increased by 33.6% ($510,106) compared to Q1 2017. This was driven primarily by higher commodity prices rather than volume.
- Commodity Prices: Average oil sales price increased 16.0% to $49.89/Bbl, and natural gas price increased 20.6% to $3.10/Mcf.
- Production Volumes: Total sales volumes decreased slightly. Oil volumes dropped 0.5% (134,963 Bbls vs. 135,640 Bbls), and natural gas volumes dropped 3.1% (84,880 Mcf vs. 87,594 Mcf).
- Cost Increases: Lease operating expenses rose 6.9% to $3.2 million. Production and property taxes increased significantly by 39.9% to $967,311, largely due to a 47.9% increase in property taxes and higher production taxes linked to commodity prices.
- Development Expenses: Decreased 38.7% to $289,893 due to reduced drilling activity.
Outlook, Risks, and Subsequent Events
- Subsequent Distribution: On April 19, 2018, the Trust announced a distribution of $0.18 per unit ($3,060,000 total) for the quarter ended March 31, 2018, payable on May 15, 2018.
- Liquidity: The Trust held $190,912 in cash reserves as of March 31, 2018. VOC Brazos maintains a $1.0 million letter of credit to cover potential Trust expenses. No borrowings occurred during the quarter.
- Market Risk: The Trust is highly exposed to fluctuations in oil and natural gas prices, as substantially all income is derived from the net profits interest. There is no material interest rate risk.
- Operational Risk: The Trustee relies entirely on VOC Brazos for operational data and has no control over the development or operations of the underlying properties.
- Termination: The net profits interest will terminate on the later of December 31, 2030, or when 10.6 million barrels of oil equivalent (MMBoe) have been produced.
Investor Verification Checklist
- Verify the $0.18 per unit distribution announced for Q1 2018 and its payment date (May 15, 2018).
- Confirm the impact of rising property taxes (up 47.9%) on future distributable income.
- Monitor production volumes which declined slightly despite price increases, indicating mature field characteristics.
- Review the cash reserve balance ($190,912) and the status of the $1.0 million letter of credit provided by VOC Brazos.
- Assess the 80% net profits interest exposure to commodity price volatility given the lack of hedging mentioned in the filing.