Item 1.
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Financial Statements
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The condensed financial statements included herein have been prepared by Southwest
Bank as Trustee for the Permian Basin Royalty Trust (the Trust), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Effective August 29, 2014, Southwest Bank (the Trustee)
became the new trustee for the Trust. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations, although the Trustee believes that the
disclosures are adequate to make the information presented not misleading. It is suggested that these condensed interim financial statements and notes thereto be read in conjunction with the financial statements and the notes thereto included in the
Trusts latest annual report on Form
10-K.
In the opinion of the Trustee, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the assets, liabilities and trust
corpus of the Permian Basin Royalty Trust at June 30, 2017, the distributable income for the three-month and
six-month
periods ended June 30, 2017 and 2016 and the changes in trust corpus for the
six-month
periods ended June 30, 2017 and 2016, have been included. The distributable income for such interim periods is not necessarily indicative of the distributable income for the full year.
The condensed interim financial statements as of June 30, 2017 and for the three-month and
six-month
periods
ended June 30, 2017 and 2016, included herein, have been reviewed by Weaver and Tidwell, L.L.P., an independent registered public accounting firm, as stated in their report appearing herein.
.
2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Unit Holders of Permian Basin Royalty Trust and
Southwest
Bank, Trustee
Dallas, Texas
We have reviewed the
accompanying condensed statement of assets, liabilities and trust corpus of Permian Basin Royalty Trust (the Trust) as of June 30, 2017 and the related condensed statements of distributable income for the three-month and
six-month
periods ended June 30, 2017 and 2016 and changes in trust corpus for the
six-month
periods ended June 30, 2017 and 2016. These interim financial statements
are the responsibility of the Trustee.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United
States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an
opinion.
As described in Note 2 to the condensed interim financial statements, these condensed interim financial statements have been prepared on a
modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed interim financial statements for them to be in
conformity with the basis of accounting described in Note 2.
/s/ WEAVER AND TIDWELL, L.L.P.
Dallas, TX
August 9, 2017
3
PERMIAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
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June 30,
2017
(Unaudited)
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December 31,
2016
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ASSETS
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|
|
|
|
|
|
|
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Cash and short-term investments
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$
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2,968,037
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|
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$
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3,795,604
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Net overriding royalty interests in producing oil and gas properties (net of accumulated
amortization of $10,409,169
and $10,372,097 at June 30, 2017 and December 31, 2016, respectively)
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566,047
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|
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603,119
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TOTAL ASSETS
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$
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3,534,084
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$
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4,398,723
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LIABILITIES AND TRUST CORPUS
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Distribution payable to Unit holders
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$
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1,918,037
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$
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2,745,604
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Commitments and reserves for contingencies (Note 6)
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1,050,000
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1,050,000
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Trust corpus 46,608,796 Units of beneficial interest authorized and outstanding
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566,047
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|
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603,119
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TOTAL LIABILITIES AND TRUST CORPUS
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$
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3,534,084
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$
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4,398,723
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The accompanying notes are an integral part of these condensed financial statements.
4
PERMIAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
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THREE MONTHS ENDED
June 30, 2017
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THREE MONTHS ENDED
June 30, 2016
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Royalty income
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$
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7,473,738
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$
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4,379,766
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Interest income
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3,056
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232
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7,476,794
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4,379,998
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Reserve for expenses
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(150,000
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)
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General and administrative expenditures
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(504,997
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)
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(565,013
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)
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Distributable income
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$
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6,971,797
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$
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3,664,985
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Distributable income per Unit (46,608,796 Units)
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$
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.15
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$
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.08
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The accompanying notes are an integral part of these condensed financial statements.
5
PERMIAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
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SIX MONTHS ENDED
June 30, 2017
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SIX MONTHS ENDED
June 30, 2016
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Royalty income
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$
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17,025,961
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$
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7,149,802
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Interest income
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5,338
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|
316
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17,031,299
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7,150,118
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Reserve for expenses
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(300,000
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)
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General and administrative expenditures
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(870,454
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)
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(879,847
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)
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|
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Distributable income
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$
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16,160,845
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$
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5,970,271
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Distributable income per Unit (46,608,796 Units)
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$
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.35
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$
|
.13
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The accompanying notes are an integral part of these condensed financial statements.
6
PERMIAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
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SIX MONTHS ENDED
June 30, 2017
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SIX MONTHS ENDED
June 30, 2016
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Trust corpus, beginning of period
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$
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603,119
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$
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680,686
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Amortization of net overriding royalty interests
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(37,072
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)
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(25,613
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)
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Distributable income
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16,160,845
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|
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5,970,271
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Distributions declared
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(16,160,845
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)
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(5,970,271
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)
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Total Trust Corpus, end of period
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$
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566,047
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$
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655,073
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Distributions per Unit
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$
|
.35
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|
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$
|
.13
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The accompanying notes are an integral part of these condensed financial statements.
7
PERMIAN BASIN ROYALTY TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1.
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TRUST ORGANIZATION AND PROVISIONS
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The Permian Basin Royalty Trust (Trust)
was established as of November 1, 1980. Southwest Bank (Trustee) is Trustee for the Trust. The net overriding royalties conveyed to the Trust include (1) a 75% net overriding royalty in Southland Royalty Companys fee
mineral interest in the Waddell Ranch in Crane County, Texas (the Waddell Ranch properties) and (2) a 95% net overriding royalty carved out of Southland Royalty Companys major producing royalty properties in Texas (the
Texas Royalty properties). The net overriding royalty for the Texas Royalty properties is subject to the provisions of the lease agreements under which such royalties were created. The net overriding royalties above are collectively
referred to as the Royalties.
On November 3, 1980, Units of Beneficial Interest (Units) in the Trust were
distributed to the Trustee for the benefit of Southland Royalty Companys shareholders of record as of November 3, 1980, who received one Unit in the Trust for each share of Southland Royalty Company common stock held. The Units are traded
on the New York Stock Exchange.
Burlington Resources Oil & Gas Company LP (BROG), a subsidiary of ConocoPhillips, is
the interest owner for the Waddell Ranch properties and Riverhill Energy Corporation (Riverhill Energy), formerly a wholly owned subsidiary of Riverhill Capital Corporation (Riverhill Capital) and formerly an affiliate of
Coastal Management Corporation (CMC), is the interest owner for the Texas Royalty properties. BROG currently conducts all field, technical and accounting operations with regard to the Waddell Ranch properties. Riverhill Energy currently
conducts the accounting operations for the Texas Royalty properties.
In February 1997, BROG sold its interest in the Texas Royalty
properties to Riverhill Energy.
The Trustee was advised that in the first quarter of 1998, Schlumberger Technology Corporation
(STC) acquired all of the shares of stock of Riverhill Capital. Prior to such acquisition by STC, CMC and Riverhill Energy were wholly owned subsidiaries of Riverhill Capital. The Trustee was further advised that in connection with
STCs acquisition of Riverhill Capital, the shareholders of Riverhill Capital acquired ownership of all of the shares of stock of Riverhill Energy. Thus, the ownership in the Texas Royalty properties referenced above remained in Riverhill
Energy, the stock ownership of which was acquired by the former shareholders of Riverhill Capital.
8
On January 9, 2014, Bank of America, N.A. (as successor to the First National Bank of Fort
Worth) gave notice to Unit holders that it would be resigning as Trustee subject to certain conditions that included the appointment of Southwest Bank, an independent state bank chartered under the laws of the State of Texas and headquartered in
Fort Worth, Texas (Southwest Bank), as successor trustee. At a Special Meeting of Trust Unit holders, the Unit holders approved the appointment of Southwest Bank as successor trustee of the Trust once the resignation of U.S. Trust, Bank
of America Private Wealth Management took effect and also approved certain amendments to the Trust Indenture. The effective date of Bank of America N.A.s resignation and the effective date of Southwest Banks appointment as successor
trustee was August 29, 2014.
The terms of the Trust Indenture provide, among other things, that:
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the Trust shall not engage in any business or commercial activity of any kind or acquire any assets other than those initially conveyed to the Trust;
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the Trustee may not sell all or any part of the Royalties unless approved by holders of 75% of all Units outstanding in which case the sale must be for cash and the proceeds promptly distributed;
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the Trustee may establish a cash reserve for the payment of any liability which is contingent or uncertain in amount;
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the Trustee is authorized to borrow funds to pay liabilities of the Trust; and
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the Trustee will make monthly cash distributions to Unit holders (see Note 3).
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Basis of Accounting
The financial statements of the Trust are prepared on the following basis:
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Royalty income recorded for a month is the amount computed and paid to the Trustee on behalf of the Trust by the interest owners. Royalty income consists of the amounts received by the owners of the interest burdened by
the Royalties from the sale of production less accrued production costs, development and drilling costs, applicable taxes, operating charges and other costs and deductions multiplied by 75% in the case of the Waddell Ranch properties and 95% in the
case of the Texas Royalty properties.
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9
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Trust expenses, consisting principally of routine general and administrative costs, recorded are based on liabilities paid and cash reserves established out of cash received or borrowed funds for liabilities and
contingencies.
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Distributions to Unit holders are recorded when declared by the Trustee.
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Royalty income is computed separately for each of the conveyances under which the Royalties were conveyed to the Trust. If monthly costs exceed revenues for any conveyance (excess costs), such excess costs
cannot reduce royalty income from other conveyances, but is carried forward with accrued interest to be recovered from future net proceeds of that conveyance.
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The financial statements of the Trust differ from financial statements prepared in accordance with accounting principles generally accepted in
the United States of America (GAAP) because revenues are not accrued in the month of production and certain reserves may be established for contingencies which would not be accrued in financial statements prepared in accordance with GAAP
and expenses are recorded when liabilities are paid. Amortization of the Royalties calculated on a
unit-of-production
basis is charged directly to trust corpus. This
comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the U.S. Securities and Exchange Commission as specified by Staff Accounting Bulletin Topic 12:E,
Financial Statements of Royalty
Trusts
.
Use of Estimates
The preparation of financial statements in conformity with the basis of accounting described above requires management to make estimates and
assumptions that affect reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting periods. Actual results may differ from such estimates.
Impairment
The Trustee
routinely reviews its royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If an impairment event occurs and it is determined that the
carrying value of the Trusts royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely
be measured by discounting projected cash flows. There was no impairment of the assets as of June 30, 2017.
10
Contingencies
Contingencies related to the underlying properties that are unfavorably resolved would generally be reflected by the Trust as reductions to
future royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders.
Distributable Income
Per Unit
Basic distributable income per Unit is computed by dividing distributable income by the weighted average of Units
outstanding. Distributable income per Unit assuming dilution is computed by dividing distributable income by the weighted average number of Units and equivalent Units outstanding. The Trust had no equivalent Units outstanding for any period
presented. Therefore, basic distributable income per Unit and distributable income per Unit assuming dilution are the same.
New
Accounting Pronouncements
There are no new accounting pronouncements that are expected to have a significant impact on the
Trusts financial statements.
3.
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NET OVERRIDING ROYALTY INTERESTS AND DISTRIBUTION TO UNIT HOLDERS
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The amounts to be
distributed to Unit holders (Monthly Distribution Amounts) are determined on a monthly basis. The Monthly Distribution Amount is an amount equal to the sum of cash received by the Trustee during a calendar month attributable to the
Royalties, any reduction in cash reserves and any other cash receipts of the Trust, including interest, reduced by the sum of liabilities paid and any increase in cash reserves. If the Monthly Distribution Amount for any monthly period is a negative
number, then the distribution will be zero for such month. To the extent the distribution amount is a negative number, that amount will be carried forward and deducted from future monthly distributions until the cumulative distribution calculation
becomes a positive number, at which time a distribution will be made. Unit holders of record will be entitled to receive the calculated Monthly Distribution Amount for each month on or before 10 business days after the monthly record date, which is
generally the last business day of each calendar month.
11
The cash received by the Trustee consists of the amounts received by owners of the interest
burdened by the Royalties from the sale of production less the sum of applicable taxes, accrued production costs, development and drilling costs, operating charges and other costs and deductions, multiplied by 75% in the case of the Waddell Ranch
properties and 95% in the case of the Texas Royalty properties.
For federal income tax purposes, the Trust constitutes a fixed
investment trust that is taxed as a grantor trust. A grantor trust is not subject to federal income tax at the trust level. The Unit holders are considered for federal tax purposes to own the Trusts income and principal as though no trust were
in existence. The income of the Trust is deemed to have been received or accrued by each Unit holder at the time such income is received or accrued by the Trust and not when distributed by the Trust. If the Trust borrows funds to pay liabilities of
the Trust, as contemplated in the Trust Indenture, unrelated business taxable income could result to
tax-exempt
Unit Holders.
5.
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STATE TAX CONSIDERATIONS
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All revenues from the Trust are from sources within Texas,
which has no individual income tax. Texas imposes a franchise tax at a rate of .75% on gross revenues less certain deductions, as specifically set forth in the Texas franchise tax statutes. Entities subject to tax generally include trusts and most
other types of entities that provide limited liability protection, unless otherwise exempt. Trusts that receive at least 90% of their federal gross income from designated passive sources, including royalties from mineral properties and other
non-operated
mineral interest income, and do not receive more than 10% of their income from operating an active trade or business, generally are exempt from the Texas franchise tax as passive entities.
The Trust has been and expects to continue to be exempt from Texas franchise tax as a passive entity. Because the Trust should be exempt from Texas franchise tax at the Trust level as a passive entity, each Unit holder that is considered
a taxable entity under the Texas franchise tax will generally be required to include its portion of Trust revenues in its own Texas franchise tax computation. This revenue is sourced to Texas under provisions of the Texas Administrative Code
providing that such income is sourced according to the principal place of business of the Trust, which is Texas.
Unit holders should
consult their tax advisors regarding state tax requirements, if any, applicable to such Unit holders ownership of Trust units.
12
6.
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COMMITMENTS AND CONTINGENCIES
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Contingencies related to the Underlying Properties that
are unfavorably resolved would generally be reflected by the Trust as reductions to future royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders.
Subsequent to June 30, 2017, the Trust declared a distribution
on July 21, 2017 of $0.040754 per Unit payable on August 14, 2017 to Unit holders of record on July 31, 2017.
* * * * *
13
Item 2.
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Trustees Discussion and Analysis
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Forward Looking Information
Certain information included in this report contains, and other materials filed or to be filed by the Trust with the Securities and Exchange Commission (as
well as information included in oral statements or other written statements made or to be made by the Trust) may contain or include, forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. Such forward looking statements may be or may concern, among other things, capital expenditures, drilling activity, development activities, production efforts and volumes,
hydrocarbon prices and the results thereof, and regulatory matters. Although the Trustee believes that the expectations reflected in such forward-looking statements are reasonable, such expectations are subject to numerous risks and uncertainties
and the Trustee can give no assurance that they will prove correct. There are many factors, none of which are within the Trustees control, that may cause such expectations not to be realized, including, among other things, factors such as
actual oil and gas prices and the recoverability of reserves, capital expenditures, general economic conditions, actions and policies of petroleum-producing nations and other changes in the domestic and international energy markets. Such forward
looking statements generally are accompanied by words such as estimate, expect, predict, anticipate, goal, should, assume, believe, or other words that
convey the uncertainty of future events or outcomes.
Three Months Ended June 30, 2017 Compared to Three Months Ended June 30, 2016
For the quarter ended June 30, 2017, royalty income received by the Trust amounted to $7,473,738 compared to royalty income of $4,379,766 during the
second quarter of 2016. The increase in royalty income is primarily attributable to a reduction of capital expenditures by the operator and an increase in oil and gas prices for the quarter ending June 30, 2017, as compared to the quarter ended
June 30, 2016. Average oil and gas prices were $47.14 and $3.13 for the quarter ending June 30, 2017, compared to $32.71 and $1.81 for the quarter ended June 30, 2016.
Interest income for the quarter ended June 30, 2017, was $3,056 compared to $232 during the second quarter of 2016. The increase in interest income is
primarily attributable to substantially increased amounts of funds available for investment, primarily the reserve of $1,050,000 in the Trust account. Total expenses during the second quarter of 2017 amounted to $504,997 compared to $565,013 during
the second quarter of 2016. The decrease in total expenses can be primarily attributed to decreased expense for professional services and no additional reserve for expenses.
14
These transactions resulted in distributable income for the quarter ended June 30, 2017, of $6,971,797 or
$0.15 per Unit of beneficial interest. Distributions of $0.056259, $0.052169 and $0.041151 per Unit were made to Unit holders of record as of April 28, 2017, May 31, 2017, and June 30, 2017, respectively. For the second quarter of
2016, distributable income was $3,664,985 or $.08 per Unit of beneficial interest.
Royalty income for the Trust for the second quarter of the calendar
year is associated with actual oil and gas production for the period of February, March and April 2017 from the properties from which the Trusts net overriding royalty interests (Royalties) were carved. Oil and gas sales
attributable to the Royalties and the properties from which the Royalties were carved are as follows:
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Second Quarter
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2017
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2016
|
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Royalties:
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Oil sales (Bbls)
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138,456
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124,037
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Gas sales (Mcf)
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490,380
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|
366,634
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Properties From Which The Royalties Were Carved:
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Oil:
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Total oil sales (Bbls)
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238,581
|
|
|
|
301,428
|
|
Average per day (Bbls)
|
|
|
2,651
|
|
|
|
3,349
|
|
Average price per Bbl
|
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$
|
47.14
|
|
|
$
|
32.71
|
|
Gas:
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|
|
|
|
|
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|
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Total gas sales (Mcf)
|
|
|
1,057,527
|
|
|
|
1,324,086
|
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Average per day (Mcf)
|
|
|
11,570
|
|
|
|
15,062
|
|
Average price per Mcf
|
|
$
|
3.13
|
|
|
$
|
1.81
|
|
The average received price of oil increased to an average price per barrel of $47.14 per Bbl in the second quarter of 2017,
compared to $32.71 per Bbl in the second quarter of 2016 due to worldwide market variables. The Trustee has been advised by ConocoPhillips that for the period of August 1, 1993, through June 30, 2017, the oil from the Waddell Ranch
properties was being sold under a competitive bid to a third party. The average price of gas (including natural gas liquids) increased from $1.81 per Mcf in the second quarter of 2016 to $3.13 per Mcf in the second quarter of 2017 due to change in
overall market variables.
15
Since the oil and gas sales attributable to the Royalties are based on an allocation formula that is dependent on
such factors as price and cost (including capital expenditures), the production amounts in the Royalties section of the above table do not provide a meaningful comparison. Oil sales volumes decreased and gas sales volumes decreased from the
Underlying Properties (as defined in the Trusts Annual Report on Form
10-K
for the year ended December 31, 2016) for the applicable period in 2017 compared to 2016.
Capital expenditures for drilling, remedial and maintenance activities on the Waddell Ranch properties during the second quarter of 2017 totaled $517,000 as
compared to $710,000 for the second quarter of 2016 ConocoPhillips has informed the Trustee that the 2017 capital expenditures budget has been approved at $3.2 million (gross) for the Waddell Ranch properties. The total amount of capital
expenditures for 2016 with regard to the Waddell Ranch properties totaled $11.55 million (gross).
The Trustee has been advised that there were 0
workover wells completed, 0 new wells completed, 0 new wells in progress and 0 workover wells in progress during the three months ended June 30, 2017, as compared to 0 workover wells completed, 0 new wells completed, 0 new wells in progress and
0 workover wells in progress for the three months ended June 30, 2016, on the Waddell Ranch properties. There were various facility projects in progress for the second quarter of 2017.
Lease operating expenses and property taxes totaled $4.0 million (gross) for the second quarter of 2017, compared to $5.5 million (gross) for the
same period in 2016 on the Waddell Ranch properties due to decreased maintenance work and reduction of property taxes.
Six Months Ended June 30,
2017 Compared to Six Months Ended June 30, 2016
For the six months ended June 30, 2017, royalty income received by the Trust amounted to
$17,025,961
compared to royalty income of $7,149,802 for the six months ended June 30, 2016. The increase in royalty income is primarily attributable to a reduction of capital expenditures by the operator and an increase in oil and gas
prices for the six months ending June 30, 2017, as compared to the six months ended June 30, 2016. Average oil and gas prices were $46.69 and $3.15 for the six months ending June 30, 2016 compared to $33.61 and $1.95 for the six
months ended June 30, 2016.
Interest income for the six months ended June 30, 2017, was $5,338 compared to $316 during the six months ended
June 30, 2016. The increase in interest income is primarily attributable to substantially increased amounts of funds available for investment, including the reserve for expense. Total expenses during the six months ending June 30, 2017,
amounted to $870,454 compared to $879,847 during the six months ended June 30, 2016. The decrease in total expenses can be primarily attributed to decreased expense for professional services and no additional reserve for expenses.
16
These transactions resulted in distributable income for the six months ended June 30, 2017 of $16,160,845,
or $.35 per Unit. For the six months ended June 30, 2016, distributable income was $5,970,271, or $.13 per Unit.
Royalty income for the Trust for
the six months ended June 30, 2017, is associated with actual oil and gas production for the period November 2016 through April 2017 from the properties from which the Royalties were carved. Oil and gas production attributable to the Royalties
and the properties from which the Royalties were carved are as follows:
|
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|
|
|
|
|
|
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|
Six Months Ended
|
|
|
|
2017
|
|
|
2016
|
|
Royalties:
|
|
|
|
|
|
|
|
|
Oil sales (Bbls)
|
|
|
298,085
|
|
|
|
195,660
|
|
Gas sales (Mcf)
|
|
|
1,100,970
|
|
|
|
462,143
|
|
Properties From Which The Royalties Were Carved:
|
|
|
|
|
|
|
|
|
Oil:
|
|
|
|
|
|
|
|
|
Total oil sales (Bbls)
|
|
|
484,516
|
|
|
|
606,856
|
|
Average per day (Bbls)
|
|
|
2,662
|
|
|
|
3,349
|
|
Average price per Bbl
|
|
$
|
46.69
|
|
|
$
|
33.61
|
|
Gas:
|
|
|
|
|
|
|
|
|
Total gas sales (Mcf)
|
|
|
2,154,632
|
|
|
|
2,741,077
|
|
Average per day (Mcf)
|
|
|
11,839
|
|
|
|
15,062
|
|
Average price per Mcf
|
|
$
|
3.15
|
|
|
$
|
1.95
|
|
The average received price of oil increased during the six months ended June 30, 2017 to $46.69 per barrel compared to
$33.61 per barrel for the same period in 2016. The increase in the average price of oil is primarily due to worldwide market variables. The increase in the average price of gas (including natural gas liquids) from $1.95 per Mcf for the six months
ended June 30, 2016, to $3.15 per Mcf for the six months ended June 30, 2017, is primarily the result of a change in overall market variables.
Since the oil and gas sales volumes attributable to the Royalties are based on an allocation formula that is dependent on such factors as price and cost
(including capital expenditures), the production amounts in the Royalties section of the above table do not provide a meaningful comparison. Both oil and gas sales volumes from the properties from which the Royalties are carved have increased for
the applicable period of 2017 compared to 2016.
17
Capital expenditures for the Waddell Ranch properties for the six months ended June 30, 2017 totaled
$.7
million (gross) compared to $3.3 million (gross) to the Trust for the same period in 2016. ConocoPhillips has previously advised the Trust that the 2017 capital expenditures budget for the Waddell Ranch properties is
$3.2 million (gross).
The Trustee has been advised that 0 workover wells were completed and 0 new wells were completed (0 vertical, 0 horizontal) on
the Waddell Ranch properties during the six months ended June 30, 2017, as compared to 0 workover wells completed and 0 new wells completed on the Waddell Ranch properties during the six months ended June 30, 2016. There were various
facility projects in progress for the second quarter of 2017.
Lease operating expenses and property taxes totaled $6.8
million for the six
months ended June 30, 2017, compared to $12.4 million for the same period in 2016. The decrease in lease operating expense is primarily attributable to decreased spending on facilities and maintenance.
Calculation of Royalty Income
The Trusts royalty
income is computed as a percentage of the net profit from the operation of the properties in which the Trust owns net overriding royalty interests. These percentages of net profits are 75% and 95% in the case of the Waddell Ranch properties and the
Texas Royalty properties, respectively. Royalty income received by the Trust for the three months ended June 30, 2017 and 2016, respectively, were computed as shown in the table below:
18
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|
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|
|
|
|
|
|
THREE MONTHS ENDED JUNE 30
|
|
|
|
2017
|
|
|
2016
|
|
|
|
WADDELL
RANCH
PROPERTIES
|
|
|
TEXAS
ROYALTY
PROPERTIES
|
|
|
WADDELL
RANCH
PROPERTIES
|
|
|
TEXAS
ROYALTY
PROPERTIES
|
|
Gross proceeds of sales from the Underlying Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil proceeds
|
|
$
|
7,907,442
|
|
|
$
|
3,338,381
|
|
|
$
|
7,410,626
|
|
|
$
|
2,448,987
|
|
Gas proceeds
|
|
|
2,936,656
|
|
|
|
373,683
|
|
|
|
2,109,897
|
|
|
|
281,013
|
|
Other (adjustment)
|
|
|
|
|
|
|
|
|
|
|
(663,412
|
)*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,844,098
|
|
|
|
3,712,064
|
|
|
|
8,857,111
|
|
|
|
2,730,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
|
|
|
350,889
|
|
|
|
99,586
|
|
|
|
329,845
|
|
|
|
81,043
|
|
Gas
|
|
|
80,782
|
|
|
|
18,917
|
|
|
|
115,204
|
|
|
|
13,565
|
|
Other
|
|
|
|
|
|
|
0
|
|
|
|
(850,481
|
)
|
|
|
|
|
Lease operating expense and property tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas
|
|
|
4,016,370
|
|
|
|
375,000
|
|
|
|
5,464,010
|
|
|
|
465,000
|
|
Capital expenditures
|
|
|
516,972
|
|
|
|
|
|
|
|
710,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,965,013
|
|
|
|
493,503
|
|
|
|
5,769,119
|
|
|
|
559,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profits
|
|
|
5,879,084
|
|
|
|
3,218,561
|
|
|
|
3,087,992
|
|
|
|
2,170,392
|
|
Net overriding royalty interests
|
|
|
75
|
%
|
|
|
95
|
%
|
|
|
75
|
%
|
|
|
95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty income
|
|
$
|
4,409,313
|
|
|
|
3,057,633
|
|
|
$
|
2,315,994
|
|
|
|
2,061,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Due to the NPI deficit, Waddell Ranch did not contribute to Royalty Income for April 2017. As of June 30, 2017, the cumulative NPI deficit is zero.
|
19
Critical Accounting Policies and Estimates
A disclosure of critical accounting policies and the more significant judgments and estimates used in the preparation of the Trusts financial statements
is included in Item 7 of the Trusts Annual Report on Form
10-K
for the year ended December 31, 2016. There have been no significant changes to the critical accounting policies during the six months
ended June 30, 2017.
Distributable Income Per Unit
Basic distributable income per Unit is computed by dividing distributable income by the weighted average of Units outstanding. Distributable income per Unit
assuming dilution is computed by dividing distributable income by the weighted average number of Units and equivalent Units outstanding. The Trust had no equivalent Units outstanding for any period presented. Therefore, basic distributable income
per Unit and distributable income per Unit assuming dilution are the same.
New Accounting Pronouncements
There are no new accounting pronouncements that are expected to have a significant impact on the Trusts financial statements.