Item 2. |
Trustees Discussion and Analysis |
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.
Commodity Prices
The Trusts income and monthly
distributions are heavily influenced by commodity prices. Commodity prices may fluctuate widely in response to (i) relatively minor changes in the supply of and demand for oil and natural gas, (ii) market uncertainty and (iii) a
variety of additional factors that are beyond the Trustees control. In 2020, there was a substantial decrease in oil and natural gas prices due in part to significantly decreased demand as a result of the novel coronavirus (COVID-19) pandemic. A combination of these factors resulted in the price of oil falling below zero to $(37.63) per barrel of oil on April 20, 2020, recovering the following day to $10.01 per barrel
of oil. Recent prices have been substantially higher, but are expected to remain volatile. As of May 2, 2022, the price of oil was $105.18. Factors that may impact future commodity prices, including the price of oil and natural gas, include but
are not limited to:
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political conditions in major oil producing regions, especially in the Middle East and Russia;
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worldwide economic conditions; |
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public health concerns, including the COVID-19 pandemic;
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the supply and price of domestic and foreign crude oil or natural gas; |
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the level of consumer demand; |
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the price and availability of alternative fuels; |
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the proximity to, and capacity of, transportation facilities; |
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the effect of worldwide energy conservation measures; and |
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the nature and extent of governmental regulation and taxation. |
Although the Trustee cannot predict the occurrence of events that may affect future commodity prices or the degree to which these prices will be affected, gas
royalty income for a given period generally relates to production three months prior to the period and crude oil royalty income for a given period generally relates to production two months prior to the period and will generally approximate current
market prices in the geographic region of the production at the time of production. When crude oil and natural gas prices decline, the Trust is affected in two ways. First, distributable income from the Royalty Properties is reduced. Second,
exploration and development activity by operators on the Royalty Properties may decline as some projects may become uneconomic and are either delayed or eliminated. It is impossible to predict future crude oil and natural gas price movements, and
this reduces the predictability of future cash distributions to Unit holders.
Three Months Ended March 31, 2022 Compared to Three Months Ended
March 31, 2021
For the quarter ended March 31, 2022, royalty income received by the Trust amounted to $4,078,645 compared to royalty income
of $2,124,157 during the first quarter of 2021. The increase in royalty income is primarily attributable to an increase in oil and natural gas production and pricing for the quarter ended March 31, 2022. Average oil and gas prices were $75.95
and $4.52, respectively, for the quarter ending March 31, 2022 compared to $44.08 and $2.67 for the quarter ended March 31, 2021.
Interest
income for the quarter ended March 31, 2022, was $1,233 compared to $1,313 during the first quarter of 2021. The decrease in interest income is primarily attributable to decreased amounts of funds available for investment. Total expenses during
the first quarter of 2022 amounted to $345,184 compared to $285,740 during the first quarter of 2021. The increase in total expenses can be primarily attributed to increased expense for professional services and the timing of payment of expenses.
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These transactions resulted in distributable income for the quarter ended March 31, 2022, of $3,734,694
or $0.08 per Unit of beneficial interest. Distributions of $0.031614, $0.029164 and $0.019331 per Unit were made to Unit holders of record as of January 31, 2022, February 28, 2022, and March 31, 2022, respectively. For the first
quarter of 2021, distributable income was $1,839,730 or $.04 per Unit of beneficial interest.
Royalty income for the Trust for the first
quarter of the calendar year is associated with actual oil and gas production for the period of November and December 2021 and January 2022 from the properties from which the Trusts net overriding royalty interests (Royalties) were
carved. Oil and gas sales attributable to the Royalties and the properties from which the Royalties were carved are as follows:
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First Quarter |
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2022 |
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2021 |
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Royalties: |
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Oil sales (Bbls) |
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377,243 |
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181,762 |
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Gas sales (Mcf) |
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2,180,498 |
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923,221 |
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Properties From Which The Royalties Were Carved: |
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Oil: |
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Total oil sales (Bbls) |
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488,922 |
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231,828 |
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Average per day (Bbls) |
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5,432 |
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2,576 |
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Average price per Bbl |
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$ |
75.95 |
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$ |
44.08 |
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Gas: |
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Total gas sales (Mcf) |
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2,898,454 |
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1,223,891 |
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Average per day (Mcf) |
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32,205 |
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13,599 |
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Average price per Mcf |
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$ |
4.52 |
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$ |
2.67 |
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The average received price of oil increased to an average price per barrel of $75.95 per Bbl in the first quarter of 2022,
compared to $44.08 per Bbl in the first quarter of 2021 due to worldwide market variables. The Trustee has been advised by the operator of the Waddell Ranch properties that for the period of August 1, 1993, through March 31, 2022, 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 $2.67 per Mcf in the first quarter of 2021 to $4.52 per Mcf in the first quarter of
2022 due to change in overall market variables.
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 increased and gas sales volumes increased from
the Underlying Properties (as defined in the Trusts Annual Report on Form 10-K for the year ended December 31, 2021) for the applicable period in 2022 compared to 2021.
Capital expenditures for drilling, remedial and maintenance activities on the Waddell Ranch properties during the first quarter of 2022 totaled
$20.5 million as compared to $9.5 million for the first quarter of 2021. Blackbeard has previously informed the Trustee that the 2022 capital expenditures budget has been approved at $254 million (gross) for the Waddell Ranch
properties. The total amount of capital expenditures for 2021 with regard to the Waddell Ranch properties totaled $191 million (gross).
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The Trustee has been advised that there were 11.6 workover wells completed, 10.9 new wells completed, 3.4
new wells in progress and 4.1 workover wells in progress during the three months ended March 31, 2022, as compared to 27 workover wells completed, 8 new wells completed, 8 new wells in progress and 9 workover wells in progress
for the three months ended March 31, 2021, on the Waddell Ranch properties. There were various facility projects in progress for the first quarter of 2022.
Lease operating expenses and property taxes totaled $9.5 million (gross) for the first quarter of 2021, compared to $2.3 million (gross) for the
same period in 2021 on the Waddell Ranch properties due to increased maintenance work.
Calculation of Royalty Income
The Trusts royalty income is computed as a percentage of the net profit from the operation of the properties in which the Trust owns net overriding
royalty interests. The royalty income received and recorded by the Trust was determined by the operator as noted below. These percentages of net profits are 75% and 95% in the case of the Waddell Ranch properties and the Texas Royalty properties,
respectively. Royalty income received by the Trust for the three months ended March 31, 2022 and 2021, respectively, were computed as shown in the table below:
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THREE MONTHS ENDED MARCH 31 |
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2022 |
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2021 |
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WADDELL RANCH PROPERTIES |
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TEXAS ROYALTY PROPERTIES |
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WADDELL RANCH PROPERTIES |
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TEXAS ROYALTY PROPERTIES |
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Gross proceeds of sales from the Underlying Properties |
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Oil proceeds |
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$ |
32,878,644 |
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4,253,792 |
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$ |
7,902,252 |
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$ |
2,316,022 |
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Gas proceeds |
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12,789,221 |
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301,957 |
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3,113,938 |
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151,418 |
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Other (adjustments) |
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(11,497,699 |
)(1) |
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1,229,475 |
(1) |
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Total |
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34,170,166 |
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4,555,749 |
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12,245,665 |
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2,467,440 |
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Less: |
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Severance tax: |
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Oil |
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1,475,946 |
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166,135 |
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364,619 |
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95,845 |
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Gas |
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928,438 |
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15,905 |
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91,806 |
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6,176 |
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Other |
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1,849,347 |
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Lease operating expense and property tax: |
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Oil and gas |
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9,433,459 |
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80,380 |
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2,204,522 |
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129,824 |
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Capital expenditures |
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20,482,976 |
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9,584,718 |
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Total |
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34,170,166 |
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262,438 |
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12,245,665 |
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231,485 |
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Net profits |
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4,293,311 |
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2,235,955 |
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Net overriding royalty interests |
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.75 |
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.95 |
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75 |
% |
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95 |
% |
Royalty income |
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$ |
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4,078,645 |
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$ |
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2,124,157 |
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(1) |
Due to the NPI deficit, the Waddell Ranch properties did not contribute to Royalty income for the three months
ended March 31, 2021. As of March 31, 2022, the cumulative NPI deficit is 4,580,223 for the underlying property (at 75%). The NPI deficit must be recovered from future proceeds of the Waddell Ranch properties prior to any other proceeds
being paid to the Trust. |
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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, 2021. There have been no significant changes to the critical accounting policies during the three
months ended March 31, 2022.
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 significant impact on the Trusts financial statements.
Item 3. |
Qualitative and Quantitative Disclosures About Market Risk |
Not applicable due to the Trusts status as a smaller reporting company.
Item 4. |
Controls and Procedures |
On May 14, 2013, the Committee of Sponsoring Organizations of the Treadway Commission issued an updated version of its Internal Control Integrated
Framework (the 2013 Framework) which helps organizations design, implement and evaluate the effectiveness of internal control concepts and simplify their use and application. As of the end of the period covered by this report, the
Trustee carried out an evaluation of the effectiveness of the design and operation of the Trusts disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 based on the criteria established in the 2013 Framework. Based upon that evaluation, the Trustee concluded that the Trusts disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934 and are effective in ensuring that information required to be disclosed
by the Trust in the reports
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that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Trustee to allow timely decisions regarding required disclosure. In its evaluation of
disclosure controls and procedures, the Trustee has relied, to the extent considered reasonable, on information provided by Blackbeard, the owner of the Waddell Ranch properties, and Riverhill Energy Corporation, the owner of the Texas Royalty
properties. There has not been any change in the Trusts internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Trusts internal
control over financial reporting.
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PART IIOTHER INFORMATION
Risk factors relating to the Trust are contained in Item 1A of the Trusts Annual Report on Form 10-K for the
fiscal year ended December 31, 2021. Except as set forth in such filing, no material change to such risk factors has occurred during the three months ended March 31, 2022.
Items 2 through 5.
Not applicable.
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4.3 |
Net Overriding Royalty Conveyance (Permian Basin Royalty Trust) from Southland Royalty Company (now Burlington
Resources Oil & Gas Company LP) to The First National Bank of Fort Worth (now Simmons Bank), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(b) to the Trusts Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980, is incorporated herein by reference. * (P) |
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4.4 |
Net Overriding Royalty Conveyance (Permian Basin Royalty Trust) from Southland Royalty Company (now Burlington
Resources Oil & Gas Company LP) to The First National Bank of Fort Worth (now Simmons Bank), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(b) to the Trusts Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980, is incorporated herein by reference. * (P) |
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* |
A copy of this Exhibit is available to any Unit holder, at the actual cost of reproduction, upon written
request to the Trustee, Simmons Bank, 2911 Turtle Creek Boulevard, Suite 850, Dallas, Texas 75219. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
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SIMMONS BANK, |
TRUSTEE FOR THE |
PERMIAN BASIN ROYALTY TRUST |
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By: |
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/s/ RON E. HOOPER |
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Ron E. Hooper |
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SVP Royalty Trust Management |
Date: May 16, 2022
(The Trust has no directors or executive officers.)
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