8-K: Permian Basin Royalty Trust Announces January Cash Distribution of $0.031031 Per Unit

Permian Basin Royalty Trust declared a January cash distribution of $0.031031 per unit, payable on February 14, 2024, reflecting decreased production and pricing, and increased capital costs.

Summary

• Permian Basin Royalty Trust announced a cash distribution of $0.031031 per unit for January, payable on February 14, 2024, to unitholders of record on January 31, 2024.
• The distribution decreased compared to the previous month due to a slight decrease in production, lower oil and gas prices for the Waddell Ranch Properties, and increased capital costs.
• There was a significant decrease in gas volumes produced on the Texas Royalty Properties due to the timing of revenue checks relative to the holidays and the month of December ending on a long weekend.
• Waddell Ranch's November production included 243,384 barrels of oil at an average price of $76.54 per barrel and 855,733 Mcf of gas at an average price of $0.11 per Mcf.
• The Waddell Ranch's net revenue was $17,899,375, with lease operating expenses of $5,601,315 and capital expenditures of $11,886,206, resulting in a net profit interest of $411,277.
• The Trust's 75% share of the Waddell Ranch's net profit interest contributed $308,458 to the distribution.
• Texas Royalty Properties produced 16,739 barrels of oil and 9,503 Mcf of gas, with the Trust's allocated portion being 14,965 barrels of oil and 8,510 Mcf of gas.
• The average price for oil from the Texas Royalty Properties was $80.33 per barrel and for gas was $7.67 per Mcf.
• The Texas Royalty Properties contributed $1,204,095 to the distribution after taxes.
• The total distribution was $1,446,325, after deducting general and administrative expenses of $85,667.
• The Trust has filed a lawsuit against Blackbeard Operating, LLC, seeking over $15 million in damages for alleged royalty underpayments.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the decrease in distribution, lower production and pricing, and increased costs. The litigation is a positive but does not outweigh the negative financial results.

Positives

• The Trust is still generating a positive net profit interest from both the Waddell Ranch and Texas Royalty Properties.
• The Trust is actively pursuing legal action to recover underpaid royalties.
• The Trust provides tax information and calculators to assist unit holders with tax preparation.

Negatives

• The distribution decreased compared to the previous month.
• There was a decrease in production volumes for both oil and gas.
• Oil and gas prices decreased for the Waddell Ranch Properties.
• Capital expenditures increased significantly for the Waddell Ranch Properties.
• The Waddell Ranch Properties may not be able to contribute to future distributions if current pricing continues or declines.
• There was a significant decrease in gas volumes produced on the Texas Royalty Properties.

Risks

• The Waddell Ranch Properties may not be able to contribute to future distributions if current oil and gas pricing continues or declines.
• Worldwide market conditions continue to affect the pricing for domestic production, making future distributions difficult to predict.
• The outcome of the litigation against Blackbeard Operating, LLC is uncertain.

Future Outlook

The document states that if current oil and gas pricing continues or declines, the Waddell Ranch Properties may not be able to contribute to future distributions after covering the ongoing CAPEX budget. The worldwide market conditions continue to affect the pricing for domestic production, making future distributions difficult to predict.

Management Comments

• The distribution decreased from the previous month due to a slight decrease in production and decreases in pricing of oil and pricing of gas for the Waddell Ranch Properties as well as increased capital costs on the Waddell Ranch Properties.
• There was a significant decrease in gas volumes produced on the Texas Royalty Properties due to timing of receipt of revenue checks relative to the holidays and the month of December ending on a long weekend.
• If current oil and gas pricing continues or declines, the Waddell Ranch Properties may or may not be able to continue to contribute to the distribution in the foreseeable future, after covering the ongoing CAPEX budget.

Industry Context

The announcement reflects the challenges faced by oil and gas royalty trusts due to fluctuating commodity prices and production volumes. The decrease in distribution highlights the sensitivity of these trusts to market conditions and operational costs. The litigation against Blackbeard Operating, LLC also underscores the importance of accurate royalty payments in the industry.

Comparison to Industry Standards

• The Permian Basin Royalty Trust's distribution is directly tied to the performance of its underlying oil and gas properties, similar to other royalty trusts such as the San Juan Basin Royalty Trust (SJT) and the Sabine Royalty Trust (SBR).
• The decrease in distribution due to lower prices and increased costs is a common challenge for royalty trusts, as they are price takers in the commodity market.
• The litigation against Blackbeard is not uncommon in the industry, as disputes over royalty calculations and payments can arise between operators and royalty owners.
• The production volumes and pricing reported are specific to the Permian Basin and its unique geological characteristics, making direct comparisons to other basins difficult.

Legal Proceedings

• The Trust has filed a lawsuit against Blackbeard Operating, LLC, seeking over $15 million in damages for alleged royalty underpayments.

Stakeholder Impact

• Shareholders will receive a lower cash distribution compared to the previous month.
• Shareholders may be concerned about the potential for future distributions to be impacted by market conditions and capital expenditures.
• Shareholders will receive tax information packets in early March 2024 to assist with tax preparation.

Next Steps

• The Trust will pay the January cash distribution on February 14, 2024.
• The Trust will provide material updates on the litigation against Blackbeard Operating, LLC as they become available.
• The 2023 tax information packets are expected to begin mailing directly to unit holders in early March 2024.
• A copy of Permian's 2023 tax information booklet is expected to be posted on Permian's website by February 29, 2024.
• The income and expense and the depletion calculators are expected to be updated on Permian's website by late February 2024 for 2023 tax reporting.

Key Dates

Keywords

cash distribution, oil production, gas production, royalty trust, Permian Basin, Waddell Ranch, Texas Royalty Properties, capital expenditures, litigation, Blackbeard Operating