8-K: Permian Basin Trust Declares Lower Distribution, Waddell Ranch in Excess Cost

Permian Basin Royalty Trust announced a reduced cash distribution of $0.013198 per unit, with Waddell Ranch properties remaining in an excess cost position and unitholders voting on a non-binding proposal for indenture modification.

Summary

• A cash distribution of $0.013198 per unit was declared, payable on January 15, 2026, to unitholders of record on December 31, 2025.
• The distribution decreased compared to the previous month, primarily due to lower oil volumes and pricing for the Texas Royalty Properties, partially offset by higher natural gas volumes and pricing.
• The Waddell Ranch properties did not contribute to the distribution as total production costs exceeded gross proceeds for November, resulting in a continuing excess cost position.
• All excess costs, including accrued interest, must be recovered from future Waddell Ranch proceeds before any distributions are made to the Trust.
• Blackbeard, the operator of the Waddell Ranch properties, provides production, pricing, and cost information quarterly instead of monthly, impacting the frequency of disclosure for this asset.
• Underlying production for the Texas Royalty Properties was 13,834 barrels of oil and 12,089 Mcf of gas.
• The Trust's allocated portion of the Texas Royalty Properties was 11,957 barrels of oil and 10,456 Mcf of gas.
• The average price for oil was $60.17 per bbl, and for gas was $8.32 per Mcf (including NGL pricing).
• Texas Royalty Properties generated revenues of $933,086, with $139,390 in taxes and expenses, resulting in a Net Profit of $793,696 for November.
• The Trust's 95% Net Profits Interest (NPI) from the Texas Royalty Properties contributed $754,012 to this month's distribution.
• General and Administrative Expenses, net of interest earned, were $138,836.
• At a special meeting held on December 16, 2025, approximately 59.9% of the outstanding Trust units (98.5% of units represented) voted in favor of SoftVest's non-binding proposal to judicially reform or modify the Trust Indenture.
• The proposal aims to allow any amendment to the Trust Indenture to be approved by a simple majority of votes cast by unitholders at a special meeting with a quorum present.
• SoftVest has informed the Trustee of its intent to seek judicial reformation or modification of the Trust Indenture as described in its proxy statement.

Sentiment

Score: 3

Explanation: The reduced distribution, ongoing excess cost position at Waddell Ranch, and the unitholder-driven governance dispute indicate a negative sentiment. While gas performance was better, it couldn't offset the oil-related declines and Waddell Ranch issues. The uncertainty around future distributions and potential legal action further dampens sentiment.

Positives

• Natural gas volumes and pricing for Texas Royalty Properties were higher compared to the previous month, partially offsetting declines in oil.
• Unitholders actively participated in the special meeting, with a clear majority (59.9% of outstanding units, 98.5% of units represented) supporting the non-binding proposal for indenture modification, indicating strong investor engagement.

Negatives

• The monthly cash distribution decreased to $0.013198 per unit compared to the previous month.
• Waddell Ranch properties remain in a continuing excess cost position, meaning no proceeds were received by the Trust for the December distribution.
• The decrease in distribution is primarily attributed to lower oil volumes and lower oil pricing for the Texas Royalty Properties.
• The operator of Waddell Ranch, Blackbeard, provides production, pricing, and cost information quarterly instead of monthly, leading to less frequent and timely disclosure for this asset.

Risks

• Worldwide market conditions continue to affect pricing for domestic production, making it difficult to predict the effect on future distributions.
• Actual results could differ materially from anticipated results due to factors described in the Trust's Annual Report on Form 10-K for the year ended December 31, 2024, and subsequent Quarterly Reports on Form 10-Q.
• The ongoing excess cost position at Waddell Ranch means future distributions from these properties are uncertain until all accumulated costs and interest are recovered.
• Potential legal action by SoftVest to judicially reform or modify the Trust Indenture introduces uncertainty regarding corporate governance and could incur legal costs for the Trust.

Future Outlook

The Trustee states that worldwide market conditions continue to affect pricing for domestic production, making it difficult to predict the effect these conditions will have on future distributions. While the Trustee may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so.

Management Comments

• "The distribution does not include proceeds from the Waddell Ranch properties, as total production costs (Production Costs) exceeded gross proceeds (Gross Proceeds) for the month of November, resulting in a continuing excess cost position for the Waddell Ranch properties."
• "This month's distribution decreased compared to the previous month due primarily to the Texas Royalty Properties having lower oil volumes, along with lower oil pricing, partially offset by higher natural gas volumes and pricing for the month reported."
• "It is difficult to predict what effect these conditions will have on future distributions."

Industry Context

The filing highlights the impact of "worldwide market conditions" on domestic production pricing, indicating that the oil and gas industry is currently experiencing volatility or downward pressure on oil prices, while natural gas prices show some resilience. The ongoing excess cost position at Waddell Ranch suggests challenges in certain mature or higher-cost assets within the Permian Basin. The unitholder activism regarding the Trust Indenture reflects a broader trend of investors seeking greater influence over trust governance and distribution policies in the face of fluctuating commodity markets and operational challenges.

Corporate Governance

Legal Proceedings

• SoftVest has informed the Trustee that it intends to seek judicial reformation or modification of the Trust Indenture, which could lead to legal proceedings.

Stakeholder Impact

• Shareholders/Unitholders: Will receive a lower cash distribution. Those who voted for the SoftVest proposal may see potential changes in governance, while others might be concerned about the implications of judicial action and potential legal costs.
• Management (Argent Trust Company): Faces a challenge from SoftVest regarding the Trust Indenture, potentially leading to legal and administrative burdens.

Next Steps

• SoftVest intends to seek judicial reformation or modification of the Trust Indenture.
• The Trustee will continue disclosing Waddell Ranch information in quarterly reports on Form 10-Q and annual reports on Form 10-K, to the extent timely received from Blackbeard.

Key Dates

Recommendation

The reduced distribution and ongoing excess cost position at Waddell Ranch are negative signals, indicating operational and market challenges. However, the Texas Royalty Properties still generate significant net profit, and higher gas prices offer some offset. The unitholder vote for indenture modification introduces governance uncertainty and potential legal costs, but also signals active investor engagement which could lead to long-term structural improvements. Given the mixed signals and the pending judicial action, a 'hold' recommendation is appropriate as investors await clarity on the governance dispute and future operational performance, particularly from Waddell Ranch.

Keywords

Permian Basin Royalty Trust, PBT, cash distribution, Waddell Ranch, Texas Royalty Properties, oil and gas, net profits interest, NPI, excess cost, unitholder meeting, Trust Indenture, SoftVest, judicial reformation, energy, royalty trust, oil prices, gas prices