DEFN14A: SoftVest Seeks Permian Basin Royalty Trust Indenture Reform

SoftVest, L.P. is soliciting proxies for a special meeting to propose judicial reformation of the Permian Basin Royalty Trust Indenture, aiming to enable future amendments and strategic transactions with a simple majority vote.

Summary

• SoftVest, L.P. and its affiliates (the Participants) are soliciting proxies for a Special Meeting of Permian Basin Royalty Trust (the Trust) Unitholders on December 16, 2025.
• The primary proposal is a non-binding Indenture Reformation Proposal, asking Unitholders to approve SoftVest Advisors taking action to judicially reform the Trust Indenture.
• The goal of the reformation is to allow any amendment to the Trust Indenture to be approved by a simple majority of votes cast by Unitholders at a special meeting where a quorum is present, replacing current super-majority requirements.
• The Participants beneficially own 6,217,107 Units, representing approximately 13.3% of the outstanding Units.
• SoftVest believes the current Trust structure, with its super-majority voting requirements, severely limits Unitholders' ability to maximize value and pursue strategic transactions.
• The current royalty structure on the Waddell Ranch properties is burdened by Production Costs and Post-Production Costs, leading to sub-optimal distributions.
• Production Costs for Waddell Ranch properties increased from $28,405,719 in 2019 to $224,970,682 in 2024, while gross proceeds rose from $39,425,195 to $242,067,954 over the same period.
• Distributions to the Trust from Waddell Ranch properties were $8,264,606 (21.0% of gross proceeds) in 2019 and $12,822,955 (5.3% of gross proceeds) in 2024.
• The Waddell Ranch properties have not contributed royalty income since October 2024 and had a deficit of approximately $28 million as of June 30, 2025.
• If the Indenture is reformed, it could enable a Proposed Conversion of the Trust into a publicly traded corporation or LLC (Newco) and various Potential Strategic Transactions, such as restructuring royalties, investing in similar properties, partnering with Blackbeard, and implementing hedging strategies.
• The Participants also seek approval for an Adjournment Proposal, if necessary, to solicit additional proxies for the Indenture Reformation Proposal.
• SoftVest will bear all expenses of the proxy solicitation, including an estimated fee of up to $20,000 for D.F. King & Co., Inc.

Sentiment

Score: 7

Explanation: While the current operational and governance structure of the Trust is demonstrably suboptimal, leading to poor financial performance in the Waddell Ranch properties, SoftVest's proactive and well-articulated proposal offers a clear and experienced path to unlock significant value. The potential for improved governance, a more favorable royalty structure, and risk management through hedging, if the proposals are successful, presents a strong positive outlook for future Unitholder value.

Positives

• SoftVest, a significant Unitholder, is proactively seeking to improve the Trust's governance and value creation potential.
• The proposed judicial reformation aims to simplify the amendment process, allowing a simple majority vote for significant changes, which could unlock previously restricted strategic options.
• Potential strategic transactions, such as converting to a corporate structure, restructuring the royalty interest to be free from Production Costs, and implementing hedging strategies, could lead to more consistent cash flow and increased Unitholder value.
• Eric L. Oliver, a key Participant, has a strong track record, including being a catalyst for the successful conversion of Texas Pacific Land Corporation from a business trust to a C-corporation.
• The proposed changes could lead to better alignment of economic incentives between the operator (Blackbeard) and Unitholders.

Negatives

• The current Trust Indenture's super-majority voting requirements are deemed 'practically impossible' to achieve, hindering necessary changes.
• The existing royalty structure on Waddell Ranch properties is burdened by significant Production Costs, leading to sub-optimal distributions to Unitholders.
• Waddell Ranch properties have not generated royalty income for the Trust since October 2024 and are in a deficit position of approximately $28 million as of June 30, 2025.
• Despite a substantial increase in gross proceeds from Waddell Ranch properties, the percentage distributed to the Trust has significantly declined (from 21.0% in 2019 to 5.3% in 2024).
• The Trust, as currently structured, cannot hedge against commodity price risk, unlike its operator, Blackbeard, increasing Unitholder risk.
• Unitholders are not informed about how Blackbeard's nearly $500 million in capital expenditures on Waddell Ranch properties are being invested, leading to a lack of transparency.

Risks

• SoftVest cannot guarantee it will proceed with attempting the Indenture Reformation, even if the proposal is approved by Unitholders.
• A court of competent jurisdiction may not approve the Indenture Reformation on the terms sought, or at all, and the timing of such approval is uncertain.
• The judicial proceeding for reformation is expected to take a minimum of six to twelve months, excluding any potential appeal, introducing a significant time delay.
• Even if the Indenture Reformation is approved, there is no guarantee that the Proposed Conversion of the Trust will be pursued or completed.
• If the Proposed Conversion is completed, Blackbeard or other counterparties may not agree to any Potential Strategic Transactions on terms acceptable to the new entity's governing body.
• Converting the Trust to a corporation (Newco) would terminate its status as a grantor trust, making Newco subject to entity-level taxation, which could have adverse federal income tax consequences for Unitholders.
• There is a risk of continued low Unitholder participation, as evidenced by a previous special meeting requiring adjournment due to lack of quorum, which could impede the current proposals.

Future Outlook

If the Indenture Reformation Proposal is approved by Unitholders, SoftVest intends to seek judicial reformation of the Trust Indenture in a court of competent jurisdiction. This judicial proceeding is expected to take a minimum of six to twelve months, excluding any potential appeal. Successful reformation would pave the way for a potential conversion of the Trust into a publicly traded corporation or limited liability company (Newco) and the pursuit of various strategic transactions, including restructuring royalty interests, investing in similar properties, partnering with Blackbeard, and implementing hedging strategies. SoftVest will continuously review its investment and may adjust its actions regarding the reformation and conversion based on market conditions and Unitholder support.

Management Comments

• "It is our belief that the provisions on the Trust's permitted activities in the Trust Indenture, combined with the super-majority voting requirements to amend certain provisions of the Trust Indenture... severely limit Unitholders' ability to maximize value on their investment in the Units."
• "The Participants have been advised that achieving a super-majority vote is practically impossible given the disperse ownership of Unitholders and historical lack of participation by Unitholders at special meetings."
• "We believe the over-arching purpose of the Trust is to benefit the beneficiaries of the Trust, who are the Unitholders."
• "We believe these Production Costs may continue to be elevated for the foreseeable future and as a result, under the current Trust structure, there will continue to be limited, if any, distributions to the Trust."
• "The Participants believe that Unitholders should be informed about how their money is being invested."
• "As royalty trust owners, the Participants know most Unitholders bought an interest in the Trust with the expectation of consistent cash flow (distributions). Due to the nature of the Royalties on the Waddell Ranch properties, which are fully burdened by Production Costs, distributions have been limited."
• "We believe that Blackbeard will be incentivized to exchange the current Royalty held by the Trust for a more industry-standard royalty structure."

Industry Context

The filing highlights a critical challenge facing older royalty trusts: their foundational documents, like the Permian Basin Royalty Trust Indenture from 1980, were not designed for modern oil and gas development technologies such as horizontal drilling and hydraulic fracturing. These advancements have significantly altered cost structures and operational complexities in basins like the Permian, rendering the Trust's original royalty structure (burdened by Production Costs) sub-optimal. The inability to adapt through simple majority votes or implement standard industry practices like hedging places the Trust at a disadvantage compared to more agile corporate structures. SoftVest's proposal reflects a broader trend in the energy sector where legacy entities are pressured to modernize governance and operational flexibility to unlock value in dynamic market conditions, as exemplified by the successful conversion of Texas Pacific Land Corporation.

Comparison to Industry Standards

• The Trust's current net overriding royalty interest, which is burdened by Production Costs, is contrasted with a 'traditional oil and gas mineral royalty that is not burdened by Production Costs,' indicating that the latter is a more standard and desirable industry structure for consistent cash flow.
• The Trust's inability to implement a hedging strategy is highlighted as a significant disadvantage, as hedging is a common risk management practice in the oil and gas industry, which the operator Blackbeard is presumed to utilize.
• The successful conversion of Texas Pacific Land Corporation (NYSE: TPL) from an 1888 Business Trust into a C-corporation with modern governance, leading to its inclusion in the S&P 500, serves as a direct benchmark for the potential benefits of modernizing the Trust's structure and governance.

Corporate Governance

Legal Proceedings

• If the Indenture Reformation Proposal is approved, SoftVest Advisors or another appropriate party would file a petition with a jurisdictional court under Texas law requesting the Indenture Reformation and/or other appropriate relief.
• Service of process will be required on all Unitholders who have not otherwise appeared or waived appearance, potentially including service by alternative means if approved by the court.
• Unitholders will have the opportunity to file answers opposing the petition.
• The judicial proceeding is expected to take a minimum of six to twelve months from the filing of the petition, excluding any potential appeal.

Stakeholder Impact

• **Shareholders (Unitholders)**: Potential for increased value through improved governance, strategic transactions (e.g., traditional royalty, hedging), and more consistent cash flow. However, there are potential adverse tax implications if the Trust converts to a corporation, and the judicial process introduces uncertainty and delay. Unitholders would gain significantly increased voting power with a simple majority requirement.
• **Trustee (Argent Trust Company)**: The Indenture Reformation would permit Unitholders to remove the Trustee with or without cause by a simple majority vote, as opposed to the currently required affirmative vote of the holders of a majority of all Units then outstanding, potentially increasing accountability.
• **Blackbeard Operating, LLC (Operator)**: The proposed changes could lead to a restructuring of royalty interests and potential partnership opportunities, which could better align economic incentives and potentially lead to more efficient development of the Waddell Ranch properties.

Next Steps

• Unitholders are urged to vote on the Indenture Reformation Proposal and the Adjournment Proposal by December 15, 2025.
• The Special Meeting of Unitholders is scheduled for December 16, 2025.
• If the Indenture Reformation Proposal is approved, SoftVest intends to seek judicial reformation of the Trust Indenture in a court of competent jurisdiction.
• The judicial proceeding for reformation is expected to take a minimum of six to twelve months from the filing of the petition, excluding any potential appeal.
• If the Indenture Reformation is approved by a court, a further vote from Unitholders will be required to approve the final terms of the Proposed Conversion.
• SoftVest will continue to review its investment in the Units and may purchase additional Units, sell some or all of its Units, or adjust its sponsorship of the Indenture Reformation and Proposed Conversion based on various factors.

Key Dates

Recommendation

The Permian Basin Royalty Trust's current structure, particularly its super-majority voting requirements and the burdened royalty interest, has demonstrably led to sub-optimal distributions and a significant deficit in the Waddell Ranch properties. SoftVest's proposal to judicially reform the Trust Indenture to allow for simple majority amendments is a critical first step towards modernizing governance and enabling value-maximizing strategic transactions, such as converting to a corporate structure, adopting a traditional royalty interest, and implementing hedging strategies. Given SoftVest's proven track record with Texas Pacific Land Corporation, this initiative presents a compelling opportunity for Unitholders to realize substantial long-term value that is currently suppressed by the outdated Trust Indenture. While judicial and operational risks exist, the potential upside from these fundamental changes makes this a strong investment opportunity.

Keywords

Permian Basin Royalty Trust, PBT, SoftVest, Trust Indenture, Proxy Solicitation, Corporate Governance, Royalty Trust, Oil and Gas, Waddell Ranch, Shareholder Activism, Judicial Reformation, Special Meeting, Energy Investment