SCHEDULE 13D/A: Boaz Energy Divests 40.2% Stake in PermRock Royalty Trust and Oil & Gas Assets to T2S Permian Acquisition II for $12.1 Million Cash

Boaz Energy II, LLC has entered into a definitive agreement to sell its 40.2% beneficial interest in PermRock Royalty Trust and certain oil and gas properties to T2S Permian Acquisition II LLC for a cash consideration of at least $12.1 million.

Summary

• Boaz Energy II, LLC (Seller) has agreed to sell 4,884,861 Trust Units representing beneficial interests in PermRock Royalty Trust (Issuer) to T2S Permian Acquisition II LLC (Buyer).
• These Trust Units represent approximately 40.2% of the total outstanding Trust Units, based on 12,165,732 units as of November 13, 2024.
• The cash consideration for the Subject Trust Units is $12,102,500.
• In addition to the Trust Units, the Seller is also selling certain oil and gas properties (Oil and Gas Properties) to the Buyer, with the total purchase price for all assets being redacted.
• The effective time for the transfer of the Oil and Gas Properties is January 1, 2025, at 12:01:00 a.m. Central Time.
• The closing of the sale is scheduled for March 31, 2025, and is subject to customary closing conditions.
• Following the closing, Boaz Energy will no longer beneficially own any Trust Units, though Marshall Eves and Karan Eves will each directly retain 4,400 Trust Units.
• Boaz Energy will transfer its rights under the Registration Rights Agreement with the Issuer to the Buyer.
• The Purchase and Sale Agreement includes provisions for title and environmental defect adjustments, with specific thresholds and deductibles.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. The document outlines a clear, planned asset sale and change in beneficial ownership, which provides certainty. While the total transaction value is partially redacted, the specific value for the Trust Units is disclosed. The transaction appears to be a strategic move for both parties, without indicating distress or exceptional performance for the Trust itself.

Positives

• The transaction provides a clear exit strategy for Boaz Energy II, LLC from its significant beneficial ownership in PermRock Royalty Trust, converting a substantial equity stake into cash.
• The sale of oil and gas properties alongside the Trust Units streamlines the Seller's asset portfolio.
• For the Buyer, T2S Permian Acquisition II LLC, this acquisition represents a significant strategic investment, gaining a substantial beneficial interest in a royalty trust and direct ownership of oil and gas assets in the Permian Basin.
• The agreement includes standard provisions for due diligence, title, and environmental matters, providing a structured framework for the transaction.

Negatives

• The total purchase price for all assets (Trust Units and Oil & Gas Properties) is redacted, making it difficult to fully assess the overall valuation of the deal.
• The extensive disclaimers of warranties by the Seller, particularly regarding environmental conditions and asset quality, place significant risk on the Buyer, who takes the assets 'AS IS' and 'WHERE IS' with 'ALL FAULTS'.

Risks

• The closing of the transaction is subject to various customary conditions, including the absence of any third-party initiated suits seeking to prohibit the closing.
• The Buyer has a termination right if the purchase price for the oil and gas properties is reduced by greater than 20.0% due to certain property-related adjustments.
• The Purchase and Sale Agreement contains termination rights for both Seller and Buyer if the closing has not occurred prior to April 30, 2025.
• Potential for Title Defects or Environmental Defects could lead to purchase price adjustments or, in certain severe cases, exclusion of affected assets from the sale.
• Failure to obtain Required Consents or waivers of Preferential Purchase Rights could delay the conveyance of specific assets or result in their exclusion from the transaction.
• Buyer is required to obtain replacements for Seller's bonds, letters of credit, and guarantees with Governmental Authorities and Third Parties, which could pose a risk if not secured in time.

Future Outlook

The document outlines the definitive agreement for the sale of a significant beneficial interest in PermRock Royalty Trust and associated oil and gas properties. It indicates a future where T2S Permian Acquisition II LLC will be a major beneficial owner of the Trust Units and operator of the acquired oil and gas assets, while Boaz Energy II, LLC will largely divest its interest. The transfer of registration rights suggests the Buyer intends to maintain an active role related to the Trust Units.

Management Comments

• Marshall Eves, as Chief Executive Officer of Boaz Energy II, LLC, signed the Schedule 13D Amendment, indicating the company's official action in entering into the Purchase and Sale Agreement.

Industry Context

This transaction reflects ongoing consolidation and strategic repositioning within the U.S. energy sector, particularly in the Permian Basin. The sale of a significant stake in a royalty trust, coupled with underlying oil and gas properties, highlights the continued interest in acquiring producing assets and associated royalty streams. Such deals are common as companies optimize their portfolios, and new entrants seek to establish or expand their footprint in key producing regions.

Comparison to Industry Standards

• The structure of the Purchase and Sale Agreement, including provisions for title and environmental due diligence, defect adjustments, indemnification, and closing conditions, aligns with standard practices for oil and gas asset acquisitions in the industry.
• The 'AS IS, WHERE IS, WITH ALL FAULTS' disclaimer for asset condition, common in energy asset sales, shifts significant risk to the buyer regarding unknown liabilities.
• The inclusion of a 1031 like-kind exchange option is a common tax planning feature in U.S. real estate and oil and gas transactions, allowing sellers to defer capital gains.

Legal Proceedings

• The document states that, 'Except for the litigation described on Schedule 6.01(f), there are no suits, actions, proceedings, audits (including any pending or outstanding audits), litigation, or similar dispute before or by any Governmental Authority, and no arbitration proceedings before any Person (in each case) that are pending or, to Sellers Knowledge, threatened in writing against (i) Seller that are attributable to Sellers ownership or operation of the Assets or (ii) the Assets that, in either case of clause (i) or (ii), could reasonably impair or delay Sellers ability to perform its obligations under this Agreement.' The content of Schedule 6.01(f) is not provided in the filing.

Related Party Transactions

• The transaction involves Boaz Energy II, LLC, a significant beneficial owner of PermRock Royalty Trust, selling its stake and related assets to a third-party buyer. This is a direct transaction between a major shareholder and an unrelated entity, rather than a new related-party dealing for the Trust itself.

Stakeholder Impact

• Shareholders of PermRock Royalty Trust: A significant change in beneficial ownership (40.2% stake) from Boaz Energy II, LLC to T2S Permian Acquisition II LLC. This could influence future governance dynamics and the long-term strategic direction of the Trust, depending on the Buyer's intentions and engagement.
• Employees: The agreement includes non-solicitation covenants regarding Seller's employees, indicating potential impact on personnel associated with the divested oil and gas properties, though specific employee changes are not detailed.
• Customers/Suppliers/Creditors: The transfer of oil and gas properties and associated contracts means a change in counterparty for some agreements, potentially impacting existing relationships, though the intent is for continuity of operations under the new ownership.
• Regulatory Authorities: The transaction requires various filings and compliance with governmental authorities for change of operator and ownership, ensuring regulatory oversight of the asset transfer.

Next Steps

• Buyer to deliver Earnest Money to the Escrow Agent within five business days of the agreement's execution.
• Seller to send notices to holders of Consents and Preferential Purchase Rights within ten business days of the agreement date.
• Buyer and its representatives to complete their title and environmental due diligence (Examination Period) by February 28, 2025.
• Seller to prepare and deliver a Closing Statement to Buyer not later than five business days prior to the Scheduled Closing Date.
• The transaction is scheduled to close on March 31, 2025.
• Buyer is required to obtain replacement bonds and qualify as an operator in relevant jurisdictions on or before the Closing Date.
• At closing, Boaz Energy will transfer its rights under the Registration Rights Agreement to the Buyer.
• Buyer will prepare a Final Accounting Statement within 90 days after the Closing Date for final adjustments.
• Parties will cooperate to resolve any post-closing disputes regarding Title/Environmental Defects or accounting adjustments through arbitration if necessary.
• Buyer will assume full responsibility for operating the acquired Assets upon and after the Closing.
• Buyer will remove Seller's names from the Assets and make requisite governmental filings promptly after Closing (within 30 days unless otherwise consented).
• Seller will make Financial Records available to Buyer for up to twelve months post-closing for audit and financial/tax filing purposes.
• Buyer will make its books, records, and employee assistance available to Seller for twelve months post-closing for various purposes.
• Buyer will retain original or final copies of the Files for at least six years following the Closing Date.
• Buyer will administer all suspense accounts and assume related payment obligations at Closing.
• Buyer is obligated to comply with all Laws, Leases, Contracts, and industry standards for plugging, abandonment, decommissioning, removal, cleanup, and restoration of the acquired Assets.

Key Dates

Keywords

PermRock Royalty Trust, Boaz Energy II, T2S Permian Acquisition II, SEC filing, Schedule 13D, beneficial ownership, trust units, oil and gas properties, asset sale, energy sector, royalty trust, Permian Basin, divestiture, acquisition