10-K: PermRock Royalty Trust Reports 2025 Decline, Impairment

PermRock Royalty Trust reported a significant decline in net profits income and a $39.9 million impairment in 2025, driven by lower oil prices and production volumes, alongside a revised and reduced capital expenditure plan by its operator T2S.

Summary

• Net profits income decreased to $5.56 million in 2025 from $5.96 million in 2024, and from $7.13 million in 2023.
• Distributable income decreased to $4.71 million ($0.387371 per unit) in 2025 from $5.16 million ($0.424259 per unit) in 2024, and from $6.26 million ($0.514745 per unit) in 2023.
• Oil sales volumes decreased to 252.8 MBbls in 2025 from 289.9 MBbls in 2024, and from 317.8 MBbls in 2023.
• Natural gas sales volumes decreased to 312.4 MMcf in 2025 from 341.1 MMcf in 2024, and from 387.6 MMcf in 2023.
• Average realized oil price decreased to $64.83/Bbl in 2025 from $75.33/Bbl in 2024, and from $76.24/Bbl in 2023.
• Average realized natural gas price increased to $2.63/Mcf in 2025 from $2.54/Mcf in 2024.
• Total proved reserves decreased by 23% in 2025, primarily due to lower oil pricing and T2S's lack of development plans.
• A $39.9 million impairment was recognized on the Net Profits Interest in 2025, reducing its fair value to $26.6 million.
• T2S, the new operator since March 31, 2025, revised its 2025 capital and workover budget downward from $4.5 million to $1.0 million and has no capital budget for 2026, only a $0.75 million workover budget.
• The drilling of two wells in Crane County, Texas (one injector, one producer) was postponed from 2025.
• The lawsuit "Thaleia L. Marston, Trustee of the Marston Trust v. Blackbeard Operating, LLC, et.al" concluded on February 5, 2025, with the Court of Appeals affirming the trial court's judgment in favor of the defendants.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a negative report due to significant declines in key financial metrics, a substantial asset impairment, and a clear indication of reduced future development activity by the operator, T2S. The passive nature of the Trust exacerbates these concerns.

Positives

• Average realized natural gas price increased to $2.63/Mcf in 2025 from $2.54/Mcf in 2024.
• The lawsuit "Thaleia L. Marston, Trustee of the Marston Trust v. Blackbeard Operating, LLC, et.al" concluded in favor of the defendants, resolving a long-standing legal proceeding.
• T2S participated in two non-operated wells in the Permian Shelf Area, successfully drilled in 2025 (though not completed until Q1 2026).
• Lease operating expenses decreased in 2025 due to returning fewer wells to production.
• Direct operating expenses decreased in 2025 due to a decrease in capital projects to return wells to production.

Negatives

• Net profits income decreased to $5.56 million in 2025 from $5.96 million in 2024, and from $7.13 million in 2023.
• Distributable income decreased to $4.71 million ($0.387371 per unit) in 2025 from $5.16 million ($0.424259 per unit) in 2024, and from $6.26 million ($0.514745 per unit) in 2023.
• Oil sales volumes decreased to 252.8 MBbls in 2025 from 289.9 MBbls in 2024, and from 317.8 MBbls in 2023.
• Average realized oil price decreased to $64.83/Bbl in 2025 from $75.33/Bbl in 2024, and from $76.24/Bbl in 2023.
• Natural gas sales volumes decreased to 312.4 MMcf in 2025 from 341.1 MMcf in 2024, and from 387.6 MMcf in 2023.
• Total proved reserves decreased by 23% in 2025, primarily due to lower oil pricing and the lack of development plans by T2S.
• A significant impairment of $39.9 million was recognized on the Net Profits Interest in 2025, reducing its fair value to $26.6 million.
• T2S revised its 2025 capital and workover budget downward from $4.5 million to $1.0 million and has no capital budget for 2026, only a $0.75 million workover budget.
• The drilling of two wells (one injector, one producer) originally scheduled for 2025 in Crane County, Texas, was postponed.
• The Trust's assets are depleting, and production will diminish over the long term.
• The Trust is a passive investment with no control over T2S's operations or development decisions.
• T2S is not a reporting company, limiting financial transparency for unitholders.

Risks

• Oil and natural gas prices are volatile, and lower oil and natural gas prices could reduce proceeds to the Trust and cash distributions to Trust unitholders.
• Pandemics and other public health concerns, including a COVID-19 pandemic resurgence or emergence of new COVID-19 variants, are possible and could adversely affect global demand for oil and gas, the operators of the Underlying Properties, the Net Profits Interest and the cash available for distribution to unitholders.
• The ability or willingness of OPEC and other oil exporting nations to set and maintain production levels has a significant impact on oil and natural gas commodity prices, which could reduce the amount of cash available for distribution to Trust unitholders.
• Actual reserves and future production may be less than current estimates, which could reduce cash distributions by the Trust and the value of the Trust units.
• Developing oil and natural gas wells and producing oil and natural gas are costly and high-risk activities with many uncertainties that could adversely affect future production from the Underlying Properties.
• Any delays, reductions or cancellations in development and producing activities could decrease revenues that are available for distribution to Trust unitholders.
• The amount of cash available for distribution by the Trust depends in part on access to and operation of gathering, transportation and processing facilities on commercially reasonable terms or otherwise. Any limitation in the availability of those facilities could interfere with sales of oil and natural gas production from the Underlying Properties.
• T2S, any successor to T2S, or any third-party operator of any Underlying Property may abandon the property, thereby terminating the related Net Profits Interest payable to the Trust that is attributable to the abandoned property.
• The unavailability or high cost of equipment, supplies, personnel and services could increase costs of developing and operating the Underlying Properties and result in a reduction in the amount of cash available for distribution to the Trust unitholders.
• All of the Underlying Properties are concentrated in the Permian Basin, making the Trust vulnerable to risks associated with operating in only one major geographic area.
• A bankruptcy of T2S, any successor to T2S, or any third-party operator could adversely affect the operation of the wells and the development of the proved undeveloped reserves and interrupt or decrease distributions to Trust unitholders.
• The reserves attributable to the Underlying Properties are depleting assets and production from those reserves will diminish over the long term and may eventually cease, therefore, proceeds to the Trust and cash distributions to Trust unitholders will decrease over time and may eventually cease.
• An increase in the differential between the price realized by T2S or any successor to T2S for oil or natural gas produced from the Underlying Properties and the NYMEX or other benchmark price of oil or natural gas could reduce the profits to the Trust and, therefore, the cash distributions by the Trust and the value of Trust units.
• Higher production and development costs related to the Underlying Properties and other costs and expenses incurred by the Trust without concurrent increases in revenue, will result in decreased Trust distributions.
• A significant portion of the reserves associated with and production from the Underlying Properties will be influenced by the success of secondary recovery techniques. There are uncertainties associated with such techniques and, if these recovery methods do not result in expected production levels, net profits available for distribution to Trust unitholders could be less than expected.
• The standardized measure of the estimated proved oil and natural gas reserves attributable to the Trusts interest in the Underlying Properties and the associated PV-10 calculation are not necessarily the same as the current market value of those estimated reserves.
• The Trust units may lose value as a result of title deficiencies with respect to the Underlying Properties.
• The amount of cash available for distribution by the Trust could be reduced by expenses caused by uninsured claims.
• War, military invasions, terrorism and continued geopolitical hostilities could adversely affect the Trusts distributions to its unitholders or the market price of its units.
• Future net profits income to the Trust may be subject to risks relating to the creditworthiness of third parties.
• The Trust is passive in nature and neither the Trust nor the Trust unitholders have any ability to influence T2S or other third-party operators or control the operation or development of the Underlying Properties.
• T2S may transfer all or a portion of the Underlying Properties at any time without Trust unitholder consent, subject to specified limitations.
• The Trustee must, under certain circumstances, sell the Net Profits Interest and dissolve the Trust prior to the expected termination of the Trust. If this were to occur, Trust unitholders may not recover their investment.
• Conflicts of interest could arise between T2S or any successor to T2S, on the one hand, and the Trust and the Trust unitholders, on the other hand.
• The Trust is administered by a Trustee who cannot be replaced except by a majority vote of the Trust unitholders at a special meeting, which may make it difficult for Trust unitholders to remove or replace the Trustee.
• T2Ss or its successors ability to perform its obligations to the Trust could be limited by restrictions under its debt agreements.
• Trust unitholders have limited ability to enforce provisions of the Conveyance creating the Net Profits Interest, and T2S's liability to the Trust (as well as the liability to the Trust of any successor to T2S) is limited.
• If the Trust cannot meet the New York Stock Exchange continued listing requirements, the NYSE may delist the Trust units.
• Ustx, LLC (or any future owner of the units currently held by Ustx, LLC) may sell Trust units in the public or private markets, and such sales could have an adverse impact on the trading price of the Trust units.
• The trading price for the Trust units may not reflect the value of the Net Profits Interest held by the Trust.
• Courts outside of Delaware may not recognize the limited liability of the Trust unitholders provided under Delaware law.
• The operations of the Underlying Properties are subject to complex federal, state, local and other laws and regulations, including environmental laws and regulations, that could adversely affect the cost, manner or feasibility of conducting operations on them or result in significant costs and liabilities, which could reduce the amount of cash available for distribution to Trust unitholders.
• Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in T2S incurring increased costs, additional operating restrictions or delays and fewer potential drilling locations.
• The adoption and implementation of international, federal or state climate change legislation or regulations could result in increased operating costs for T2S (or any successor to T2S) and reduced demand for the oil, natural gas and NGLs that T2S (or any successor to T2S) produces.
• The potential physical effects of climate change could disrupt production on the Underlying Properties and cause T2S, any successor to T2S, and other third-party operators to incur significant costs, thereby reducing cash distributable to Trust unitholders.
• Additional restrictions on drilling activities intended to protect certain species of wildlife may adversely affect T2Ss and other operators' ability to conduct drilling activities.
• The business of T2S or any successor to T2S could be negatively affected by various security threats, including cybersecurity threats, and other disruptions.
• The Trustee may be subject to attempted cybersecurity disruptions from a variety of sources.
• The Trust has not requested a ruling from the IRS regarding the tax treatment of the Trust. If the IRS were to determine (and be sustained in that determination) that the Trust is not a grantor trust for U.S. federal income tax purposes, the Trust could be subject to more complex and costly tax reporting requirements that could reduce the amount of cash available for distribution to Trust unitholders.
• Trust unitholders are required to pay U.S. federal income taxes on their share of the Trusts income, even if they do not receive any cash distributions from the Trust.
• A portion of any gain recognized on the disposition of the Trust units could be taxed as ordinary income.
• The Trust generally allocates its items of income, gain, loss and deduction between transferors and transferees of the Trust units based upon the monthly record date. The IRS may challenge this treatment.
• Recent and potential changes in federal tax law may affect the tax treatment of an investment in the Trust units.

Future Outlook

T2S has not budgeted any capital for 2026, only a $0.75 million workover budget, reflecting ongoing evaluation of project economics, commodity price forecasts, and regulatory timing. The drilling of two wells (one injector well and one producer well) originally scheduled for 2025 in Crane County, Texas, was postponed until T2S makes a decision based on improved market visibility and commodity price stability. The 2026 plan may be further adjusted based on changes in market conditions, operating performance, and capital requirements.

Management Comments

• "T2S advised the Trustee that it believed this revision provided an appropriate balance between near-term cash preservation and the continued development of the Underlying Properties." (Regarding revised 2025 capital plan)
• "T2S advised the Trustee that it has not budgeted any capital for 2026 (the 2026 Plan). The 2026 Plan reflects T2Ss ongoing evaluation of project economics, commodity price forecasts, and regulatory timing, and may be further adjusted based on changes in market conditions, operating performance, and capital requirements."
• "T2S does not believe that the loss of any of these parties as a purchaser of crude oil or natural gas production from the Underlying Properties would have a material impact on the business or operations of T2S or the Underlying Properties because of the large number of marketing firms and competitive nature of oil and gas purchasers in the Permian Basin."

Industry Context

StockSavvy.ai notes that the significant impairment and reduced capital spending by T2S reflect broader industry pressures in the oil and gas sector, including commodity price volatility and tightening capital markets, particularly impacting trusts with depleting assets and passive investment structures. The Permian Basin remains a key production area, but operators are becoming more cautious with development in response to market conditions and regulatory uncertainty, including the Trump administration's announced rollbacks of environmental regulations which could reduce compliance costs but also introduce policy instability.

Comparison to Industry Standards

• The decline in proved reserves and the significant impairment suggest that the Trust's underlying assets are underperforming relative to a healthy growth-oriented E&P company.
• The lack of a 2026 capital budget for T2S contrasts sharply with many active Permian Basin operators who continue to invest heavily in drilling and development to maintain or grow production.

Management Changes

Corporate Governance

Legal Proceedings

• The lawsuit "Thaleia L. Marston, Trustee of the Marston Trust v. Blackbeard Operating, LLC, et.al" (filed October 1, 2018) concluded on February 5, 2025. The Court of Appeals affirmed the trial court's judgment in favor of the defendant appellees (including Boaz Energy and the Trust), effectively ending the case which sought surface use damages and alleged lease violations.

Related Party Transactions

• Trustee Administrative Fee: The Trust paid Argent Trust Company $215,081 in administrative fees in 2025. The fee is set to increase to approximately $217,232 in 2026, with a 1% annual increase until the Trust's 20th anniversary.
• Purchase and Sale Agreement: On March 31, 2025, Boaz Energy sold its interest in the Underlying Properties to T2S Permian Acquisition II LLC and transferred 4,884,861 Trust units to Ustx, LLC, an affiliate of T2S.
• Registration Rights Agreement: The Trust has a registration rights agreement with Boaz Energy (now effectively Ustx, LLC/T2S) for the offering of Trust units held by them. The Trust does not receive proceeds from such sales.
• Ustx, LLC, an affiliate of T2S, owns 4,884,861 (40.2%) of the outstanding Trust units as of March 26, 2026.

Stakeholder Impact

• Shareholders (Unitholders): Will experience reduced cash distributions due to lower net profits income, decreased production, and the significant impairment. The lack of a capital budget for 2026 by T2S suggests further declines in production and distributions are likely. The passive nature of the Trust limits their ability to influence operations.
• T2S Permian Acquisition II LLC (Operator): Has acquired the Underlying Properties and is making strategic decisions to preserve liquidity by reducing capital expenditures, which directly impacts the Trust's income.
• Argent Trust Company (Trustee): Continues to administer the Trust and manage its cash reserves, receiving an annual administrative fee.

Next Steps

• T2S to decide on moving forward with postponed drilling of two wells in Crane County, Texas, based on improved market visibility and commodity price stability.
• Completion of two non-operated wells in the Permian Shelf Area in Q1 2026.
• The Trustee's annual administrative fee will increase at a rate of 1% each year until the 20th anniversary of the Trust's formation.
• Ongoing evaluation by T2S of project economics, commodity price forecasts, and regulatory timing for future capital adjustments.

Key Dates

Recommendation

The filing presents a highly negative outlook for PermRock Royalty Trust. Significant declines in net profits income, distributable income, and production volumes, coupled with a substantial $39.9 million impairment of the Net Profits Interest, indicate severe deterioration of the underlying asset value. The operator, T2S, has drastically cut capital expenditures for 2025 and has no capital budget for 2026, signaling a lack of investment in future production growth. As a passive trust with depleting assets and no control over the operator's decisions, the Trust is highly vulnerable to these negative trends. Investors should consider selling due to the declining asset base, reduced distributions, and the absence of a clear growth strategy from the operator.

Keywords

PermRock Royalty Trust, PRT, SEC filing, 10-K, oil and gas, Permian Basin, net profits interest, energy, commodity prices, T2S Permian Acquisition II LLC, oil production, natural gas production, reserves, impairment, capital expenditures, distributions, royalty trust, financial results, corporate governance, risk factors, environmental regulations, hydraulic fracturing, climate change, cybersecurity