10-Q: PermRock Royalty Trust Reports Increased Distributable Income for Q1 2025 Amidst Operator Transition

PermRock Royalty Trust's Q1 2025 distributable income rose due to higher gas prices and lower operating expenses, despite a change in the operator of the underlying properties.

Summary

• PermRock Royalty Trust reported distributable income of $1,466,195, or $0.120517 per Trust unit, for the three months ended March 31, 2025, compared to $1,122,502, or $0.092268 per Trust unit, for the same period in 2024.
• The increase in net profits income was primarily due to slightly higher gas prices and lower operating expenses.
• Net profits income received by the Trust was $1,710,763 compared to $1,296,408 for the same period of the prior year.
• The Underlying Properties were acquired by T2S Permian Acquisition II LLC on March 31, 2025, with T2S assuming operations.
• T2S's estimated capital and workover budget for 2025 is $4.0 million, with $0.1 million already expended as of March 31, 2025.
• The Trust continues to operate under the same terms, distributing monthly cash receipts after expenses and reserves.
• The Trust retains a cash reserve of $1,000,000 for administrative expenses.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While distributable income increased, there were decreases in oil and gas sales volumes. The change in operator introduces uncertainty, but the planned capital expenditures by T2S are a positive sign.

Positives

• Distributable income increased compared to the same period last year.
• Net profits income increased due to higher gas prices and lower operating expenses.
• T2S plans to invest $4.0 million in capital and workover projects in 2025.
• The Court of Appeals affirmed the trial court's judgment in favor of the defendant appellees and therefore, the 2018 Litigation case concluded.

Negatives

• Oil sales volumes decreased by 6.5% compared to the same period last year.
• Natural gas sales volumes decreased by 5.7% compared to the same period last year.
• General and administrative expenditures increased by $68,240 for the three months ended March 31, 2025, as compared to the prior year, primarily due to the timing of payments.

Risks

• The Trust's revenue is dependent on volatile oil and natural gas prices.
• Uncertainties exist in estimating production and reserves of the Underlying Properties.
• Risks are associated with the drilling and operation of oil and natural gas wells.
• The amount of future direct operating expenses, development expenses and other capital expenditures can affect the Trust's income.
• The success of T2S's capital projects is uncertain.
• The Trust relies on T2S for information regarding the Underlying Properties.

Future Outlook

T2S plans to continue the capital expenditure plan implemented by Boaz Energy, with an estimated budget of $4.0 million for 2025, focused on drilling, workovers, and waterflood projects. The $4.0 million estimate is subject to change based on, among other things, T2Ss continued analysis of the Plan, changes in the price of oil and natural gas, actual capital requirements, the pace of regulatory approvals and the mix of projects.

Management Comments

• T2S reports that it is working with Boaz Energy to facilitate the transfer of administrative operations from Boaz Energy to T2S.
• T2S expects to continue the Plan implemented by Boaz Energy prior to T2S's acquisition of the Underlying Properties.

Industry Context

The report reflects the ongoing activity in the Permian Basin, a key oil and gas producing region, and the impact of commodity price fluctuations on royalty trusts. The change in operator from Boaz Energy to T2S is a significant event that could impact future production and distributions.

Comparison to Industry Standards

• It's difficult to directly compare PermRock's performance to other royalty trusts without detailed knowledge of their underlying assets and operating conditions.
• However, generally, royalty trusts are valued based on the production and price environment of their underlying assets.
• Comparable companies include royalty trusts focused on the Permian Basin, such as Viper Energy Partners (though Viper is a limited partnership, not a trust) and other smaller trusts with Permian exposure.
• The key metrics to compare would be distributable income per unit, production volumes, and operating expenses.

Legal Proceedings

• The lawsuit styled Thaleia L. Marston, Trustee of the Marston Trust v. Blackbeard Operating, LLC, et.al, No. 18-10-24761 CVW in the 143rd District Court in Ward County, Texas (the 2018 Litigation) was filed, naming, among others, Boaz Energy and the Trust as defendants.
• By order dated February 5, 2025, the Court of Appeals affirmed the trial court's judgment in favor of the defendant appellees and therefore, this case concluded.

Related Party Transactions

• The Trust pays an annual administrative fee to the Trustee and the Delaware Trustee.
• Ustx, LLC, a wholly-owned subsidiary of T2S, owned 4,884,861 Trust units of the 12,165,732 Trust units issued and outstanding.

Stakeholder Impact

• Unitholders will see increased distributions compared to the same period last year.
• The change in operator could impact future distributions.
• T2S's capital expenditure plan could lead to increased production and higher distributions in the future.

Next Steps

• Monitor T2S's capital expenditure plan and its impact on production.
• Track oil and natural gas prices and their effect on the Trust's revenue.
• Observe the transition of operations from Boaz Energy to T2S.
• Monitor the impact of T2S's operations on the Net Profits Interest.

Key Dates

Keywords

PermRock Royalty Trust, Net Profits Interest, T2S Permian Acquisition II LLC, Boaz Energy, Oil and Gas, Distributable Income, Underlying Properties, Permian Basin, Royalty Trust