PermRock Royalty Trust(PRT) - 2024 Q4 - Annual Report

Cautionary Note Regarding Forward-Looking Statements This section provides a cautionary note on forward-looking statements, highlighting inherent risks and uncertainties Forward-Looking Statements Overview Outlines Boaz Energy's and Trust's forward-looking statements, subject to risks like commodity price volatility and regulatory changes - Forward-looking statements cover Boaz Energy's capital expenditure budget, 2025 outlook (non-operated drilling, waterflood), new well drilling plans, estimated capital, Trustee's cash reserves, drilling activity, estimated present value of future cash flows, characteristics of Underlying Properties (reserves), impact of customer loss, reliance on third parties, insurance coverage, burdens on properties, title quality, litigation impact, tax treatment, bankruptcy treatment, distributions, Boaz Energy's unit sales, successor operator actions, and future cash retentions[10] - Key factors that could cause actual results to materially differ include changes in commodity prices, effects of armed conflicts, political and economic conditions, uncertainties in reserve estimation, drilling risks, development costs, production levels, operating expenses, capital availability, risks associated with Boaz Energy's ability to transfer operations, third-party performance, regulatory actions, OPEC actions, capital market conditions, competition, development project pursuit, severe weather, insurance adequacy, environmental compliance costs, general economic conditions in the Permian Basin, title deficiencies, conflicts of interest, litigation impact, and inflation[10][14] - The Trust relies on Boaz Energy for information regarding the Underlying Properties, including operations, acreage, well and completion count, working interests, production volumes, sales revenues, capital expenditures, operating expenses, reserves, drilling plans, drilling results, and leasehold terms[13] Glossary of Terms This section defines key terms related to oil and natural gas production, reserves, and the Trust's operations Key Definitions Defines key terms used throughout the report - Key terms defined include 'average realized sales price,' 'Bbl,' 'Boe,' 'Btu,' 'completion,' 'developed oil and natural gas reserves,' 'development well,' 'differential,' 'distributable income,' 'estimated future net revenues,' 'farm-in or farm-out agreement,' 'field,' 'GAAP,' 'gross acres or wells,' 'MBbl,' 'MBoe,' 'Mcf,' 'MMBoe,' 'MMBtu,' 'MMcf,' 'natural gas liquids (NGL),' 'net profits,' 'net profits income,' 'Net Profits Interest,' 'net acres or net wells,' 'NGL,' 'non-operated,' 'NYMEX,' 'plugging of abandoned wells,' 'proved developed reserves,' 'proved reserves,' 'proved undeveloped reserves (PUDs),' 'PV-10,' 'reasonable certainty,' 'recompletion,' 'reservoir,' 'secondary recovery,' 'Tcf,' 'Trust units,' 'Underlying Properties,' 'waterflood,' 'working interest,' and 'workover'[16][17][18] PART I This part covers part i related disclosures Item 1. Business PermRock Royalty Trust holds an 80% Net Profits Interest in Permian Basin oil and gas, with Boaz Energy selling its interest to T2S Permian Acquisition II LLC General This subsection provides general information about the Trust's formation and purpose The Conveyance This subsection details the conveyance of the Net Profits Interest to the Trust Computation of Net Profit This subsection explains how the Net Profits Interest income is calculated Marketing and Customers This subsection describes the marketing of oil and natural gas and major customers Competition and Markets This subsection discusses the competitive landscape and market conditions Dissolution of the Trust This subsection outlines the conditions and process for the Trust's dissolution Environmental Matters and Regulation This subsection addresses environmental regulations and their impact on operations - The Trust's sole purpose is to own the Net Profits Interest, distribute cash to unitholders, and perform administrative functions. It does not conduct any operations or activities and has no employees[23] - The Net Profits Interest grants the Trust 80% of the net profits from oil and natural gas production from the Underlying Properties, which are passive in nature, meaning the Trust has no control or responsibility over operational costs[25] - On January 10, 2025, Boaz Energy agreed to sell all its right, title, and interest in the Underlying Properties (burdened by the Net Profits Interest) and its 4,884,861 Trust units to T2S Permian Acquisition II LLC. The Buyer (T2S) is expected to become the operator of the Underlying Properties after the anticipated closing in March 2025[28][29][30] Underlying Properties Acreage | Area | Net Acres | | :--- | :--- | | Permian Clearfork | 2,434 | | Permian Abo | 1,667 | | Permian Shelf | 14,390 | | Permian Platform | 3,903 | | Total | 22,394 | - For the year ended December 31, 2024, major purchasers of oil and natural gas production from the Underlying Properties included Phillips 66 (30.59%), Plains All American Pipeline (20.23%), Energy Transfer Partners (18.44%), and Enterprise Crude Oil LLC (12.79%)[40] Item 1A. Risk Factors Outlines significant risks to the Trust's financial condition and distributions, such as commodity price volatility and operational uncertainties Business and Operating Risks This subsection details risks related to the Trust's business and operational activities Risks Related to the Structure of the Trust This subsection outlines risks inherent in the Trust's organizational structure Risks Related to Ownership of the Trust Units This subsection describes risks associated with holding Trust units Legal, Environmental and Regulatory Risks This subsection covers legal, environmental, and regulatory compliance risks Cybersecurity Risks This subsection addresses potential cybersecurity threats and their implications Tax Risks Related to the Trust Units This subsection explains tax-related risks for Trust unitholders - Oil and natural gas prices are volatile, and lower prices could reduce proceeds to the Trust and cash distributions to unitholders. Factors include global economic conditions, foreign imports/exports, political conditions (e.g., Middle East, Russia-Ukraine conflict), public health concerns (e.g., COVID-19), technological advances, alternative fuel prices, infrastructure availability, governmental regulation, trade barriers, energy conservation, and acts of force majeure[76][78][79] - The Trust's assets are concentrated in the Permian Basin, making it vulnerable to regional adverse developments, supply/demand factors, governmental regulation, and midstream capacity constraints[95] - The Trust is passive, and unitholders have no ability to influence Boaz Energy or other third-party operators regarding the operation or development of the Underlying Properties. Boaz Energy may transfer properties without unitholder consent, and conflicts of interest could arise[116][117][122] - The Trust faces legal, environmental, and regulatory risks, including compliance costs for environmental laws (CERCLA, RCRA, CWA, CAA), potential liabilities from spills, increased regulation of hydraulic fracturing, climate change legislation impacting operating costs and demand, and restrictions on drilling due to endangered species[132][133][136][139][141] - Cybersecurity threats to Boaz Energy's IT systems and networks, or to third-party distribution systems, could lead to unauthorized access, data loss, operational disruptions, litigation, regulatory action, and increased costs, ultimately affecting the Trust's distributions[143][144][145] - Tax risks include the possibility that the IRS could challenge the Trust's grantor trust status, leading to more complex and costly tax reporting. Unitholders are required to pay U.S. federal income taxes on their share of the Trust's income, even if cash distributions are not received, and a portion of any gain on disposition of Trust units could be taxed as ordinary income[147][151][153] Item 1B. Unresolved Staff Comments There are no unresolved staff comments - No unresolved staff comments[155] Item 1C. Cybersecurity Describes the Trust's cybersecurity risk management program - The Trustee is responsible for oversight of the Trust's cybersecurity risks, with dedicated personnel assessing and managing the cyber risk management program[156] - The Trustee's cyber risk management program includes technological capabilities for prevention and detection, password protection, employee training, and independent verification of information changes, based on recognized best practices and standards[157][158] - Prior cybersecurity incidents have had no material adverse effect on the Trust's business, financial condition, results of operations, or cash flows[159] Item 2. Properties Describes the Trust's underlying properties, including reserves, acreage, well counts, and production data Description of the Underlying Properties This subsection provides a detailed description of the Trust's underlying oil and natural gas properties Major Producing Areas This subsection identifies the primary oil and natural gas producing regions Oil and Natural Gas Data This subsection presents key data on oil and natural gas reserves and production Abandonment and Sale of Underlying Properties This subsection discusses the abandonment and sale procedures for underlying properties Title to Properties This subsection addresses the legal title and ownership of the Trust's properties - The Underlying Properties comprise 31,354 gross (22,394 net) acres in the Permian Basin, consisting of long-life reserves in mature, conventional oil fields[160][162] Proved Reserves Attributable to the Trust (as of December 31, 2024) | Category | Oil (MBbls) | Natural Gas (MMcf) | Total (MBoe) | PV-10 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Proved Developed | 1,391.2 | 795.8 | 1,523.8 | $55,472.3 | | Proved Undeveloped | 171.8 | 757.5 | 298.1 | $8,973.2 | | Total Proved | 1,563.0 | 1,553.3 | 1,821.9 | $64,445.5 | - Proved undeveloped reserves increased for the year ended December 31, 2024, primarily due to newly identified drilling locations in the Peak Victor field in Crane County[180] Oil and Natural Gas Production Data (Years Ended December 31) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Production volumes: | | | | | Oil (MBbls) | 289.9 | 317.8 | 351.7 | | Natural Gas (MMcf) | 341.1 | 387.6 | 409.9 | | Total (MBoe) | 346.7 | 382 | 420 | | Average net daily production (Boe/d) | 950.08 | 1,047.67 | 1,150.75 | | Average realized sales prices: | | | | | Oil ($/Bbl) | $75.33 | $76.24 | $93.15 | | Natural gas ($/Mcf) | $2.54 | $3.74 | $7.94 | | Average price per Boe | $65.93 | $67.15 | $85.74 | | Total operating expenses per Boe: | | | | | Lease operating expense | $19.64 | $19.05 | $15.28 | | Severance and ad valorem taxes | $3.83 | $5.11 | $5.16 | | Total operating expenses per Boe | $24.97 | $24.79 | $22.58 | - The Trust's title to the Net Profits Interest is considered good and defensible, and in a bankruptcy of Boaz Energy, the Net Profits Interest is believed to remain outside of any Boaz Energy bankruptcy estate[198][199][200] Item 3. Legal Proceedings The lawsuit 'Thaleia L. Marston, Trustee of the Marston Trust v. Blackbeard Operating, LLC, et.al' has concluded, with the Court of Appeals affirming the trial court's judgment - The 2018 Litigation, 'Thaleia L. Marston, Trustee of the Marston Trust v. Blackbeard Operating, LLC, et.al,' naming Boaz Energy and the Trust as defendants, has concluded with the Court of Appeals affirming the trial court's judgment in favor of the defendant appellees on February 5, 2025[201] Item 4. Mine Safety Disclosures This item is not applicable to the Trust - Mine Safety Disclosures are not applicable[202] PART II This part covers part ii related disclosures Item 5. Market for Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities Trust units (PRT) are listed on the NYSE, with 12,165,732 units outstanding as of March 27, 2025, and the Trust makes monthly cash distributions - Trust units are listed on the New York Stock Exchange (NYSE) under the symbol 'PRT'[204] - As of March 27, 2025, there were 12,165,732 Trust units outstanding, held by 9 unitholders of record, including 7,253,071 units held by beneficial owners in street name[204] - The Trust makes monthly cash distributions of substantially all its cash receipts, after deducting fees, expenses, and any cash reserves, to unitholders[205] - The Trust does not maintain any equity compensation plans, nor has it engaged in unregistered sales or issuer purchases of equity securities[206][207][208] Item 6. Reserved This item is reserved and contains no information - Item 6 is reserved[209] Item 7. Trustee's Discussion and Analysis of Financial Condition and Results of Operations Discusses the Trust's financial condition and results of operations, highlighting decreased income in 2024 and Boaz Energy's 2025 capital budget Overview This subsection provides a general overview of the Trust's financial condition and operations 2024 Recap and 2025 Outlook This subsection summarizes 2024 performance and outlines the outlook for 2025 Results of Operations This subsection analyzes the Trust's financial results from its operations Distributable Income This subsection details the calculation and components of distributable income Years Ended December 31, 2024, and 2023 This subsection compares financial results for the years ended December 31, 2024, and 2023 Years Ended December 31, 2023, and 2022 This subsection compares financial results for the years ended December 31, 2023, and 2022 Computation of Income from the Net Profits Interest Received by the Trust This subsection explains the methodology for computing income from the Net Profits Interest Liquidity and Capital Resources This subsection discusses the Trust's liquidity position and capital availability Boaz Energy Capital Expenditure Budget This subsection outlines Boaz Energy's planned capital expenditures for the Underlying Properties Off-Balance Sheet Arrangements This subsection discloses any off-balance sheet arrangements impacting the Trust New Accounting Pronouncements This subsection addresses the impact of recently issued accounting pronouncements Critical Accounting Policies and Estimates This subsection describes the Trust's critical accounting policies and estimates - The Trust's only asset and source of income is the Net Profits Interest, entitling it to 80% of net profits from oil and natural gas production from the Underlying Properties. The Trust is passive and has no management control over operational costs[210] - In 2024, Boaz Energy participated in non-operated drilling, recompletion projects, waterflood conformance, and reactivations. For 2025, Boaz Energy plans to drill new producing wells in the Permian Platform and invest in workovers and waterflood pattern conformance, subject to modification by the successor operator[213][214] Distributable Income (Years Ended December 31) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net profits income | $5,959,482 | $7,127,379 | $13,160,845 | | Interest income | $58,782 | $58,812 | $16,591 | | Total revenue | $6,018,264 | $7,186,191 | $13,177,436 | | Expenditures – general and administrative | ($856,766) | ($923,935) | ($873,480) | | Cash reserves | $0 | $0 | $0 | | Distributable income | $5,161,498 | $6,262,256 | $12,303,956 | | Distributable income per unit | $0.424259 | $0.514745 | $1.011357 | - The decrease in net profits income for 2024 compared to 2023 was primarily due to decreased oil and natural gas sales volumes and prices. General and administrative expenditures decreased due to lower legal expenses[219][220][229][230][231] - Boaz Energy's estimated capital budget for 2025 for the Underlying Properties is $4 million, primarily for two new drill wells in Crane County (1 producer, 1 injector), workovers, and waterflood pattern conformance. The 2024 capital expenditure was $3.8 million[247][248] Item 7A. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable to the Trust - Quantitative and Qualitative Disclosures about Market Risk are not applicable[261] Item 8. Financial Statements and Supplementary Data Presents the Trust's audited financial statements for 2024, prepared on a modified cash basis, including the auditor's report, statements, and notes Report of Independent Registered Public Accounting Firm This subsection presents the independent auditor's report on the Trust's financial statements Statement of Assets, Liabilities, and Trust Corpus This subsection provides the Trust's statement of assets, liabilities, and trust corpus Statements of Distributable Income This subsection presents the Trust's statements of distributable income Statements of Changes in Trust Corpus This subsection details the changes in the Trust's corpus over time Notes to Consolidated Financial Statements This subsection provides explanatory notes to the Trust's consolidated financial statements - The financial statements were prepared on the modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America (GAAP)[267][289] Statement of Assets, Liabilities, and Trust Corpus (as of December 31) | Category | 2024 | 2023 | | :--- | :--- | :--- | | ASSETS | | | | Cash and Short-Term Investments | $1,612,261 | $1,368,611 | | Net Profits Interests | $72,379,939 | $75,876,170 | | TOTAL ASSETS | $73,992,200 | $77,244,781 | | LIABILITIES & TRUST CORPUS | | | | Distribution Payable to Unitholders | $612,261 | $368,611 | | Cash Reserves | $1,000,000 | $1,000,000 | | Trust Corpus | $72,379,939 | $75,876,170 | | TOTAL LIABILITIES & TRUST CORPUS | $73,992,200 | $77,244,781 | Statements of Distributable Income (Years Ended December 31) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Profits Income | $5,959,482 | $7,127,379 | $13,160,845 | | Interest Income | $58,782 | $58,812 | $16,591 | | Total Revenue | $6,018,264 | $7,186,191 | $13,177,436 | | Expenditures – General and Administrative | ($856,766) | ($923,935) | ($873,480) | | Distributable Income | $5,161,498 | $6,262,256 | $12,303,956 | | Distributable Income per Unit | $0.424259 | $0.514745 | $1.011357 | Statements of Changes in Trust Corpus (Years Ended December 31) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Trust Corpus, Beginning of Period | $75,876,170 | $80,041,113 | $83,821,848 | | Amortization of Net Profits Interest | ($3,496,231) | ($4,164,943) | ($3,780,735) | | Distributable Income | $5,161,498 | $6,262,256 | $12,303,956 | | Distributions Declared | ($5,161,498) | ($6,262,256) | ($12,303,956) | | Trust Corpus, End of Period | $72,379,939 | $75,876,170 | $80,041,113 | Reconciliation of Proved Reserve Quantities Attributable to the Trust (as of December 31) | Metric | 2024 (MBoe) | 2023 (MBoe) | 2022 (MBoe) | | :--- | :--- | :--- | :--- | | Balance, Proved Reserves as of Dec 31 | 1,822 | 1,877 | 3,424 | | Revisions of previous estimates | (292) | (1,330) | (572) | | Extensions, discoveries and other additions | — | 165 | 165 | | Production | (347) | (382) | (382) | | Balance, Proved Reserves as of Dec 31 | 1,822 | 1,877 | 3,424 | | Proved developed reserves | 1,524 | 1,788 | 2,191 | | Proved undeveloped reserves | 298 | 89 | 1,233 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There have been no changes in or disagreements with accountants on accounting and financial disclosure[332] Item 9A. Controls and Procedures Evaluates the Trust's disclosure controls and procedures, concluding they were effective as of December 31, 2024 - The Trustee concluded that the Trust's disclosure controls and procedures were effective as of December 31, 2024, relying on information provided by Boaz Energy and the Trust's independent reserve engineers[333][334] - The Trustee concluded that the Trust's internal control over financial reporting was effective as of December 31, 2024, based on criteria established in the Internal Control-Integrated Framework (2013)[336] - There were no changes in the Trust's internal control over financial reporting during the quarter ended December 31, 2024, that materially affected or are reasonably likely to materially affect it[338] Item 9B. Other Information States there is no other information to disclose, and no Rule 10b5-1 trading arrangements or insider trading policies exist - The Trust has no directors or officers, and therefore, no Rule 10b5-1 trading arrangements were adopted or terminated, nor are there insider trading policies[340] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the Trust - Disclosure Regarding Foreign Jurisdictions that Prevent Inspections is not applicable[339] PART III This part covers part iii related disclosures Item 10. Directors, Executive Officers and Corporate Governance The Trust has no directors or executive officers, with affairs managed by the Trustee, and relies on the Trustee's standards of conduct - The Trust has no directors or executive officers; its affairs are managed by the Trustee, who can only be removed and replaced by a majority vote of Trust unitholders[342] - Due to the absence of a board of directors, the Trust does not have an audit committee, an audit committee financial expert, or a nominating committee[343] - The Trust does not have its own code of ethics, with employees of the Trustee (Argent Trust Company) complying with Argent Trust Company's standards of conduct[346] - Based on review of reports, the Trust believes no beneficial owner of more than ten percent of its Units failed to file any report required by Section 16(a) on a timely basis during 2023[345] Item 11. Executive Compensation The Trust has no executive officers or employees, with the Trustee receiving an annual administrative fee of $205,033 in 2024 - The Trust does not have any executive officers, directors, or employees, and thus no executive compensation[347] - The Trustee receives an annual administrative fee, which was $205,033 in 2024, subject to annual escalation as described in Note 6[347] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters Outlines security ownership, with Boaz Energy selling its 4,884,861 Trust units and interest to T2S Permian Acquisition II LLC by March 2025 Security Ownership of Certain Beneficial Owners (as of March 25, 2025) | Name and Address of Beneficial Owner | Title of Class | Amount and Nature of Beneficial Ownership | Percent of Class | | :--- | :--- | :--- | :--- | | Boaz Energy II, LLC, Marshall Eves, and Karan Eves | Trust units | 4,884,861 | 40.2 % | - Boaz Energy has entered into a Purchase and Sale Agreement to sell its 4,884,861 Trust units and its interest in the Underlying Properties to T2S Permian Acquisition II LLC, with closing anticipated by the end of March 2025[350][352][353][354] - As of March 28, 2025, Argent Trust Company, the Trustee, has no beneficial ownership of or power to vote any of the outstanding Trust units[358] Item 13. Certain Relationships and Related Transactions and Director Independence Related transactions include the Trustee's annual administrative fee and a Registration Rights Agreement with Boaz Energy, with the Trust having no board of directors - The Trust paid the Trustee $205,033 in administrative fees in 2024, with the fee expected to be approximately $207,081 in 2025[355] - The Trust and Boaz Energy are parties to a Registration Rights Agreement, which allows Boaz Energy and its affiliates to demand the Trust effect the registration of their registrable Trust units[356] - The Trust does not have a board of directors and relies on an exemption from NYSE director independence requirements[359] Item 14. Principal Accountant Fees and Services Weaver and Tidwell, L.L.P. served as the principal auditor, with audit fees of $140,356 in 2024, and the Trustee approves all services Principal Accountant Fees (Years Ended December 31) | Fee Type | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Audit fees | $140,356 | $124,008 | $80,000 | | Audit-related fees | — | — | — | | Tax fees | — | — | — | | All other fees | — | — | — | | Total fees | $140,356 | $124,008 | $80,000 | - The Trustee grants pre-approval and approval for all services performed by the principal auditor, as the Trust has no audit committee[360][362] PART IV This part covers part iv related disclosures Item 15. Exhibits and Financial Statement Schedules This section lists financial statements included in Part II, Item 8, and provides a comprehensive list of exhibits - The financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K[365] - Financial statement schedules are omitted due to the absence of conditions requiring them or because the information is already provided in the financial statements or notes[365] - Exhibits include the Certificate of Trust, Trust Agreement (original and amended), Description of Trust Units, Conveyance of Net Profits Interest, Registration Rights Agreement, Consent of Cawley, Gillespie & Associates, Inc., and various certifications[367] Item 16. Form 10-K Summary This item is not applicable - Form 10-K Summary is not applicable[368] Signatures This part covers signatures related disclosures Signature of Registrant The report is signed by Argent Trust Company, as Trustee, on March 28, 2025, with the Trust having no principal executive officer or board of directors - The report is signed by Argent Trust Company, as Trustee, by Jana Egeler, VP Trust Administrator, on March 28, 2025[371] - PermRock Royalty Trust has no principal executive officer, principal financial officer, board of directors, or persons performing similar functions[371]