Permian Basin Royalty Trust(PBT) - 2025 Q2 - Quarterly Report

FORM 10-Q General Information This section details the Permian Basin Royalty Trust's Form 10-Q filing for Q2 2025, covering its NYSE symbol (PBT) and filer status - Permian Basin Royalty Trust filed Form 10-Q for the quarterly period ended June 30, 2025[2] Units of Beneficial Interest Trading Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |---|---|---| | Units of Beneficial Interest | PBT | New York Stock Exchange | - The registrant is classified as a non-accelerated filer and a smaller reporting company[3] - Number of units of beneficial interest outstanding at August 13, 2025: 46,608,796[3] PART I - FINANCIAL INFORMATION This part contains the unaudited condensed interim financial statements, Trustee's Discussion and Analysis, and disclosures on market risk and controls - The condensed interim financial statements are unaudited and prepared on a modified cash basis of accounting, not in conformity with GAAP[5][32] - Weaver and Tidwell, L.L.P. reviewed the financial statements and are not aware of any material modifications needed for conformity with the modified cash basis of accounting[6][11] Item 1. Financial Statements This section presents the unaudited condensed interim financial statements for Q2 2025 and 2024, prepared on a modified cash basis, with the auditor's report Report of Independent Registered Public Accounting Firm Weaver and Tidwell, L.L.P. reviewed the condensed interim financial statements for Q2 2025 and 2024, finding no material modifications required for conformity with the modified cash basis of accounting - Weaver and Tidwell, L.L.P. reviewed the condensed interim financial statements and found no material modifications needed for conformity with the modified cash basis of accounting[11] - The firm previously issued an unqualified opinion on the Trust's financial statements for the year ended December 31, 2024[13] Condensed Interim Statements of Assets, Liabilities and Trust Corpus The statement shows the Trust's financial position as of June 30, 2025, and December 31, 2024, with total assets decreasing primarily due to reduced cash and short-term investments Condensed Interim Statements of Assets, Liabilities and Trust Corpus | ASSETS | June 30, 2025 (Unaudited) | December 31, 2024 | |---|---|---| | Cash and short-term investments | $1,704,817 | $2,122,585 | | Net overriding royalty interests | $163,122 | $164,407 | | TOTAL ASSETS | $1,867,939 | $2,286,992 | | LIABILITIES AND TRUST CORPUS | | | | Distribution payable to Unitholders | $604,817 | $1,022,585 | | Commitments and reserves for contingencies | $1,100,000 | $1,100,000 | | Total Liabilities | $1,704,817 | $2,122,585 | | Trust corpus | $163,122 | $164,407 | | TOTAL LIABILITIES AND TRUST CORPUS | $1,867,939 | $2,286,992 | - Total assets decreased by approximately $419,053 from December 31, 2024, to June 30, 2025, mainly driven by a reduction in cash and short-term investments[17] Condensed Interim Statements of Distributable Income (Unaudited) Distributable income significantly decreased for both the three and six months ended June 30, 2025, primarily due to a substantial drop in royalty income and increased general and administrative expenditures Distributable Income (Unaudited) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |---|---|---|---|---| | Royalty income | $3,089,889 | $8,803,389 | $6,144,586 | $14,809,031 | | Interest income | $15,751 | $29,106 | $32,274 | $68,153 | | Total Income | $3,105,640 | $8,832,495 | $6,176,860 | $14,877,184 | | General and administrative expenditures | $(708,385) | $(395,807) | $(1,183,393) | $(948,290) | | Distributable income | $2,397,255 | $8,436,688 | $4,993,467 | $13,928,894 | | Distributable income per Unit | $0.05 | $0.18 | $0.11 | $0.30 | - Royalty income for the three months ended June 30, 2025, decreased by 64.9% YoY to $3,089,889, and for the six months, it decreased by 58.5% YoY to $6,144,586[19][20] - General and administrative expenditures increased by 79% for the three months and 24.8% for the six months ended June 30, 2025, primarily due to legal proceedings with Blackbeard[19][20][60][73] Condensed Interim Statements of Changes in Trust Corpus (Unaudited) The Trust Corpus remained relatively stable, with distributable income being fully offset by distributions declared, and amortization of net overriding royalty interests also reducing the corpus Condensed Interim Statements of Changes in Trust Corpus (Unaudited) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |---|---|---|---|---| | Trust corpus, beginning of period | $163,765 | $209,625 | $164,407 | $221,474 | | Amortization of net overriding royalty interests | $(643) | $(12,000) | $(1,285) | $(23,849) | | Distributable income | $2,397,255 | $8,436,688 | $4,993,467 | $13,928,894 | | Distributions declared | $(2,397,255) | $(8,436,688) | $(4,993,467) | $(13,928,894) | | Total Trust Corpus, end of period | $163,122 | $197,625 | $163,122 | $197,625 | | Distributions per Unit | $0.05 | $0.18 | $0.11 | $0.30 | - Distributions declared for both periods exactly matched distributable income, indicating a full payout policy[22][23] - Amortization of net overriding royalty interests significantly decreased from $12,000 to $643 for the three months, and from $23,849 to $1,285 for the six months, year-over-year[22][23] NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS (UNAUDITED) These notes provide essential context for the financial statements, covering the Trust's structure, accounting methods, royalty income, excess costs, tax implications, commitments, trustee fees, and subsequent events Note 1. TRUST ORGANIZATION AND PROVISIONS The Trust, established in 1980, holds significant net overriding royalty interests in Waddell Ranch and Texas Royalty properties, with Argent Trust Company serving as the passive Trustee - The Trust holds a 75% net overriding royalty in Waddell Ranch properties and a 95% net overriding royalty in Texas Royalty properties[25] - Argent Trust Company became the Trustee on December 30, 2022[29] - The Trust is passive, prohibited from engaging in business or commercial activity, and cannot acquire assets other than those initially conveyed[30] Note 2. ACCOUNTING POLICIES The Trust's financial statements are prepared on a modified cash basis, differing from GAAP by not accruing revenues in the month of production, recording expenses when paid, and establishing cash reserves for contingencies - The Trust's financial statements are prepared on a modified cash basis of accounting, not GAAP, where revenues are not accrued in the month of production and expenses are recorded when paid[32] - Amortization of net overriding royalty interests is charged directly to trust corpus[32] - Royalty income for the Waddell Ranch properties was not received for the three and six months ended June 30, 2025, due to excess costs[37][42] Note 3. NET OVERRIDING ROYALTY INTERESTS AND DISTRIBUTION TO UNITHOLDERS Monthly distributions are determined by cash received from royalties minus liabilities and reserve increases, but Blackbeard's refusal to provide information has led to no royalty income from Waddell Ranch due to excess costs - Monthly Distribution Amounts are calculated based on cash received from royalties, reduced by liabilities paid and increases in cash reserves[39] - Blackbeard, operator of Waddell Ranch properties, has refused to provide information for net proceeds calculation since May 2024, impacting monthly distributions[41] - No royalty income was received from Blackbeard for the Waddell Ranch properties for the three and six months ended June 30, 2025, due to excess costs[42] Note 4. EXCESS COSTS Excess costs from Waddell Ranch or Texas Royalty properties are recovered from future net proceeds of that specific conveyance, with Waddell Ranch properties remaining in a deficit position since October 2024 - Excess costs for Waddell Ranch properties or Texas Royalty properties are carried forward with accrued interest and recovered from future net proceeds of the respective conveyance[43] - Waddell Ranch properties have been in a deficit position since October 2024, not contributing to royalty income[43] Cumulative Excess Costs and Accrued Interest (Net to the Trust) | Metric | Amount (Net to the Trust) | |---|---| | Cumulative excess costs remaining at 12/31/2024 | $10,217,517 | | Net excess costs (recovery) for Q1 2025 | $10,438,707 | | Net excess costs (recovery) for Q2 2025 | $6,253,355 | | Cumulative excess costs remaining at 6/30/2025 | $26,909,579 | | Accrued interest at 6/30/25 | $883,907 | | Total remaining to be recovered at 6/30/25 | $27,793,486 | Note 5. FEDERAL INCOME TAXES The Trust is a grantor trust, not subject to federal income tax at the trust level, with Unitholders taxed directly on income, and the recently signed OBBBA includes significant federal income tax provisions - The Trust is taxed as a grantor trust, meaning Unitholders are considered to own the Trust's income and principal and are taxed directly[46] - The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, includes significant federal income tax provisions, such as permanent extension of income tax rates and restoration of favorable business tax treatment, with multiple effective dates[47][48] Note 6. STATE TAX CONSIDERATIONS All Trust revenues originate from Texas, which does not impose individual income tax, and the Trust is exempt from Texas franchise tax as a passive entity - All Trust revenues originate from Texas, which does not have an individual income tax[49] - The Trust is exempt from Texas franchise tax as a 'passive entity' due to receiving over 90% of its income from passive sources like mineral royalties[49] - Taxable Unitholders are required to include their share of Trust revenues in their own Texas franchise tax calculations[49] Note 7. COMMITMENTS AND CONTINGENCIES Unfavorably resolved contingencies related to the Underlying Properties would reduce future royalty income and cash distributions, with the Trustee maintaining an expense reserve to cover obligations - Unfavorably resolved contingencies on Underlying Properties would reduce future royalty income and Unitholder distributions[51] - The Trustee maintains an expense reserve of $1,100,000 to cover Trust obligations in case of insufficient royalty income[51] Note 8. TRUSTEE FEES Trustee fees decreased for both the three and six months ended June 30, 2025, compared to the same periods in 2024 Trustee Fees | Period | 2025 | 2024 | |---|---|---| | Three Months Ended June 30 | $29,136 | $35,922 | | Six Months Ended June 30 | $60,501 | $68,549 | - Trustee fees decreased by 18.89% for the three months and 11.67% for the six months ended June 30, 2025, compared to 2024[52] Note 9. SUBSEQUENT EVENTS Subsequent to June 30, 2025, the Trust declared a distribution of $0.015311 per Unit, payable on August 14, 2025 - On July 21, 2025, the Trust declared a distribution of $0.015311 per Unit, payable August 14, 2025[53] Item 2. Trustee's Discussion and Analysis This section provides management's discussion and analysis of the Trust's financial condition and results of operations, covering forward-looking statements, commodity prices, liquidity, and a detailed comparison of results Forward Looking Information The report contains forward-looking statements regarding capital expenditures, drilling, production, hydrocarbon prices, litigation, and regulatory matters, which are subject to numerous risks and uncertainties beyond the Trustee's control - Forward-looking statements in the report cover capital expenditures, drilling, production, hydrocarbon prices, litigation, and regulatory matters[54] - Expectations are subject to numerous risks and uncertainties, including oil and gas prices, recoverability of reserves, economic conditions, and geopolitical factors[54] Commodity Prices The Trust's income and distributions are highly sensitive to volatile commodity prices, influenced by supply/demand, market uncertainty, and geopolitical events, with declining prices reducing distributable income and operator activity - Trust income and distributions are heavily influenced by volatile commodity prices, which fluctuate due to supply/demand, market uncertainty, and geopolitical conditions[55] - Oil prices hit a high of $79.28 per barrel on January 17, 2025, and decreased to $67.81 per barrel by July 28, 2025[55] - Declining crude oil and natural gas prices reduce distributable income and may lead to decreased exploration and development activity by operators[56] Liquidity and Capital Resources The Trust is a passive entity with no control over property operations, and its liquidity is limited to royalties and the ability to periodically borrow funds to cover expenses - The Trust is a passive entity with no control over the operation of its underlying properties[57] - The Trust's only sources of liquidity are royalties and the ability to periodically borrow money to pay expenses, liabilities, and obligations[58] Results of Operations - Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 Royalty income for Q2 2025 significantly decreased due to Waddell Ranch properties contributing no royalty income and Blackbeard's refusal to provide timely information, while general and administrative expenses increased, leading to a substantial drop in distributable income per unit Key Financials (Three Months Ended June 30) | Metric | 2025 | 2024 | Change (%) | |---|---|---|---| | Royalty income | $3,089,889 | $8,803,389 | -64.9% | | Interest income | $15,751 | $29,106 | -45.9% | | Total expenses | $708,385 | $395,807 | +79.0% | | Distributable income | $2,397,255 | $8,436,688 | -71.6% | | Distributable income per Unit | $0.05 | $0.18 | -72.2% | - The decrease in royalty income is primarily due to a deficit position in Waddell Ranch properties, resulting in no royalty income from them in Q2 2025, unlike Q2 2024[59] - Blackbeard's refusal to provide timely information for Waddell Ranch properties has impacted the calculation and distribution of royalty income[59][62][63] Results of Operations - Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 For the six months ended June 30, 2025, royalty income significantly decreased due to Waddell Ranch properties being in a deficit position and Blackbeard's failure to provide timely information, leading to a substantial drop in distributable income per unit Key Financials (Six Months Ended June 30) | Metric | 2025 | 2024 | Change (%) | |---|---|---|---| | Royalty income | $6,144,586 | $14,809,031 | -58.5% | | Interest income | $32,274 | $68,153 | -52.7% | | Total expenses | $1,183,393 | $948,290 | +24.8% | | Distributable income | $4,993,467 | $13,928,894 | -64.2% | | Distributable income per Unit | $0.11 | $0.30 | -63.3% | - The decrease in royalty income is primarily due to the Waddell Ranch properties being in a deficit position for the first six months of 2025, unlike the prior year[72] - Increased total expenses are primarily attributed to professional services associated with legal proceedings against Blackbeard[73] Pricing and Production Discussion Average realized oil prices decreased for both Waddell Ranch and Texas Royalty properties, while gas prices generally increased, and Blackbeard's refusal to provide timely production and capital expenditure data for Waddell Ranch continues to hinder reporting Average Realized Prices (Waddell Ranch Properties) | Commodity | Period | 2025 (Avg Price) | 2024 (Avg Price) | Change | |---|---|---|---|---| | Oil (per Bbl) | Q2 Production (Jan-Mar) | $70.27 | $73.40 (Feb-Mar) | -4.27% | | Gas (per Mcf) | Q2 Production (Jan-Mar) | $2.41 | $1.83 (Feb-Mar) | +31.69% | Average Realized Prices (Texas Royalty Properties) | Commodity | Period | 2025 (Avg Price) | 2024 (Avg Price) | Change | |---|---|---|---|---| | Oil (per Bbl) | Q2 | $68.61 | $78.00 | -12.04% | | Gas (per Mcf) | Q2 | $10.15 | $10.04 | +1.10% | - Blackbeard has refused to provide monthly production, product sales, capital expenditure, and development information for the Waddell Ranch properties since May 2024, now providing it quarterly[63][76] Blackbeard Capital Expense Discussion Capital expenditures for Waddell Ranch properties significantly increased in Q2 2025 and for the six months ended June 30, 2025, while Blackbeard has not provided an updated 2025 capital expenditures budget or development information Waddell Ranch Properties Capital Expenditures (Gross) | Period | 2025 | 2024 | Change (%) | |---|---|---|---| | Three Months Ended June 30 | $61.3 million | $15.6 million | +292.9% | | Six Months Ended June 30 | $109.2 million | $43.9 million | +148.7% | - Blackbeard has not provided an updated 2025 capital expenditures budget or development information for the Waddell Ranch properties[68][69][82] - Lease operating expenses and property taxes for Waddell Ranch properties increased to $19.8 million (gross) in Q2 2025 from $14.7 million (gross) in Q2 2024, and to $41.2 million (gross) for the six months ended June 30, 2025, from $37.5 million (gross) in 2024[71][83] Calculation of Royalty Income Royalty income is calculated as a percentage of net profit from property operations, with Waddell Ranch properties showing a net loss in Q2 2025, resulting in no contribution to distributable income, while Texas Royalty properties contributed positively - Royalty income is computed as 75% of net profit for Waddell Ranch properties and 95% for Texas Royalty properties[84][85] Royalty Income Calculation (Three Months Ended June 30, 2025) | Metric | Waddell Ranch Properties | Texas Royalty Properties | |---|---|---| | Gross proceeds of sales | $83,693,355 | $3,673,127 | | Less: Severance tax, Gathering & Transportation, Lease operating expense & property tax, Capital expenditures | $92,644,852 | $420,612 | | Net profits | $(8,951,497) | $3,252,515 | | Net overriding royalty interests | 75% | 95% | | Royalty income | $(6,713,623) | $3,089,889 | | Note: Waddell Ranch properties did not contribute to royalty income due to an NPI deficit. | | | Critical Accounting Policies and Estimates There have been no significant changes to the Trust's critical accounting policies or estimates during the six months ended June 30, 2025 - No significant changes to critical accounting policies and estimates occurred during the six months ended June 30, 2025[86] Distributable Income Per Unit Basic distributable income per Unit is calculated by dividing distributable income by the weighted average of Units outstanding, with basic and diluted figures being identical due to no equivalent Units outstanding - Basic distributable income per Unit is calculated by dividing distributable income by the weighted average of Units outstanding[87] - Basic and diluted distributable income per Unit are identical as there were no equivalent Units outstanding[87] New Accounting Pronouncements There are no new accounting pronouncements expected to have a significant impact on the Trust's financial statements - No new accounting pronouncements are expected to significantly impact the Trust's financial statements[88] Item 3. Qualitative and Quantitative Disclosures About Market Risk As a passive entity, the Trust's market risk exposure is minimal, with no material interest rate risk, foreign currency transactions, derivative financial instruments, or long-term debt - The Trust is a passive entity with minimal market risk exposure[89] - The Trust is not subject to material interest rate risk due to the short-term nature of its borrowings and investments[89] - The Trust does not engage in foreign currency transactions, derivative financial instruments, or have foreign operations or long-term debt[89] Item 4. Controls and Procedures The Trustee concluded that the Trust's disclosure controls and procedures are effective as of June 30, 2025, with no material changes to internal control over financial reporting during the period - The Trustee concluded that the Trust's disclosure controls and procedures are effective as of June 30, 2025, based on the 2013 COSO Framework[90][91] - The evaluation relied on information provided by Blackbeard and Riverhill Energy Corporation[91] - No material changes to the Trust's internal control over financial reporting occurred during the reporting period[92] PART II - OTHER INFORMATION This section details other relevant information not covered in the financial statements, including ongoing legal proceedings, risk factors, and a list of exhibits Item 1. Legal Proceedings The Trustee filed a Second Amended Petition in a lawsuit against Blackbeard, operator of Waddell Ranch properties, seeking over $9 million in damages for alleged improper royalty calculations and failure to pay - The Trustee filed a Second Amended Petition in a lawsuit against Blackbeard, operator of Waddell Ranch properties, seeking over $9 million in damages[94][95] - Allegations include improper calculation and deduction of overhead, labor, and saltwater disposal fees, and failure to pay on all produced volumes from April 2020 to December 2023[95] - The trial date is scheduled for November 17, 2025, in the District Court of Tarrant County, Texas[94] Item 1A. Risk Factors No material changes to the Trust's risk factors have occurred during the six months ended June 30, 2025, beyond those already disclosed in the annual report - No material changes to the Trust's risk factors have occurred during the six months ended June 30, 2025[97] Item 5. Other Information The Trust does not have directors or officers, and therefore, no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by such persons - The Trust has no directors or officers, thus no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated[99] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Amended and Restated Royalty Trust Indenture, its amendment, Net Overriding Royalty Conveyances, and certifications under the Sarbanes-Oxley Act - Exhibits include the Permian Basin Amended and Restated Royalty Trust Indenture and its amendment, Net Overriding Royalty Conveyances, and certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[102] SIGNATURES The report is signed on behalf of Permian Basin Royalty Trust by Jana Egeler, Vice President of Argent Trust Company, as Trustee, on August 13, 2025 - The report was signed by Jana Egeler, Vice President of Argent Trust Company, as Trustee for Permian Basin Royalty Trust, on August 13, 2025[104] - The Trust has no directors or executive officers[104]