PermRock Royalty Trust(PRT) - 2025 Q2 - Quarterly Report

Glossary of Terms This section defines key terms and abbreviations used throughout the report PART I. FINANCIAL INFORMATION This part presents the Trust's unaudited condensed financial statements and related disclosures ITEM 1. Financial Statements This section presents the Trust's unaudited condensed financial statements, including assets, liabilities, trust corpus, and distributable income, prepared on a modified cash basis Condensed Statements of Assets, Liabilities and Trust Corpus (Unaudited) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Cash and short-term investments | $1,539,693 | $1,612,261 | | Net Profits Interest | $70,219,686 | $72,379,939 | | TOTAL ASSETS | $71,759,379 | $73,992,200 | | Distribution payable | $539,693 | $612,261 | | Cash reserves | $1,000,000 | $1,000,000 | | Trust corpus | $70,219,686 | $72,379,939 | | TOTAL LIABILITIES AND TRUST CORPUS | $71,759,379 | $73,992,200 | Condensed Statements of Distributable Income (Unaudited) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net profits income | $1,545,465 | $1,658,420 | $3,256,228 | $2,954,828 | | Interest income | $12,137 | $14,609 | $24,677 | $29,571 | | Total revenue | $1,557,602 | $1,673,029 | $3,280,905 | $2,984,399 | | Expenditures – general and administrative | $(357,084) | $(322,992) | $(614,192) | $(511,860) | | Distributable income | $1,200,518 | $1,350,037 | $2,666,713 | $2,472,539 | | Distributable income per unit | $0.098679 | $0.110969 | $0.219196 | $0.203235 | Condensed Statements of Changes in Trust Corpus (Unaudited) | Item | 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 | $71,286,955 | $75,050,326 | $72,379,939 | $75,876,170 | | Amortization of Net Profits Interest | $(1,067,269) | $(932,729) | $(2,160,253) | $(1,758,573) | | Distributable income | $1,200,518 | $1,350,037 | $2,666,713 | $2,472,539 | | Distributions declared | $(1,200,518) | $(1,350,037) | $(2,666,713) | $(2,472,539) | | Trust corpus, end of period | $70,219,686 | $74,117,597 | $70,219,686 | $74,117,597 | - The Trust was formed on November 22, 2017, to acquire and hold an 80% Net Profits Interest in certain oil and natural gas properties for the benefit of unitholders, with Argent Trust Company becoming the successor trustee on December 30, 2022[19][20][21] - On March 31, 2025, T2S Permian Acquisition II LLC (T2S) acquired the Underlying Properties from Boaz Energy II, LLC and assumed all related obligations, also acquiring 4,884,861 Trust units from Boaz Energy[22][24] - The Trust uses a modified cash basis of accounting, which differs from GAAP, recognizing net profits income when distributions are received and expenses when paid, a method permitted for royalty trusts by the SEC[25][26] - The Trust's revenue and distributions are highly dependent on volatile oil and natural gas prices, influenced by economic conditions, global politics, and regulatory developments[29] - For U.S. federal income tax purposes, the Trust is treated as a grantor trust, passing income and deductions directly to unitholders for taxation on their pro rata share[33] - The Trustee is authorized to retain cash reserves up to $1.0 million for administrative expenses and future liabilities, with total cash reserves held by the Trustee amounting to $1,000,000 as of June 30, 2025[34] - T2S is entitled to reserve up to $3.0 million from net profits for future taxes and development/operating expenses, holding $318,174 net to the Trust for future capital expenses as of June 30, 2025[35][76] Distributions per Unit for Q2 2025 | Record Date | Payment Date | Distribution per Unit | | :---------- | :----------- | :-------------------- | | April 30, 2025 | May 14, 2025 | $0.023807 | | May 30, 2025 | June 13, 2025 | $0.030511 | | June 30, 2025 | July 15, 2025 | $0.044361 | | Total | | $0.098679 | - The Trustee's annual administrative fee for 2025 is $205,031, increasing by 1% annually until the Trust's 20th anniversary, with these fees deducted before distributions[37] - T2S's estimated capital and workover budget for 2025 for the Underlying Properties is $4.0 million, with approximately $0.2 million expended as of June 30, 2025, including plans for drilling new wells, workovers, and waterflood pattern conformance[39][40] - The 2018 Litigation concluded with the Court of Appeals affirming the trial court's judgment in favor of the defendants on February 5, 2025[41][90] - On July 21, 2025, the Trust declared a cash distribution of $0.032491 per Trust unit based on May 2025 production[42][81] Underlying Sales Volumes and Average Prices for May 2025 Production | Production Month | Oil (Bbls) | Gas (Mcf) | Oil (per Bbl) | Gas (per Mcf) | | :--------------- | :--------- | :-------- | :------------ | :------------ | | May | 18,941 | 26,454 | $59.36 | $1.67 | ITEM 2. Trustee's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the Trust's financial condition, operations, liquidity, and capital resources, highlighting the impact of commodity prices and operational costs on distributable income - The Trust's distributable income for the three months ended June 30, 2025, decreased to $1,200,518 (or $0.098679 per unit) from $1,350,037 in the prior year, primarily due to decreased oil prices and volumes[55][56] - For the six months ended June 30, 2025, distributable income increased to $2,666,713 (or $0.219196 per unit) from $2,472,539 in the prior year, mainly due to increased gas prices and a decrease in production and development costs[59][60] Key Factors Affecting Net Profits Income (YoY Comparison) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------- | :----------------------------- | :----------------------------- | :----------- | | Net profits income | $1,545,465 | $1,658,420 | -6.93% | $3,256,228 | $2,954,828 | +10.20% | | Oil sales volumes (Bbl) | 64,816 | 72,477 | -10.6% | 134,445 | 146,988 | -8.5% | | Natural gas sales volumes (Mcf) | 85,631 | 81,308 | +5.3% | 164,793 | 165,250 | -0.3% | | Average realized oil price (per Bbl) | $66.36 | $78.89 | -15.9% | $67.91 | $75.93 | -10.56% | | Average realized natural gas price (per Mcf) | $3.24 | $2.98 | +8.72% | $3.21 | $3.06 | +4.9% | | Direct operating expenses | $220,660 | $476,689 | -53.7% | $686,598 | $946,429 | -27.46% | | Lease operating expenses | $1,348,400 | $1,730,997 | -22.1% | $3,264,960 | $3,470,589 | -5.93% | | Development expenses | $77,395 | $663,068 | -88.3% | $212,358 | $1,518,552 | -86.0% | - Oil sales volumes decreased due to natural decline and curtailed operations during the transition from Boaz Energy to T2S, while natural gas sales volumes saw a slight increase in Q2 but a slight decrease for the six-month period, also attributed to natural decline and transition-related operational reductions[66][67][68] - Average realized oil prices decreased due to a surge in global supply and weaker demand, whereas natural gas prices increased due to colder winter demand and increased industrial usage[69][70] - Direct operating, lease operating, and development expenses decreased significantly, primarily due to fewer projects and deferrals during the Boaz Energy to T2S transition, and the non-recurrence of a major well plugging expense from 2024[71][72][74] - The Trust's liquidity primarily comes from cash flow from the Net Profits Interest and cash reserves, with primary uses of cash being distributions to unitholders and administrative expenses[77][78] - T2S's 2025 capital and workover budget for the Underlying Properties is $4.0 million, with $0.2 million expended as of June 30, 2025, including plans for drilling two wells, participating in a non-operated well, and investing in workovers[80] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the Trust is exempt from providing quantitative and qualitative market risk disclosures - The Trust is a smaller reporting company and is exempt from providing market risk disclosures[86] ITEM 4. Controls and Procedures The Trustee concluded that the Trust's disclosure controls and procedures were effective as of June 30, 2025, relying on information from the Underlying Properties' operator - The Trustee concluded that the Trust's disclosure controls and procedures were effective as of June 30, 2025[87] - Due to the Trust's passive nature, its disclosure controls and procedures rely on information provided by Boaz Energy and T2S regarding operations, costs, revenues, production, and reserve data[88] PART II. OTHER INFORMATION This part provides updates on legal proceedings, risk factors, and other miscellaneous information pertinent to the Trust ITEM 1. Legal Proceedings This section provides an update on legal proceedings, specifically the conclusion of the 2018 Litigation - The 2018 Litigation, 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 defendant appellees[90] ITEM 1A. Risk Factors This section confirms no material changes to previously disclosed risk factors - There have been no material changes in the risk factors disclosed in the Trust's 2024 Annual Report on Form 10-K[91] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the Trust - Not applicable[92] ITEM 3. Defaults Upon Senior Securities This item is not applicable to the Trust - Not applicable[93] ITEM 4. Mine Safety Disclosures This item is not applicable to the Trust - Not applicable[94] ITEM 5. Other Information This section clarifies the Trust has no directors or officers, thus no related trading arrangements or insider trading policies - The Trust has no directors or officers, and consequently, no Rule 10b5-1 trading arrangements or insider trading policies[95] ITEM 6. Exhibits. This section lists the exhibits filed or furnished with this Quarterly Report on Form 10-Q Exhibits Filed with Form 10-Q | Exhibit No. | Description | | :---------- | :---------- | | 3.1 | Certificate of Trust of PermRock Royalty Trust | | 3.2 | Amended and Restated Trust Agreement of PermRock Royalty Trust, dated May 4, 2018 | | 3.3 | Amendment No. 1 to the Amended and Restated Trust Agreement of PermRock Royalty Trust, dated May 4, 2022 | | 31.1 | Section 302 Certification.* | | 32.1 | Section 906 Certification.* | SIGNATURE This section contains the official signature of the Trustee, affirming the report's submission - The report is signed by Argent Trust Company, as Trustee, by Jana Egeler, VP Trust Administrator, on August 13, 2025[99] - PermRock Royalty Trust has no principal executive officer, principal financial officer, board of directors, or similar functions, and the Trustee's signing does not imply performance of such functions[99]