PermRock Royalty Trust(US:PRT)2022-03-31 18:53Trust Operations and Financials - The Trust receives 80% of the net profits from the sale of oil and natural gas production from the Underlying Properties[30]. - The Trust makes monthly cash distributions to holders of its Trust units after deducting fees and expenses[29]. - The Trust will dissolve if annual cash proceeds available for distribution are less than $2.0 million for any two consecutive years[49]. - The Trust's net profits are computed monthly based on the sale of oil and natural gas production[34]. - The Trust is not liable for any operating, capital, or other costs attributable to the Underlying Properties[36]. - The Trust's cash available for distribution could be reduced by expenses from uninsured claims and other liabilities[77]. - Future cash distributions may vary significantly from month to month and could be zero in any given month[80]. - The Trust's only asset is the Net Profits Interest, which entitles it to receive 80% of the net profits from oil and natural gas production from the Underlying Properties[210]. - The Trust's total revenue for 2021 was $8,144,652, compared to $3,188,156 in 2020, reflecting a strong recovery in the market[216]. - The Trust distributed $7,371,061 in 2021, resulting in a distributable income per unit of $0.605881, compared to $0.157014 in 2020[216]. - The net profits income received by the Trust in 2021 was $10,439,020, compared to $8,144,472 in 2020, reflecting a growth of approximately 28.2%[224]. Underlying Properties and Production - The Underlying Properties consist of 35,390 gross (22,997 net) acres in the Permian Basin[31]. - As of December 31, 2021, the Underlying Properties had proved reserves of 7.6 million barrels of oil equivalent (MMBoe), with 60% of the volumes and 62% of the PV-10 value attributable to proved developed reserves[157]. - The Permian Clearfork area has an estimated 2.6 MMBoe of total proved reserves, with 53% classified as proved developed reserves, primarily due to improved commodity prices and restored production post-pandemic[158]. - The Permian Abo area has total proved reserves of 1.3 MMBoe, with 77% classified as proved developed reserves, following the implementation of a waterflood pilot program[159]. - The Permian Shelf area is estimated to have 2.5 MMBoe of total proved reserves, with 42% classified as proved developed reserves[160]. - The Permian Platform area has total proved reserves of 1.2 MMBoe, with 94% classified as proved developed reserves[161]. - The reserves attributable to the Underlying Properties are depleting assets, leading to a decline in production and potential cessation of cash distributions over time[99]. Environmental and Regulatory Compliance - Boaz Energy's oil and natural gas operations are subject to stringent environmental regulations, which may increase operational costs[50]. - The Clean Water Act imposes strict controls on pollutant discharges, and non-compliance can lead to administrative, civil, and criminal penalties, potentially delaying oil and natural gas project developments[57]. - The CAA and state laws require Boaz Energy to obtain air emissions permits, which could increase development costs and delay project timelines due to stringent compliance requirements[59]. - The EPA's regulations on GHG emissions require monitoring and reporting from certain oil and gas facilities, which could lead to increased compliance costs for Boaz Energy[61]. - The adoption of international and federal regulations on GHG emissions could materially affect Boaz Energy's business and financial condition due to increased compliance costs[65]. - Hydraulic fracturing is currently exempt from certain federal regulations, but potential new federal restrictions could lead to increased costs and operational delays for Boaz Energy[67]. - State regulations on hydraulic fracturing may impose more stringent permitting and disclosure requirements, potentially affecting Boaz Energy's operations[68]. - The Endangered Species Act may restrict Boaz Energy's operations if new species are listed as endangered, leading to increased costs and operational limitations[70]. - Compliance with OSHA and other health and safety regulations is mandatory, impacting operational practices and costs for Boaz Energy[72]. - The Trust may incur significant costs due to compliance with environmental laws and regulations, which could reduce cash available for distribution to unitholders[132]. - Changes in environmental regulations could lead to increased operational costs and affect the profitability of the Underlying Properties[139]. Market and Economic Factors - Oil and natural gas prices are volatile, and lower prices could reduce cash distributions to Trust unitholders[76]. - The ability of OPEC and other oil exporting nations to maintain production levels significantly impacts oil and natural gas prices[84]. - The COVID-19 pandemic has adversely affected operators of the Underlying Properties, impacting cash available for distribution[81]. - An increase in the differential between the price realized for oil or natural gas and benchmark prices could reduce profits and cash distributions to the Trust[103]. - Higher production and development costs without corresponding revenue increases will decrease cash available for distribution to Trust unitholders[104]. - The Trust's market price may not accurately represent the value of its assets due to the depleting nature of its underlying resources[127]. - The Trust is classified as an "emerging growth company," allowing it to avoid certain disclosure requirements for up to five fiscal years[129]. - The trading price of the Trust units may not reflect the actual value of the Net Profits Interest, as it is influenced by external factors such as oil and natural gas prices[127]. Operational Risks - Boaz Energy's operations are subject to numerous risks that could delay drilling or production schedules, impacting future distributions to Trust unitholders[88]. - The amount of cash available for distribution by the Trust is influenced by access to gathering, transportation, and processing facilities, with limitations potentially leading to production shutdowns[90]. - The concentration of all Underlying Properties in the Permian Basin makes the Trust vulnerable to geographic-specific risks[75]. - The bankruptcy of Boaz Energy or any third-party operator could disrupt operations and decrease distributions to Trust unitholders[98]. - The marketing of oil and natural gas production is heavily reliant on the capacity and availability of transportation and processing facilities, with potential bottlenecks affecting production[92]. - Maintenance projects on the Underlying Properties may affect the quantity of proved reserves that can be economically produced, impacting future cash distributions[101]. - The Trust is passive and has no ability to influence Boaz Energy's operations, which could lead to conflicts of interest[114]. Financial Performance - Boaz Energy's net profits income for 2021 was $8,144,472, a significant increase from $3,183,622 in 2020, primarily due to higher oil and natural gas prices[216]. - Total gross profits for 2021 reached $29,916,761, an increase from $25,435,625 in 2020, representing a growth of approximately 9.7%[224]. - Net profits for 2021 were reported at $12,040,699, up from $10,448,286 in 2020, indicating a year-over-year increase of about 15.2%[224]. - Total operating expenses per Boe increased to $15.58 in 2021 from $11.60 in 2020[191]. - Development expenses for 2021 were $6,842,669, significantly higher than $4,600,043 in 2020, marking an increase of about 48.7%[224]. - General and administrative expenditures decreased to $773,591 in 2021 from $877,952 in 2020, indicating improved cost management[218]. - The average realized sales price for oil in 2021 was $60.13 per Bbl, while natural gas averaged $4.31 per Mcf[189]. - Oil sales volumes decreased to 385,359 Bbl in 2021 from 461,558 Bbl in 2020, while natural gas sales volumes also declined to 501,689 Mcf from 572,552 Mcf[223].