PermRock Royalty Trust(PRT) - 2022 Q1 - Quarterly Report

PART I. – FINANCIAL INFORMATION Financial Statements The unaudited condensed financial statements for Q1 2022 indicate a significant increase in distributable income, a slight decrease in total assets, and a reduced trust corpus, prepared on a modified cash basis Condensed Statements of Assets, Liabilities and Trust Corpus As of March 31, 2022, total assets slightly decreased to $84.7 million, primarily due to Net Profits Interest amortization, with liabilities including $0.86 million distribution payable and a $1.0 million cash reserve Condensed Balance Sheet (in USD) | Account | March 31, 2022 (unaudited) | December 31, 2021 | | :--- | :--- | :--- | | ASSETS | | | | Cash and short-term investments | $1,863,635 | $1,849,906 | | Net Profits Interest | $82,854,559 | $83,821,848 | | TOTAL ASSETS | $84,718,194 | $85,671,754 | | LIABILITIES AND TRUST CORPUS | | | | Distribution payable to unitholders | $863,605 | $849,906 | | Cash reserves | $1,000,000 | $1,000,000 | | Trust corpus | $82,854,589 | $83,821,848 | | TOTAL LIABILITIES AND TRUST CORPUS | $84,718,194 | $85,671,754 | Condensed Statements of Distributable Income (Unaudited) For Q1 2022, distributable income surged 141% to $2.53 million, driven by a significant rise in net profits income to $2.79 million due to higher commodity prices Distributable Income Comparison (in USD) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net profits income | $2,787,336 | $1,289,640 | | Total revenue | $2,787,373 | $1,289,702 | | Expenditures – general and administrative | ($260,483) | ($241,274) | | Distributable income | $2,526,890 | $1,048,425 | | Distributable income per unit | $0.207704 | $0.086177 | Condensed Statements of Changes in Trust Corpus (Unaudited) The Trust corpus decreased to $82.9 million by Q1 2022, primarily due to a $0.97 million non-cash amortization of the Net Profits Interest Changes in Trust Corpus for Q1 2022 (in USD) | Description | Amount | | :--- | :--- | | Trust corpus, beginning of period | $83,821,848 | | Amortization of Net Profits Interest | ($967,259) | | Distributable income | $2,526,890 | | Distributions declared | ($2,526,890) | | Trust corpus, end of period | $82,854,589 | Notes to Condensed Financial Statements (Unaudited) Key notes describe the Trust's structure, modified cash basis accounting, cash reserve, 2022 capital budget, favorable lawsuit resolution, and the appointment of a successor trustee - The Trust's primary asset is an 80% Net Profits Interest in oil and natural gas properties operated by Boaz Energy. The Trust is passive and distributes all monthly cash receipts after expenses and reserves[21][22] - The financial statements are prepared on a modified cash basis of accounting, where income is recorded when received and expenses are recorded when paid. This basis is permitted for royalty trusts by the SEC but differs from GAAP[25][29] - The Trustee holds a $1,000,000 cash reserve for administrative expenses. Separately, as of March 31, 2022, Boaz Energy held back $6,156 net to the Trust for future capital expenses[37][38] - Boaz Energy's estimated 2022 capital budget for the Underlying Properties is $7.0 million, with $1.4 million expended as of March 31, 2022[43] - A lawsuit filed in 2018 against Boaz Energy and the Trust was effectively disposed of in their favor by summary judgment on May 10, 2022[44] - Subsequent to the quarter end, unitholders approved the appointment of Argent Trust Company as the successor trustee to Simmons Bank[47] Trustee's Discussion and Analysis of Financial Condition and Results of Operations The Trustee's analysis highlights a significant increase in Q1 2022 distributable income, driven by higher commodity prices offsetting decreased production volumes, resulting in a 116% rise in net profits income Results of Operations Q1 2022 net profits income reached $2.79 million, primarily due to 73% higher oil prices and 144% higher natural gas prices, despite decreased sales volumes and increased operating expenses Computation of Net Profits Income Received by the Trust (in USD) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total gross profits | $7,659,978 | $5,133,591 | | Total costs | ($4,435,808) | ($3,546,542) | | Net profits | $3,224,170 | $1,587,049 | | Net profits income (before capital reserve) | $2,579,336 | $1,269,640 | | Capital reserve adjustment | $208,000 | $20,000 | | Net profits income received by the Trust | $2,787,336 | $1,289,640 | Sales Volumes and Average Prices | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Oil Sales Volume (Bbl) | 90,673 | 106,328 | | Natural Gas Sales Volume (Mcf) | 103,264 | 146,489 | | Average Oil Price (per Bbl) | $76.02 | $44.03 | | Average Natural Gas Price (per Mcf) | $7.14 | $2.93 | - Oil sales volumes decreased by 14.7% and natural gas volumes decreased by 29.5% YoY, primarily due to higher pricing and slowed drilling from non-operated properties[68][69] - Costs increased across several categories: Direct operating expenses rose due to well repairs, lease operating expenses increased from higher material costs, and development expenses grew due to costs to return wells to production[72][73][75] Liquidity and Capital Resources The Trust's liquidity stems from Net Profits Interest cash flow, used for distributions and expenses, supported by a $1.0 million cash reserve, with a $7.0 million 2022 capital budget for underlying properties - The Trust's principal sources of liquidity are cash flow from the Net Profits Interest and cash reserves. Its primary uses are distributions to unitholders and administrative expenses[78] - The Trustee is authorized to maintain a cash reserve up to $1.0 million for administrative expenses, which was fully funded as of March 31, 2022[80] - Boaz Energy's 2022 capital budget for the Underlying Properties is estimated at $7.0 million, with plans for non-operated drilling, waterflood conformance work, and drilling three new operated wells[82] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the Trust is exempt from providing quantitative and qualitative disclosures regarding market risk - The Trust is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this Item[88] Controls and Procedures The Trustee concluded that the Trust's disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls over financial reporting during the quarter - Based on an evaluation, the Trustee concluded that the Trust's disclosure controls and procedures are effective as of March 31, 2022[89] - The Trustee's evaluation relies on information provided by Boaz Energy regarding the operations, costs, revenues, and other data related to the Underlying Properties[90] - There were no changes in the Trust's internal control over financial reporting during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the controls[91] PART II. – OTHER INFORMATION Legal Proceedings A 2018 lawsuit naming the Trust and Boaz Energy as defendants was effectively resolved in their favor by summary judgment, with only attorneys' fees remaining as an issue - The 2018 lawsuit, Thaleia L. Marston, Trustee of the Marston Trust v. Blackbeard Operating, LLC, et.al, which named Boaz Energy and the Trust as defendants, has been effectively resolved[93] - On May 10, 2022, the court granted motions for summary judgment, disposing of the plaintiff's claims. The only remaining issue is a decision on attorneys' fees for the prevailing parties[93] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents and Sarbanes-Oxley Act certifications - The report lists several exhibits, including corporate governance documents and certifications required by the Sarbanes-Oxley Act[94]