PermRock Royalty Trust(US:PRT)2024-04-01 16:29Financial Performance - For the year ended December 31, 2023, Boaz Energy reported that Phillips 66, Plains All American Pipeline, Energy Transfer Partners, Blackbeard Operating LLC, and Enterprise Crude Oil LLC accounted for 29.93%, 20.82%, 17.07%, 11.61%, and 10.23% respectively of its total oil and natural gas revenues[42]. - Net profits income for 2023 was $7,127,379, a significant drop of 46% compared to $13,160,845 in 2022[204]. - Total revenue decreased to $7,186,191 in 2023 from $13,177,436 in 2022, reflecting a decline of approximately 45%[204]. - Distributable income per unit fell to $0.514745 in 2023, down from $1.011357 in 2022, a decrease of about 49%[204]. - Total gross profits were $25,780,455, a decrease from $37,207,671 in 2022, reflecting a decline in oil and natural gas sales volumes and prices[215]. - Oil sales volumes decreased to 317,765 Bbl in 2023 from 351,710 Bbl in 2022, while natural gas sales volumes decreased to 387,631 Mcf from 409,881 Mcf in the same period[215]. - The average realized oil price per Bbl dropped to $76.24 in 2023 from $93.15 in 2022, and the average realized natural gas price per Mcf decreased to $3.74 from $7.94[215][218]. - Total operating expenses per Boe increased to $24.79 in 2023 from $22.58 in 2022, an increase of approximately 10%[181]. - Total costs attributable to oil and natural gas production were $17,939,915 in 2023, down from $20,773,247 in 2022, a reduction of about 13%[182]. - General and administrative expenditures increased in 2023 due to timing and payment differences of some expenses[207]. Operational Overview - The Trust receives 80% of the net profits from the sale of oil and natural gas production from the Underlying Properties[30]. - The Underlying Properties consist of 31,354 gross (22,394 net) acres in the Permian Basin[31]. - The Trust makes monthly cash distributions to holders of its Trust units based on the net profits received from the Underlying Properties[29]. - The Trust does not conduct any operations or activities other than managing the Net Profits Interest[28]. - The Trust has no employees and derives all its income from the Net Profits Interest[28]. - The Trust is not liable for any operating, capital, or other costs attributable to the Underlying Properties[34]. - The Trust's assets are located entirely in the United States, with oil and natural gas sold to third-party purchasers domestically[45]. - The Trust's operations are concentrated in the Permian Basin, making it vulnerable to risks associated with operating in a single geographic area[72]. - The ability to develop and operate the Underlying Properties is highly dependent on Boaz Energy's financial condition, which is not guaranteed[93]. - The Trust's cash available for distribution could be reduced by expenses from uninsured claims or title deficiencies related to the Underlying Properties[73]. Regulatory Environment - Boaz Energy's oil and natural gas production operations are subject to stringent environmental regulations that may increase operational costs[48]. - In October 2023, the EPA released a final rule eliminating an exemption for PFAS reporting in small concentrations, indicating increased regulatory scrutiny on hazardous waste management[51]. - The Clean Water Act imposes strict controls on pollutant discharges, with potential delays in oil and gas project development due to permit requirements[53]. - The EPA's August 2023 final rule clarified federal jurisdiction over waters of the United States, potentially affecting permitting processes for oil and gas operations[53]. - New Source Performance Standards (NSPS) for air emissions may increase compliance costs for Boaz Energy, particularly regarding VOCs and methane emissions[54]. - The EPA's proposed amendments to National Emission Standards for Hazardous Air Pollutants (NESHAPs) could lead to higher compliance costs for Boaz Energy[54]. - The adoption of GHG emission reduction goals by various states may impose additional operational restrictions on Boaz Energy, affecting its exploration and production activities[58]. - The EPA's December 2023 final rule aims to reduce methane emissions from oil and gas operations, which could increase operational costs for Boaz Energy[57]. - Hydraulic fracturing activities are subject to increasing regulatory scrutiny, which may lead to higher costs and operational delays for Boaz Energy[64]. - The Endangered Species Act and Migratory Bird Treaty Act may restrict Boaz Energy's operational capabilities in certain areas, potentially incurring additional costs[65]. Market Conditions - Oil and natural gas prices are volatile, and lower prices could reduce cash distributions to Trust unitholders[72]. - The Trust's cash distributions are highly dependent on oil and natural gas prices, which can fluctuate widely due to market uncertainties[75]. - The Trust's reserves and monthly cash distributions may be significantly affected by the ability of OPEC and other oil-exporting nations to maintain production levels[81]. - The volatility of commodity prices may lead to increased operational costs, potentially reducing cash distributions to Trust unitholders[90]. - Geopolitical hostilities, such as war and terrorism, could adversely affect the Trust's distributions and market price of its units[108]. Reserves and Production - As of December 31, 2023, the Underlying Properties had proved reserves of 4.5 million barrels of oil equivalent (MMBoe), with 96% of the volumes and 95% of the present value (PV-10) attributable to proved developed reserves[153]. - The Permian Clearfork area has total proved reserves estimated at 1.4 MMBoe, with 92% classified as proved developed reserves[154]. - The Permian Abo area has total proved reserves of 0.7 MMBoe, with 100% classified as proved developed reserves[156]. - The Permian Shelf area has total proved reserves of 1.2 MMBoe, with 100% classified as proved developed reserves[157]. - The Permian Platform area has total proved reserves of 1.3 MMBoe, with 95% classified as proved developed reserves[158]. - The reserve estimation process involves collaboration between the company's internal petroleum engineer and independent reserve engineers to ensure data integrity[164]. - The proved reserves are estimated using a combination of production performance, volumetric, and analogy methods, ensuring a reasonable level of certainty[162]. - Proved undeveloped reserves decreased significantly from 1,232.7 MBoe in 2022 to 89.0 MBoe in 2023, primarily due to the removal of 1,048.4 MBbl of oil and 622.1 MMcf of natural gas reserves under the SEC five-year booking rule[171]. - The company drilled 4 gross (0.3 net) productive development wells in 2023, compared to 6 gross (1.4 net) in 2022[178]. - Average net daily production fell to 1,047.67 Boe/d in 2023, down from 1,150.75 Boe/d in 2022, a decrease of about 9%[181]. Risks and Uncertainties - The Trust's financial condition may be adversely affected by pandemics or public health concerns, such as COVID-19, which could reduce global demand for oil and gas[79]. - The potential physical effects of climate change could disrupt production and increase costs for Boaz Energy, thereby reducing cash distributions to Trust unitholders[73]. - The accuracy of reserves and future production estimates is critical, as actual reserves may be less than current estimates, potentially reducing cash distributions to Trust unitholders[82]. - Development of proved undeveloped reserves requires capital expenditures, which may exceed initial estimates, impacting future net revenues[83]. - The Trust's cash available for distribution is dependent on access to gathering, transportation, and processing facilities; limitations could interfere with oil and gas sales[87]. - Maintenance projects on the Underlying Properties may affect the quantity of proved reserves that can be economically produced, with timing dependent on market prices[97]. - Delays or cancellations in drilling and production activities could decrease revenues available for distribution to Trust unitholders[86]. - Bankruptcy of Boaz Energy or third-party operators could adversely affect operations and decrease distributions to Trust unitholders[94]. - The reserves are depleting assets, meaning cash distributions to Trust unitholders will likely decrease over time[96]. - The Trust indirectly bears an 80% share of all costs and expenses related to the Underlying Properties, which can decrease cash distributions if costs rise without corresponding revenue increases[101]. Tax and Compliance - Trust unitholders are required to pay U.S. federal income taxes on their share of the Trust's income, even if no cash distributions are received[143]. - The Trust has not requested a ruling from the IRS regarding its tax treatment, which could lead to more complex tax reporting requirements if not classified as a "grantor trust"[139]. - If the Trust cannot meet the NYSE continued listing requirements, it may face delisting if the average closing price falls below $1.00 for 30 consecutive trading days[121]. - The trading price for the Trust units may not reflect the value of the Net Profits Interest, as it is influenced by cash distributions and oil and natural gas prices[124]. - Trust unitholders have limited ability to enforce provisions of the Conveyance creating the Net Profits Interest, and Boaz Energy's liability to the Trust is limited[120].