Permianville Royalty Trust(PVL) - 2022 Q2 - Quarterly Report

Glossary of Certain Oil and Natural Gas Terms This section defines key oil and natural gas terms used throughout the report, including Bbl, Boe, Mcf, and Net profits interest - This section provides definitions for significant oil and natural gas terms used throughout the report, such as Bbl (barrel), Boe (barrel of oil equivalent), Mcf (thousand cubic feet), and Net profits interest[9][10][17][20] PART I — FINANCIAL INFORMATION Financial Statements The unaudited financial statements for Q2 2022 show a significant increase in distributable income to $5.56 million, driven by higher commodity prices Statements of Assets, Liabilities and Trust Corpus The Trust's total assets slightly decreased to $62.8 million as of June 30, 2022, primarily due to net profits interest amortization Assets, Liabilities and Trust Corpus (unaudited) | | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | ASSETS | | | | Cash and cash equivalents | $532,308 | $67,116 | | Net profits interest in oil and natural gas properties, net | $62,313,239 | $65,125,651 | | Total assets | $62,845,547 | $65,192,767 | | LIABILITIES AND TRUST CORPUS | | | | Trust corpus (33,000,000 units) | $62,845,547 | $65,192,767 | | Total liabilities and Trust corpus | $62,845,547 | $65,192,767 | Statements of Distributable Income The Trust reported distributable income of $2.6 million for Q2 2022 and $5.6 million for the first six months, a significant turnaround from 2021 Distributable Income Comparison (unaudited) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2022 | 2021 | 2022 | 2021 | | Income from net profits interest | $3,064,680 | $– | $6,289,481 | $– | | Distributable income | $2,623,500 | $– | $5,560,500 | $– | | Distributable income per unit | $0.079500 | $– | $0.168500 | $– | Statements of Changes in Trust Corpus Trust Corpus decreased from $65.2 million to $62.8 million by Q2 2022, mainly due to amortization of the net profits interest Changes in Trust Corpus for Six Months Ended June 30, 2022 (unaudited) | | Six Months Ended June 30, 2022 | | :--- | :--- | | Trust corpus, beginning of period | $65,192,767 | | Distributable income | $5,560,500 | | Distributions to unitholders | ($5,560,500) | | Amortization of net profits interest | ($2,812,412) | | Trust corpus, end of period | $62,845,547 | Notes to Financial Statements The notes detail the Trust's structure, accounting policies, tax status, and the resumption of distributions after a 2021 shortfall - The Trust's primary asset is an 80% net profits interest from oil and natural gas properties previously held by Enduro and now by COERT Holdings 1 LLC (the "Sponsor")[37][38] - The financial statements are prepared on a modified cash basis, which differs from GAAP, considered more meaningful for royalty trusts as distributions are based on net cash receipts[42][47] - For federal income tax purposes, the Trust is a grantor trust and is not subject to tax at the trust level, with unitholders taxed directly on their pro rata share of income and deductions[51] - Distributions to the Trust resumed in September 2021 after a cumulative net profits interest shortfall and administrative advances were fully repaid in August 2021, with no distributions made in the first six months of 2021[60] Trustee's Discussion and Analysis of Financial Condition and Results of Operations The Trustee's analysis highlights a significant increase in financial performance driven by rising oil and natural gas prices despite production declines and increased costs Outlook The outlook for development activity improved in Q2 2022 due to strong commodity prices, though market volatility persists - Commodity prices have increased materially from Dec 31, 2021, to Aug 9, 2022: WTI crude oil rose from $76.99 to $92.51 per barrel, and Henry Hub natural gas rose from $3.66 to $7.76 per MMBTU[74] - The Sponsor anticipates 2022 capital expenditures for the Underlying Properties to be at the high end of, or possibly exceed, the $6 million to $8 million range ($4.8 million to $6.4 million net to the Trust)[75] Results of Operations Net profits for Q2 2022 surged 450% to $5.3 million, driven by significantly higher realized prices for oil and natural gas Net Profits Comparison - Three Months Ended June 30 | | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Gross Profits | $14,180,350 | $8,389,635 | 69% | | Total Costs | $8,912,000 | $7,431,000 | 20% | | Net Profits | $5,268,350 | $958,635 | 450% | Production and Price Comparison - Three Months Ended June 30 | | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Oil Volume (Bbls) | 128,057 | 132,618 | (3)% | | Realized Oil Price ($/Bbl) | $78.03 | $48.25 | 62% | | Gas Volume (Mcf) | 888,014 | 917,480 | (3)% | | Realized Gas Price ($/Mcf) | $4.72 | $2.17 | 117% | Net Profits Comparison - Six Months Ended June 30 | | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Gross Profits | $27,274,858 | $14,748,083 | 85% | | Total Costs | $17,943,000 | $13,216,000 | 36% | | Net Profits | $9,461,888 | $1,532,083 | 518% | Liquidity and Capital Resources The Trust's liquidity primarily stems from its Net Profits Interest, supplemented by a cash reserve and a Sponsor-provided letter of credit - Commencing in February 2022, the Trust began withholding $37,833 per month to build a cash reserve targeted at approximately $2.3 million for future expenses[88] - The Sponsor (COERT) has provided a $1.2 million letter of credit to be used by the Trust if cash on hand is insufficient to pay ordinary course administrative expenses, with no amounts drawn as of the report date[89] - As of June 30, 2022, the Trust had cash of $532,308 for future expenses, up from $67,116 at the end of 2021[89] Quantitative and Qualitative Disclosures About Market Risk The Trust is exempt from providing market risk disclosures as it qualifies as a "smaller reporting company" under SEC regulations - As a "smaller reporting company," the Trust is exempt from providing quantitative and qualitative disclosures about market risk[98] Controls and Procedures The Trustee confirmed the effectiveness of the Trust's disclosure controls and procedures with no material changes in internal control over financial reporting - The Trustee concluded that the Trust's disclosure controls and procedures were effective as of the end of the reporting period[99] - There were no changes in the Trust's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal controls[101] PART II — OTHER INFORMATION Risk Factors No material changes have occurred to the risk factors previously disclosed in the Trust's 2021 Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the Trust's 2021 Annual Report on Form 10-K[104] Exhibits This section indexes exhibits filed with the Form 10-Q, including certifications required by the Sarbanes-Oxley Act of 2002 - The exhibits filed with this report include certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[107]