Permianville Royalty Trust(PVL) - 2022 Q4 - Annual Report

PART I Business The Trust is a passive entity holding an 80% net profits interest in oil and gas properties, with income tied to profitability and subject to market volatility - The Trust's primary asset is the right to receive 80% of the net profits from the sale of oil and natural gas production from the Underlying Properties held by the Sponsor, COERT Holdings 1 LLC[42][47][49] - The Trust is a passive entity with no employees; administrative functions are performed by The Bank of New York Mellon Trust Company, N.A., as Trustee, including collecting cash, paying expenses, and distributing funds to unitholders[50][51] - The Trust will dissolve if annual cash proceeds from the Net Profits Interest are less than $2 million for two consecutive years, or by a vote of 75% of unitholders[61] Top Purchasers of Production from Underlying Properties (Year Ended Dec 31) | Purchaser | 2022 | 2021 | | :--- | :--- | :--- | | Phillips 66 | 23% | 29% | | Occidental Petroleum | 18% | 18% | | HollyFrontier | 13% | 14% | - The Trust's operations are subject to extensive environmental regulations, including laws related to hazardous substances (CERCLA, RCRA), water discharges (CWA), air emissions (CAA), and climate change, which increase operating costs for the Sponsor and affect the Trust's net profits[105][106][107] Risk Factors The Trust faces significant risks from volatile oil and gas prices, depleting reserves, reliance on third-party operators, financial issues, and extensive environmental and regulatory challenges - The Trust's cash distributions are highly dependent on fluctuating oil and natural gas prices, which are influenced by global supply/demand, geopolitical events like the Russia-Ukraine conflict, and OPEC actions[136][138] - The reserves are depleting assets, and the Trust is prohibited from acquiring new properties, meaning production and distributions will inevitably decline over time[160][162] - All wells on the Underlying Properties are operated by third parties, giving the Sponsor and the Trust limited control over the timing of development, associated costs, and production rates[147] - The Trust has established a cash reserve for future liabilities, which reduces distributions; as of December 31, 2022, the reserve balance was $390,497, with a target of approximately $2.3 million[167][168] - Extensive environmental and climate change regulations (e.g., regarding greenhouse gases and hydraulic fracturing) could increase operating costs, restrict operations, and reduce demand for oil and gas, thereby lowering the Trust's net profits[191][200][210] Unresolved Staff Comments The Trust reports no unresolved staff comments - There are no unresolved staff comments[229] Properties The Trust's Net Profits Interest is derived from oil and gas properties in the Permian Basin and East Texas/North Louisiana, with 11.7 MMBoe total proved reserves as of December 31, 2022 - The Underlying Properties are located in two main regions: the Permian Basin (Texas/New Mexico) and East Texas/North Louisiana[230] Estimated Proved Reserves and PV-10 (as of Dec 31, 2022) | Category | Trust Net Profits Interest | Underlying Properties | | :--- | :--- | :--- | | Total Proved Reserves (MBoe) | 5,392 | 11,708 | | PV-10 (in thousands) | $163,160 | $203,718 | Underlying Properties Acreage and Well Count (as of Dec 31, 2022) | Region | Gross Acres | Net Acres | Gross Oil Wells | Gross Gas Wells | | :--- | :--- | :--- | :--- | :--- | | Permian Basin | 123,637 | 36,580 | 2,539 | 67 | | East Texas/North Louisiana | 10,424 | 2,840 | — | 280 | | Total | 134,061 | 39,420 | 2,539 | 347 | Total Sales Volumes from Underlying Properties (Year Ended Dec 31) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Oil Sales (Bbls) | 496,566 | 732,927 | 390,796 | | Natural Gas Sales (Mcf) | 3,357,233 | 4,930,529 | 2,021,759 | | Total Sales (Boe) | 1,056,105 | 1,554,682 | 727,756 | Legal Proceedings The Trust is not a party to any pending legal proceedings - There are no legal proceedings pending to which the Trust is a party[261] Mine Safety Disclosures This item is not applicable to the Trust - Not applicable[262] PART II Market for Registrant's Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities Trust Units trade on NYSE under 'PVL', with 33 million units outstanding as of December 31, 2022, and monthly cash distributions made from available funds - The Trust Units are traded on the New York Stock Exchange under the ticker symbol "PVL"[264] - As of December 31, 2022, there were 33,000,000 Trust Units outstanding[264] - The Trust makes monthly distributions to unitholders from available funds, which are excess cash receipts from the Net Profits Interest after deducting Trust expenses and any reserves[265] Trustee's Discussion and Analysis of Financial Condition and Results of Operations In 2022, net profits significantly increased to $20.2 million due to higher oil and gas prices, though development expenses also rose, with 2023 capital expenditures anticipated between $6.0 and $9.0 million Results of Operations Comparison (Year Ended Dec 31) | Metric (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Gross Profits | $62.1 | $43.5 | | Oil Sales | $44.7 | $33.5 | | Natural Gas Sales | $17.5 | $10.0 | | Total Costs | $42.1 | $38.2 | | Lease Operating Expenses | $21.9 | $26.6 | | Development Expenses | $12.1 | $3.5 | | Net Profits (Underlying Properties) | $20.2 | $5.4 | | Income from NPI (Trust) | $16.2 | $4.4 | | Distributable Income | $13.5 | $3.1 | - The increase in net profits in 2022 was driven by a 97% increase in average realized oil prices and a 157% increase in realized natural gas prices compared to the prior year's relevant production periods[274][289] - Development expenses increased by $8.6 million (242%) in 2022 due to increased drilling and completion activity in the Permian and Haynesville areas, spurred by higher commodity prices[274][289] - For 2023, the Sponsor anticipates capital expenditures on the Underlying Properties to range from $6.0 million to $9.0 million ($4.8 million to $7.2 million net to the Trust)[277] - The Trust uses a modified cash basis of accounting, where income is recorded when received and distributions are recorded when paid, a method permitted for royalty trusts by the SEC[300][304] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the Trust is not required to provide this information - The Trust is not required to provide information for this item as it qualifies as a "smaller reporting company"[310] Financial Statements and Supplementary Data This section presents the Trust's audited financial statements for 2022 and 2021, prepared on a modified cash basis, including key financial statements and supplementary oil and gas reserve data Financial Highlights (as of or for the Year Ended Dec 31) | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total Assets | $60,565 | $65,193 | | Trust Corpus | $60,565 | $65,193 | | Distributable Income | $13,481 | $3,119 | | Distributable Income per Unit | $0.408500 | $0.094500 | - The financial statements are prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than U.S. GAAP, as permitted for royalty trusts[314][335] Changes in Proved Reserves Attributable to Trust (MBOE) | Description | 2022 | 2021 | | :--- | :--- | :--- | | Balance, beginning of period | 4,909 | 4,015 | | Extensions and discoveries | 451 | 523 | | Revisions of previous estimates | 1,088 | 1,615 | | Income from Net Profits Interest | (1,056) | (1,244) | | Balance, end of period | 5,392 | 4,909 | Standardized Measure of Discounted Future Net Cash Flows (in thousands) | Metric | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Future cash inflows | $383,240 | $209,248 | | Future production taxes | ($31,913) | ($17,326) | | Standardized measure | $163,160 | $91,599 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable - Not applicable[379] Controls and Procedures The Trustee concluded that the Trust's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes - The Trustee concluded that the Trust's disclosure controls and procedures were effective as of the end of the reporting period[380] - The Trustee concluded that the Trust's internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework[383] - There were no changes in the Trust's internal control over financial reporting during the fourth quarter of 2022 that materially affected, or are reasonably likely to materially affect, such controls[382] Other Information This item is not applicable - Not applicable[384] Disclosures Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - Not applicable[385] PART III Directors, Executive Officers and Corporate Governance The Trust operates without directors or executive officers, with The Bank of New York Mellon Trust Company, N.A. serving as the corporate Trustee - The Trust has no directors or executive officers; it is managed by a corporate Trustee[388] - The Trust does not have an audit committee, nominating committee, or a code of ethics, as it lacks a board of directors and executive officers[389][390] Executive Compensation The Trust has no executive officers or employees, thus no executive compensation; the Trustee receives an annual administrative fee of $200,000 - The Trust has no executive officers, directors, or employees and thus no compensation committee or related policies[391] - The Trustee received an administrative fee of $200,000 for each of the years ended December 31, 2022 and 2021[391] Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters As of March 23, 2023, Permianville Holdings LLC (22.8%) and Jerry Roger Kent (5.7%) were identified as beneficial owners of 5% or more of the Trust's units Beneficial Owners of 5% or More (as of March 23, 2023) | Beneficial Owner | Trust Units Beneficially Owned | Percent of Class | | :--- | :--- | :--- | | Permianville Holdings LLC | 7,517,942 | 22.8% | | Jerry Roger Kent | 1,892,238 | 5.7% | Certain Relationships and Related Transactions, and Director Independence Related party transactions include annual administrative fees to Trustees and a Registration Rights Agreement with Sponsor COERT for unit registration, with director independence not applicable - The Trust pays an annual administrative fee of $200,000 to the Trustee and $2,000 to the Delaware Trustee[396] - The Trust and Sponsor COERT are parties to a Registration Rights Agreement, allowing COERT to have its Trust Units registered for sale; a registration statement for 8,600,000 units was filed on June 22, 2022[397][398] Principal Accountant Fees and Services The Trustee approves all auditor services; Weaver and Tidwell, LLP served as the independent auditor for 2022, with total audit fees billed at $98,365 Accountant Fees Billed to the Trust | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit fees | $98,365 | $189,440 | | Audit-related fees | — | — | | Tax fees | — | — | | All other fees | — | — | | Total fees | $98,365 | $189,440 | - On September 14, 2021, the Trustee dismissed Ernst & Young, LLP and appointed Weaver and Tidwell, L.L.P. as the Trust's independent registered public accounting firm[401] PART IV Exhibit and Financial Statement Schedules This section indexes financial statements from Item 8 and lists exhibits filed with the Form 10-K - This section lists the financial statements, notes, and supplementary information filed within the report, as well as all exhibits filed with the Form 10-K[403][405] Form 10-K Summary No Form 10-K summary is provided - None[406]