What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-30 compared with 2021-03-31 · 143 added, 128 removed, 248 unchanged (52% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm (PCAOB ID Number

Statements of Assets, Liabilities and Trust Corpus

Statements of Distributable Income

Statements of Changes in Trust Corpus

Notes to Financial Statements

All financial statement schedules are omitted as they are inapplicable or the required information has been included in

the consolidated financial statements or notes thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We have audited the

accompanying statements of assets, liabilities and trust corpus of Permian Basin Royalty Trust (the Trust) as of December 31, 2020 and 2019, and the related statements of distributable income and changes in trust corpus for each of the three

years in the period ended December 31, 2020, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the assets, liabilities,

and trust corpus of the Trust as of December 31, 2020 and 2019, and the distributable income and changes in trust corpus for each of the three years in the period ended December 31, 2020, in conformity with the modified cash basis of

accompanying statements of assets, liabilities and trust corpus of the Permian Basin Royalty Trust (the Trust) as of December 31, 2021 and 2020, and the related statements of distributable income and changes in trust corpus for each of the

three years in the period ended December 31, 2021 and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the assets, liabilities, and

trust corpus of the Trust as of December 31, 2021 and 2020, and the distributable income and changes in trust corpus for each of the three years in the period ended December 31, 2021, in conformity with the modified cash basis of

accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.

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Cash and Short-term Investments

Net Overriding Royalty Interests in Producing Oil and Gas Properties Net (Notes 2

Net Overriding Royalty Interests in Producing Oil and Gas Properties Net (Notes 2 and 3)

LIABILITIES AND TRUST CORPUS

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2014, and shall refer to Southwest Bank for periods from August 29, 2014 through February 19, 2018 and shall refer to Simmons Bank for periods on and after February 20, 2018.

On November 4, 2021, Simmons Bank announced that it has entered into an agreement with Argent Trust Company, a Tennessee chartered trust company

(Argent), pursuant to which Simmons Bank will be resigning as

trustee of the Trust and will nominate Argent as successor trustee of the Trust.

The Trustees resignation as trustee, and Argents appointment as successor trustee, are subject to

certain conditions set forth in the agreement, including approval by the Unit holders of the Trust and of certain other trusts of which Simmons Bank acts as trustee (or a court) of (i) Argents appointment as successor trustee and

(ii) any amendments to the indenture of the Trust and the trust agreements and indentures of the other trusts necessary to permit Argent to serve as successor trustee.

The terms of the Trust Indenture provide, among other things, that:

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Actual results may differ from such estimates.

routinely reviews its royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

If an impairment event occurs and it is determined that the

carrying value of the Trusts royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely

be measured by discounting projected cash flows.

The Trustee routinely reviews its royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying

amount of an asset may not be recoverable.

If an impairment event occurs and it is determined that the carrying value of the Trusts royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which

the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely be measured by discounting projected cash flows.

There was no impairment of the assets as of December 31, 2021.

Contingencies

Contingencies related to the Underlying Properties that are unfavorably resolved would generally be reflected by the Trust as reductions to future

royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders.

Distributable Income Per

Contingencies

related to the Underlying Properties that are unfavorably resolved would generally be reflected by the Trust as reductions to future royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders.

Distributable Income Per Unit

Basic distributable income per Unit is computed by dividing distributable income by the weighted average of Units outstanding.

Distributable income per Unit assuming dilution is computed by dividing distributable income by the weighted average number of Units and equivalent Units outstanding.

Distributable income per

Unit assuming dilution is computed by dividing distributable income by the weighted average number of Units and equivalent Units outstanding.

The Trust had no equivalent Units outstanding for any period presented.

basic distributable income per Unit and distributable income per Unit assuming dilution are the same.

Therefore, basic distributable

income per Unit and distributable income per Unit assuming dilution are the same.

New Accounting Pronouncements

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at the trust level.

The Unit holders are considered to own the Trusts income and principal as though no trust were in existence.

The income of the Trust is deemed to have been received or accrued by each Unit holder at the time such income is

received or accrued by the Trust and not when distributed by the Trust.

The Unit holders are considered to own the Trusts income and

principal as though no trust were in existence.

The income of the Trust is deemed to have been received or accrued by each Unit holder at the time such income is received or accrued by the Trust

and not when distributed by the Trust.

The Trust has on file technical advice memoranda confirming the tax treatment described above.

Some Trust Units are held by middlemen, as such term is broadly defined in U.S.

Treasury Regulations (and includes custodians, nominees, certain joint

owners, and brokers holding an interest for a customer in street name, collectively referred to herein as middlemen).

Therefore, the Trustee considers the Trust to be a non-mortgage widely

held fixed investment trust (WHFIT) for U.S.

Units are held by middlemen, as such term is broadly defined in U.S.

Treasury Regulations (and includes custodians, nominees, certain joint owners, and brokers holding an interest for a customer in street name, collectively referred to herein as

middlemen).

Therefore, the Trustee considers the Trust to be a non-mortgage widely held fixed investment trust (WHFIT) for U.S.

federal income tax purposes.

Simmons Bank, EIN:

71-0162300, 2911 Turtle Creek Boulevard, Suite

850, Dallas, Texas 75219, telephone number (855) 588-7839, email address trustee@pbt-permian.com, is the representative of the Trust that will provide tax information in

accordance with applicable U.S.

Treasury Regulations governing the information reporting requirements of the Trust as a WHFIT.

71-0162300, 2911 Turtle Creek Boulevard, Suite 850, Dallas, Texas 75219, telephone number (855) 588-7839, email address

trustee@pbt-permian.com, is the representative of the Trust that will provide tax information in accordance with applicable U.S.

Treasury Regulations governing the information reporting requirements of the

Trust as a WHFIT.

Tax information is also posted by the Trustee at www.pbt-permian.com .

Notwithstanding the foregoing, the middlemen holding Trust Units on behalf of Unit holders, and not the Trustee of the Trust, are solely responsible for complying with the information reporting requirements under the U.S.

Treasury Regulations with

respect to such Trust Units, including the issuance of IRS Forms 1099 and certain written tax statements.

Unit holders whose Trust Units are held by middlemen should consult with such middlemen regarding the information that will be reported to them

by the middlemen with respect to the Trust Units.

Because the Trust is a grantor trust for federal tax purposes, each Unit holder is taxed directly

on his proportionate share of income, deductions and credits of the Trust consistent with each such Unit holders taxable year and method of accounting and without regard to the taxable year or method of accounting employed by the Trust.

income of the Trust consists primarily of a specified share of the proceeds from the sale of oil and gas produced from the Underlying Properties.

During 2020, the Trust also earned interest income on funds held for distribution and the cash reserve

maintained for the payment of contingent and future obligations of the Trust.

The Trust generally allocates its items of income, gain, loss and

deduction between transferors and transferees of the Units each month based upon the ownership of the Units on the monthly record date, instead of on the basis of the date a particular Unit is transferred.

It is possible that the IRS could disagree

with this allocation method and could assert that income and deductions of the Trust should be determined and allocated on a daily or prorated basis, which could require adjustments to the tax returns of the Unit holders affected by the issue and

result in an increase in the administrative expense of the Trust in subsequent periods.

The deductions of the Trust consist of severance taxes and

administrative expenses.

In addition, each Unit holder is entitled to depletion deductions because the Royalties constitute economic interests in oil and gas properties for federal income tax purposes.

Each Unit holder is entitled to

amortize the cost of the Units through cost depletion over the life of the Royalties or, if greater, through percentage depletion equal to 15 percent of gross income, limited to 100% of the net income from such royalty.

Unlike cost depletion,

percentage depletion is not limited to a Unit holders depletable tax basis in the Units.

Notwithstanding the foregoing, the middlemen holding Trust Units on behalf of Unit holders, and not the Trustee of

the Trust, are solely responsible for complying with the information reporting requirements under the U.S.

Treasury Regulations with respect to such Trust Units, including the issuance of IRS Forms 1099 and certain written tax statements.

holders whose Trust Units are held by middlemen should consult with such middlemen regarding the information that will be reported to them by the middlemen with respect to the Trust Units.

Because the Trust is a grantor trust for federal tax purposes, each Unit holder is taxed directly on his proportionate share of income, deductions and

credits of the Trust consistent with each such Unit holders taxable year and method of accounting and without regard to the taxable year or method of accounting employed by the Trust.

The income of the Trust consists primarily of a specified

share of the proceeds from the sale of oil and gas produced from the Underlying Properties.

During 2021, the Trust also earned interest income on funds held for distribution and the cash reserve maintained for the payment of contingent and future

obligations of the Trust.

The Trust generally allocates its items of income, gain, loss and deduction between transferors and transferees of the

Units each month based upon the ownership of the Units on the monthly record date, instead of on the basis of the date a particular Unit is transferred.

It is possible that the IRS could disagree with this allocation method and could assert that

income and deductions of the Trust should be determined and allocated on a daily or prorated basis, which could require adjustments to the tax returns of the Unit holders affected by the issue and result in an increase in the administrative expense

of the Trust in subsequent periods.

The deductions of the Trust consist of severance taxes and administrative expenses.

In addition, each Unit

holder is entitled to depletion deductions because the Royalties constitute economic interests in oil and gas properties for federal income tax purposes.

Each Unit holder is entitled to amortize the cost of the Units through cost

depletion over the life of the Royalties or, if greater, through percentage depletion equal to 15 percent of gross income, limited to 100% of the net income from such royalty.

Unlike cost depletion, percentage depletion is not limited to a Unit

holders depletable tax basis in the Units.

Rather, a Unit holder is entitled to a percentage depletion deduction as long as the applicable Underlying Properties generate gross income.

depletion is allowed on proven properties acquired after October 11, 1990.

For Units acquired after such date, Unit holders should compute both percentage depletion and cost depletion from each property and claim the larger amount as a

deduction on their income tax returns.

Unit holders must maintain records of their adjusted basis in their Trust Units (generally his cost less

prior depletion deductions), make adjustments for depletion deductions to such basis, and use the adjusted basis for the computation of gain or loss on the disposition of the Trust Units.

If a taxpayer disposes of any Section 1254 property (certain oil, gas, geothermal or other mineral property), and if the adjusted basis

of such property includes adjustments for deductions for depletion under Section 611 of the Internal Revenue Code (the Code), the taxpayer generally must recapture the amount deducted for depletion as ordinary income (to the extent

of gain realized on such disposition).

This depletion recapture rule applies to any disposition of property that was placed in service by the taxpayer after December 31, 1986.

Detailed rules set forth in Sections

1.1254-1 through 1.1254-6 of the U.S.

Treasury Regulations govern dispositions of property after March 13, 1995.

The Internal Revenue Service likely will take the

position that a Unit holder who purchases a Unit subsequent to December 31, 1986 must recapture depletion upon the disposition of that Unit.

Percentage depletion is allowed on proven properties

acquired after October 11, 1990.

For Units acquired after such date, Unit holders should compute both percentage depletion and cost depletion from each property and claim the larger amount as a deduction on their income tax returns.

Unit holders must maintain records of their adjusted basis in their Trust Units (generally his cost less prior depletion deductions), make adjustments

for depletion deductions to such basis, and use the adjusted basis for the computation of gain or loss on the disposition of the Trust Units.

taxpayer disposes of any Section 1254 property (certain oil, gas, geothermal or other mineral property), and if the adjusted basis of such property includes adjustments for deductions for depletion under Section 611 of the

Internal Revenue Code (the Code), the taxpayer generally must recapture the amount deducted for depletion as ordinary income (to the extent of gain realized on such disposition).

This depletion recapture rule applies to any disposition

of property that was placed in service by the taxpayer after December 31, 1986.

Detailed rules set forth

in Sections 1.1254-1 through 1.1254-6 of the U.S.

Treasury Regulations govern dispositions of property after

March 13, 1995.

The Internal Revenue Service likely will take the position that a Unit holder who purchases a Unit subsequent to December 31, 1986 must recapture depletion upon the disposition of that Unit.

Individuals may incur expenses in connection with the acquisition or ownership of Trust Units.

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tax years beginning after December 31, 2018 and before January 1, 2026, miscellaneous itemized deductions are not allowed.

The classification of the Trusts income for purposes of the passive loss rules may be important

to a Unit holder.

classification of the Trusts income for purposes of the passive loss rules may be important to a Unit holder.

Royalty income generally is treated as portfolio income and does not offset passive losses.

Therefore, in general, Unit holders should not consider the taxable income from the Trust to be passive income in determining net passive

income or loss.

Unit holders should consult their tax advisors for further information.

Unit holders of record will continue to receive an

individualized tax information letter for each of the quarters ending March 31, June 30 and September 30, 2020, and for the year ending December 31, 2020.

Unit holders owning Units in the name of a nominee may obtain monthly tax

information from the Trustee upon request.

See discussion above regarding certain reporting requirements imposed upon middlemen under U.S.

Therefore, in general, Unit holders

should not consider the taxable income from the Trust to be passive income in determining net passive income or loss.

Unit holders should consult their tax advisor for further information.

Unit holders of record will continue to receive an individualized tax information letter for each of the quarters ending March 31, June 30 and

September 30, 2021, and for the year ending December 31, 2021.

Unit holders owning Units in the name of a nominee may obtain monthly tax information from the Trustee upon request.

See discussion above regarding certain reporting

requirements imposed upon middlemen under U.S.

Treasury Regulations because the Trust is considered a WHIFT for federal income tax purposes.

Under the TCJA, for tax years beginning after December 31, 2018 and before January 1, 2026, the highest marginal U.S.

federal income tax rate

applicable to ordinary income of individuals is 37%, and the highest marginal U.S.

federal income tax rate applicable to long-term capital gains (generally, gains from the sale or exchange of certain investment assets held for more than one year)

and qualified dividends of individuals is 20%.

Under the TCJA, for such tax years, personal exemptions and miscellaneous itemized deductions are not allowed.

the TCJA, for tax years beginning after December 31, 2018 and before January 1, 2026, the highest marginal U.S.

federal income tax rate applicable to ordinary income of individuals is 37%, and the highest marginal U.S.

federal income tax

rate applicable to long-term capital gains (generally, gains from the sale or exchange of certain investment assets held for more than one year) and qualified dividends of individuals is 20%.

Under the TCJA, for such tax years, personal exemptions

and miscellaneous itemized deductions are not allowed.

For such tax years, the U.S.

federal income tax rate applicable to corporations is 21%, and

such rate applies to both ordinary income and capital gains.

Section 1411 of the Code imposes a 3.8% Medicare tax on certain investment income

earned by individuals, estates, and trusts.

For these purposes, investment income generally will include a Unit holders allocable share of the Trusts interest and royalty income plus the gain recognized from a sale of Trust Units.

case of an individual, the tax is imposed on the lesser of (i) the individuals net investment income from all investments, or (ii) the amount by which the individuals modified adjusted gross income exceeds specified threshold

levels depending on such individuals federal income tax filing status.

In the case of an estate or trust, the tax is imposed on the lesser of (i) undistributed net investment income, or (ii) the excess adjusted gross income over the

dollar amount at which the highest income tax bracket applicable to an estate or trust begins.

The Tax consequences to a Unit holder of the

acquisition, ownership or disposition of Units will depend in part on the Unit holders tax circumstances.

Unit holders should consult their tax advisors regarding the federal tax consequences relating to acquiring, owning or disposing the

Units in the Trust.

Pursuant to the Foreign Account Tax Compliance Act (commonly referred to as FATCA),

distributions from the Trust to foreign financial institutions and certain other non-financial foreign entities may be subject to U.S.

federal income tax rate applicable to corporations is 21%, and such rate applies to both ordinary income and capital gains.

Section 1411 of the Code imposes a 3.8% Medicare tax on certain investment income earned by individuals, estates, and trusts.

For these purposes,

investment income generally will include a Unit holders allocable share of the Trusts interest and royalty income plus the gain recognized from a sale of Trust Units.

In the case of an individual, the tax is imposed on the lesser of

(i) the individuals net investment income from all investments, or (ii) the amount by which the individuals modified adjusted gross income exceeds specified threshold levels depending on such individuals federal income

tax filing status.

In the case of an estate or trust, the tax is imposed on the lesser of (i) undistributed net investment income, or (ii) the excess adjusted gross income over the dollar amount at which the highest income tax bracket

applicable to an estate or trust begins.

The Tax consequences to a Unit holder of the acquisition, ownership or disposition of Units will depend in

part on the Unit holders tax circumstances.

Unit holders should consult their tax advisor regarding the federal tax consequences relating to acquiring, owning or disposing the Units in the Trust.

Pursuant to the Foreign Account Tax Compliance Act (commonly referred to as FATCA), distributions from the Trust to foreign financial

institutions and certain other non-financial foreign entities may be subject to U.S.

withholding taxes.

Specifically, certain

withholdable payments (including certain royalties, interest and other gains or income from U.S.

sources) made to a foreign financial institution or non-financial foreign entity will generally be

subject to the withholding tax unless the foreign financial institution or non-financial foreign entity complies with certain information reporting, withholding, identification, certification and related

requirements imposed by FATCA.

Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

The Treasury Department issued guidance providing that the FATCA withholding rules described above generally apply to qualifying payments made after

June 30, 2014.

Foreign Unit holders are encouraged to consult their own tax advisors regarding the possible implications of these withholding provisions on their investment in Trust Units.

Specifically, certain withholdable payments (including certain royalties,

interest and other gains or income from U.S.

sources) made to a foreign financial institution or non-financial foreign entity will generally be subject to the withholding tax unless the foreign financial

institution or non-financial foreign entity complies with certain information reporting, withholding, identification, certification and related requirements imposed by FATCA.

Foreign financial institutions

located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

Treasury Department issued guidance providing that the FATCA withholding rules described above generally apply to qualifying payments made after June 30, 2014.

Foreign Unit holders are encouraged to consult

their own tax advisors regarding the possible implications of these withholding provisions on their investment in Trust Units.

Proved Oil and Gas Reserves (Unaudited)

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Certain information required by this guidance is not presented because that information is not applicable to the Trust due to its passive nature.

Oil and gas reserve quantities (all located in the United States) are estimates based on information

available at the time of their preparation.

Such estimates are subject to change as additional information becomes available.

Reserves actually recovered, and the timing of the production of those reserves, may differ substantially from original

The following schedule presents changes in the Trusts total proved reserves (in thousands):

Oil and gas reserve quantities (all located in the United States) are estimates based on information available at the time of their preparation.

estimates are subject to change as additional information becomes available.

Reserves actually recovered, and the timing of the production of those reserves, may differ substantially from original estimates.

The following schedule presents changes

in the Trusts total proved reserves (in thousands):

January 1, 2019

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quantities attributable to the Trust.

Information presented is based upon valuation of proved reserves by using discounted cash flows based upon average oil and gas prices ($39.57 per bbl and $2.00 per Mcf, respectively) during the 12-month period prior to the fiscal year-end, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future

conditions and severance and ad valorem taxes, if any, and economic conditions, discounted at the required rate of 10 percent.

As the Trust is not subject to taxation at the trust level, no provision for income taxes has been made in the

following disclosure.

Information presented is based upon valuation of proved reserves by using discounted cash flows based upon average oil and gas prices ($66.56 per bbl and $3.60 per Mcf, respectively) during the 12-month period prior to the fiscal year-end, determined as an

unweighted arithmetic average of the

first-day-of-the-month price for each month within such period, unless prices are defined

by contractual arrangements, excluding escalations based upon future conditions and severance and ad valorem taxes, if any, and economic conditions, discounted at the required rate of 10 percent.

As the Trust is not subject to taxation at the

trust level, no provision for income taxes has been made in the following disclosure.

Trust prices may differ from posted NYMEX prices due to differences in product quality and property location.

The impact of changes in current prices on reserves could vary significantly from year to year.

Accordingly, the

information presented below should not be viewed as an estimate of the fair market value of the Trusts oil and gas properties nor should it be viewed as indicative of any trends.

The impact of changes in current prices on reserves

could vary significantly from year to year.

Accordingly, the information presented below should not be viewed as an estimate of the fair market value of the Trusts oil and gas properties nor should it be viewed as indicative of any trends.

Future net cash inflows

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Standardized measure of discounted future net cash inflows

The change in the standardized measure of discounted future net cash flows for the years ended

December 31, 2020, 2019 and 2018 is as follows (in thousands):

The change in the standardized measure of discounted future net cash flows for the years ended December 31, 2020,

2019 and 2018 is as follows (in thousands):

Extensions, discoveries, and other additions

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As of March 15, 2022, NYMEX posted oil prices were approximately $96.44 per barrel, which compared to the posted price of $66.56 per barrel, used to

calculate the worth of future net revenue of the Trusts proved developed reserves, would result in a smaller standardized measure of discounted future net cash flows for oil.

As of March 10, 2021, NYMEX posted gas prices were $2.69 per

million British thermal units.

The use of such price, as compared to the posted price of $2.00 per million British thermal units, used to calculate the future net revenue of the Trusts proved developed reserves would result in a smaller

calculate the worth of future net revenue of the Trusts proved developed reserves, would result in a larger standardized measure of discounted future net cash flows for oil.

As of March 15 , 2022, NYMEX posted gas prices were $4.46

per million British thermal units.

The use of such price, as compared to the posted price of $3.65 per million British thermal units, used to calculate the future net revenue of the Trusts proved developed reserves would result in a larger

standardized measure of discounted future net cash flows for gas.

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otherwise exempt.

Trusts that receive at least 90% of their federal gross income from

certain passive sources, including royalties from mineral properties and other non-operated mineral interest income, and do not receive more than 10% of

their income from operating an active trade or business, generally are exempt from the Texas franchise tax as passive entities. The Trust has been and expects to continue to be exempt from Texas franchise tax as a passive entity.

the Trust should be exempt from Texas franchise tax at the Trust level as a passive entity, each Unit holder that is a taxable entity under the Texas franchise tax generally will be required to include its portion of Trust revenues in its own Texas

franchise tax computation.

This revenue is sourced to Texas under provisions of the Texas Administrative Code providing that such income is sourced according to the principal place of business of the Trust, which is Texas.

Unit holders should consult their tax advisors regarding the possible state tax implications of owning Trust Units.

Trusts that receive at least 90% of their federal gross income from certain passive sources, including royalties from mineral properties and other non-operated mineral interest income, and do

not receive more than 10% of their income from operating an active trade or business, generally are exempt from the Texas franchise tax as passive entities. The Trust has been and expects to continue to be exempt from Texas franchise tax

as a passive entity.

Because the Trust should be exempt from Texas franchise tax at the Trust level as a passive entity, each Unit holder that is a taxable entity under the Texas franchise tax generally will be required to include its portion of

Trust revenues in its own Texas franchise tax computation.

This revenue is sourced to Texas under provisions of the Texas Administrative Code providing that such income is sourced according to the principal place of business of the Trust, which is

Unit holders should consult their tax advisor regarding the possible state tax implications of owning Trust Units.

Commitments and Contingencies

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April 14, 2022

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Changes in and Disagreements with Accountants on Accounting and Financial

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data