Item 5. Market for Registrant’s Common Equity
Item 5.
Market for Units of the Trust, Related Security Holder Matters and Trust Purchases of Units
Units of Beneficial Interest
Units of Beneficial Interest (Units) of the Trust are traded on the New York Stock Exchange with the symbol PBT.
Approximately 727 Unit holders of record held the 46,608,796 Units of the Trust at February 20, 2024.
The Trust has no equity compensation plans and has not repurchased any Units during the period covered by this report.
Item 6.
Selected Financial Data
REMOVED AND RESERVED.
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Computation of Royalty Income Received by the Trust
The Trusts royalty income is computed as a percentage of the net profit from the operation of the properties in which the Trust owns net
overriding royalty interests. The percentages of net profits are 75% and 95% in the cases of the Waddell Ranch properties and the Texas Royalty properties, respectively. Royalty income received by the Trust for the five years ended December 31,
2023, was computed as shown in the table on the next page.
Year Ended December 31,
2023
2022
2021
2020
2019
Gross Proceeds of Sales
From the Underlying Properties:
Waddell
Ranch
Properties
Texas
Royalty
Properties
Waddell
Ranch
Properties
Texas
Royalty
Properties
Waddell
Ranch
Properties
Texas
Royalty
Properties
Waddell
Ranch
Properties
Texas
Royalties
Properties
Waddell
Ranch
Properties
Texas
Royalty
Properties
Oil Proceeds
$
213,356,229
$
16,423,167
$
195,554,348
$
20,665,465
$
66,328,817
$
12,799,649
$
22,745,332
$
10,093,604
$
31,769,427
$
13,325,221
Gas Proceeds
17,428,482
1,159,111
37,108,451
1,357,568
17,259,346
906,335
4,584,768
595,961
7,655,763
1,169,754
Other
20,293,769
$
31,318,921
Adjustment(1)
(20,315,365
)
9,423,956
8,583,304
Total
251,078,480
17,582,278
243,566,355
22,023,033
93,012,119
13,705,984
35,913,404
10,689,565
39,425,195
14,494,975
Less:
Severance Tax
Oil
9,678,938
632,418
8,915,016
792,637
3,057,598
380,409
1,056,855
414,326
1,457,033
489,096
Gas
933,225
49,117
4,481,839
83,552
194,140
48,894
164,243
32,666
269,932
36,693
Other
21,715,807
134,222
$
15,427,633
173,640
726,596
Lease Operating Expense and Property Tax Oil and Gas
79,628,562
960,000
43,673,061
800,380
23,026,783
849,824
19,635,387
738,915
23,371,924
1,103,052
Capital Expenditures
120,462,603
124,283,888
66,559,957
10,314,532
3,306,832
Total
232,419,135
1,775,757
$
196,781,437
$
1,676,539
$
93,012,118
$
1,279,127
$
31,897,613
$
1,185,907
$
28,405,719
$
1,628,841
Net Profits
18,659,345
15,806,521
$
46,784,918
$
20,346,494
$
0
$
12,426,857
$
4,015,791
$
9,503,658
$
11,019,476
$
12,866,134
Net Overriding Royalty Interest
75
%
95
%
75
%
95
%
75
%
95
%
75
%
95
%
75
%
95
%
Total Royalty Income for Distribution
$
13,994,509
$
15,016,195
$
35,088,618
$
19,329,169
$
0
$
11,805,514
$
3,011,843
$
9,028,475
$
8,264,606
$
12,222,827
(1)
Due to beginning NPI deficit at January 1, 2022, the Waddell Ranch properties did not contribute to
Royalty income from January 1, 2022 through April 30, 2022. Beginning on May 1, 2022, the NPI deficit was fully recovered, therefore the Waddell Ranch properties began contributing to Royalty income from that time until March 2023
when it once again returned to a deficit position. Due to returning again to a deficit position in March, 2023, the Waddell Ranch properties did not contribute to royalty income for the period from March through April, 2023 and from July through
September, 2023. As of December 31, 2023, the NPI deficit had been fully recovered.
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Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operation
Trustees Discussion and Analysis for the Three-Year Period Ended December 31, 2023
Liquidity and Capital Resources
As stipulated in the Trust Agreement, the Trust is intended to be passive in nature and the Trustee does not have any control over or any
responsibility relating to the operation of the Underlying Properties. The Trustee has powers to collect and distribute proceeds received by the Trust and pay Trust liabilities and expenses and its actions have been limited to those activities. The
Trust is a passive entity and other than the Trusts ability to periodically borrow money as necessary to pay expenses, liabilities and obligations of the Trust that cannot be paid out of cash held by the Trust, the Trust is prohibited from
engaging in borrowing transactions. As a result, other than such borrowings, if any, the Trust has no source of liquidity or capital resources other than the Royalties.
Results of Operations
Royalty income received by the Trust for the three-year period ended December 31, 2023, is reported in the following table:
Year Ended December 31,
Royalties
2023
2022
2021
Total Revenue
$
29,010,704
100
%
$
54,417,857
100
%
$
11,805,514
100
%
Oil Revenue
24,949,205
86
%
41,357,571
76
%
9,562,466
81
%
Gas Revenue
4,061,499
14
%
13,060,286
24
%
2,243,048
19
%
Total Revenue/Unit
$
0.622430
$
1.167545
$
0.253289
Royalty income of the Trust for the calendar year is associated with actual oil and gas production for the
period from November of the prior year through October of the current year. Oil and gas production for 2023, 2022 and 2021 generated by the Royalties and the Underlying Properties, excluding portions attributable to the adjustments discussed
hereafter, are presented in the following table:
Year Ended December 31,
Royalties
2023
2022
2021
Oil Sales (Bbls)
2,277,307
1,760,471
967,106
Gas Sales (Mcf)
12,174,696
9,461,087
3,876,648
Underlying Properties
Oil
Total Oil Sales (Bbls)
2,994,897
2,297,565
1,249,350
Average Per Day (Bbls)
8,090
6,295
3,423
Average Price/Bbl
$
76.72
$
94.11
$
63.34
Gas
Total Gas Sales (Mcf)
16,183,928
12,587,044
5,143,426
Average Per Day (Mcf)
44,340
34,485
14,092
Average Price/Mcf
$
2.40
$
5.54
$
3.53
The average price of oil decreased to $76.72 per barrel in 2023, down from $94.11 per barrel in 2022. The
average price of oil in 2021 was $63.34 per barrel. In addition, the average price of gas decreased from $5.54 per Mcf in 2022 to $2.40 per Mcf in 2023. The average price of gas in 2021 was $3.53 per Mcf. Oil prices have decreased primarily because
of world market conditions. Oil prices are expected to remain volatile. Gas liquids values have declined along with gas pricing due to high production levels, consistently mild weather patterns, and decreased heating demand. Blackbeard, after
assuming the role of operator of the Waddell Ranch Properties, immediately instituted a workover of specific wells, which caused the Trust not to receive any royalty income from the Waddell Properties in 2021 and portions of 2022 and 2023.
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Subsequent to December 31, 2023, the price of both oil and gas continued to fluctuate,
giving rise to a correlating adjustment of the respective standardized measure of discounted future net cash flows. As of February 20, 2024, NYMEX posted oil prices were approximately $78.72 per barrel, which compared to the posted price of $78.22
per barrel, used to calculate the worth of future net revenue of the Trusts proved developed reserves, would result in a slightly larger standardized measure of discounted future net cash flows for oil. As of February 21 , 2024, NYMEX
posted gas prices were $1.58 per million British thermal units. The use of such price, as compared to the posted price of $2.64 per million British thermal units, used to calculate the future net revenue of the Trusts proved developed reserves
would result in a smaller standardized measure of discounted future net cash flows for gas.
Since the oil and gas sales attributable to
the Royalties are based on an allocation formula that is dependent on such factors as price and cost (including capital expenditures), production amounts do not necessarily provide a meaningful comparison. For the underlying properties total oil and
gas production increased approximately 30% and 29% respectively, from 2022 to 2023 primarily due to additional production on Waddell due to new drilling.
Total capital expenditures in 2023 used in the net overriding royalty calculation were approximately $116 million (gross) compared to
$124.3 million (gross) in 2022 and $66.6 million (gross) in 2021. The operator of the Waddell Ranch properties has informed the Trustee that, in order to halt the production decline curve and to exploit the remaining potential of the
Trusts assets more fully, a more aggressive, robust capital expenditure budget will be necessary in the future and is being pursued.
In 2022, there were 46.9 recompletion wells completed and 17.8 wells permanently plugged on the Waddell Ranch properties. Actual costs for
this program in 2022 approximated $124.3 million (gross). In 2023, there were 28.9 new drill wells (net) and 53 recompletion wells (net) completed on the Waddell Ranch properties.
Texas law requires all temporarily abandoned wells to be either worked over and recompleted to functional status or permanently plugged and
abandoned within a five year time frame. The Waddell Ranch properties contain over 700 such temporarily abandoned wells. In 2023, there were 53 recompletion wells completed and 31 wells permanently plugged on the Waddell Ranch properties.
There were 77 drill wells (gross) completed on the Waddell Ranch properties during 2023. During, 2022, there were 91 drill wells
completed on the Waddell Ranch properties.
Blackbeard has advised the Trustee that the proposed budget for 2024 has not been finalized;
however, it has provided the Trustee with a preliminary capital expenditure budget of approximately $301 million (gross) and development plan reflecting that the 2024 budget will include amounts to be spent on 83 (gross) horizontal wells and 12
(gross) vertical wells along with 24 (gross) recompleted well prospects to be worked over and completed as well as infrastructure and plugging and abandonment costs.
In 2023, lease operating expense and property taxes on the Waddell Ranch properties amounted to approximately $79.6 million, compared to
approximately $43.7 million in 2022, and approximately $23 million in 2021.
The Trustee has been advised by the operator that
the majority of Waddell Ranch oil production is now pipeline connected and sold under long term crude purchase agreements.
During 2023,
the monthly royalty receipts were invested by the Trustee in cash and cash equivalents until the monthly distribution date, and earned interest totaled $86,162. Interest income for 2022 and 2021 was $48,371 and $5,112, respectively.
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General and administrative expenses in 2023 were $1,118,096 compared to $922,404 in 2022 and
$1,088,851 in 2021, primarily due to audit of properties and other professional services. The reserve for administrative expenses for any potentially extraordinary events and/or expenses was $0 as of December 31, 2023. Total reserves for
expenses for the years ended December 31, 2023, 2022 and 2021 was $0, $0 and $0, respectively.
Distributable income for 2023 was
$27,978,487 or $0.60 per Unit.
Distributable income for 2022 was $53,543,824 or $1.15 per Unit.
Distributable income for 2021 was $10,721,775 or $0.23 per Unit.
Results of the Fourth Quarters of 2023 and 2022
Royalty income received by the Trust for the fourth quarter of 2023 amounted to $14,412,501 or $0.31 per Unit. For the fourth quarter of 2022,
the Trust received royalty income of $15,385,233 or $0.33 per Unit. Interest income for the fourth quarter of 2023 amounted to $24,688 compared to $33,117 for the fourth quarter of 2022. The decrease in interest income can be attributed primarily to
a decrease of funds available. Total general and administrative expenses was $162,490 for the fourth quarter of 2023 compared to $150,153 for the fourth quarter of 2022. The increase in expenses primarily related to timing of payments of legal and
auditor expenses.
Royalty income for the Trust for the fourth quarter is associated with actual oil and gas production during August
through October from the Underlying Properties. Oil and gas production attributable to the Underlying Properties for the quarter and the comparable period for 2022 are as follows:
Fourth Quarter
2023
2022
Royalties
Oil Sales (Bbls)
620,484
506,384
Gas Sales (Mcf)
3,311,663
2,807,222
Underlying Properties
Total Oil Sales (Bbls)
817,028
662,982
Average Per Day (Bbls)
8,881
7,206
Average Price/Bbls
$
84.23
$
88.24
Total Gas Sales (Mcf)
4,402,350
3,737,313
Average Per Day (Mcf)
47,852
40,623
Average Price/Mcf
$
2.31
$
5.49
The posted price of oil decreased for the fourth quarter of 2023 compared to the fourth quarter of 2022,
resulting in an average price per barrel of $84.23 compared to $88.24 in the same period of 2022. The average price of gas decreased for the fourth quarter of 2023 compared to the same period in 2022, resulting in an average price per Mcf of $2.31
compared to $5.49 in the fourth quarter of 2022.
The Trustee has been advised that oil and gas production increased in the fourth quarter
of 2023 compared to the same period in 2022 primarily due to additional drilling.
The Trust has been advised that 5.6 (net) wells were
drilled and completed during the three months ended December 31, 2023, and there were 4.9 (net) wells in progress.
Use of
Estimates
The preparation of financial statements in conformity with the basis of accounting described above requires management
to make estimates and assumptions that affect reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting periods. Actual results may differ from such estimates.
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Impairment
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, 2023.
Critical Accounting Policies and Estimates
The Trusts financial statements reflect the selection and application of accounting policies that require the Trust to make significant
estimates and assumptions. The following are some of the more critical judgment areas in the application of accounting policies that currently affect the Trusts financial condition and results of operations.
1. Basis of Accounting
The financial statements of the Trust are prepared on the following basis:
Royalty income recorded for a month is the amount computed and paid to the Trustee on behalf of the Trust by the
interest owners. Royalty income consists of the amounts received by the owners of the interest burdened by the Royalties from the sale of production less accrued production costs, development and drilling costs, applicable taxes, operating charges
and other costs and deductions multiplied by 75% in the case of the Waddell Ranch properties and 95% in the case of the Texas Royalty properties.
Trust expenses, consisting principally of routine general and administrative costs, recorded are based on
liabilities paid and cash reserves established out of cash received or borrowed funds for liabilities and contingencies.
Distributions to Unit holders are recorded when declared by the Trustee.
Royalty income is computed separately for each of the conveyances under which the Royalties were conveyed to the
Trust. If monthly costs exceed revenues for any conveyance (excess costs), such excess costs cannot reduce royalty income from other conveyances, but is carried forward with accrued interest to be recovered from future net proceeds of
that conveyance.
The financial statements of the Trust differ from financial statements prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP) because revenues are not accrued in the month of production and certain cash reserves may be established for contingencies which would not be accrued in
financial statements prepared in accordance with GAAP. Amortization of the Royalties calculated on a unit-of-production basis is charged directly to trust corpus. This
comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the SEC as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.
2. Royalty Income
Revenues from Royalty Interests are recognized in the period in which amounts are received by the Trust. Royalty income received by the Trust
in a given calendar year will generally reflect the proceeds from crude oil and natural gas produced for the twelve-month period ended October 31 st in that calendar year.
3. Reserve Disclosure
Independent petroleum engineers estimate the net proved reserves attributable to the Royalty Interests. Estimates of future net revenues from
proved reserves have been prepared using average 12-month oil and gas prices, determined
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as an unweighted arithmetic average of the
first-day-of-the-month benchmark price for each month within the 12-month period preceding the end of the most recent fiscal year, unless prices are defined by contractual arrangements. The standardized measure of discounted future net cash flows is achieved by using a discount
rate of 10% a year to reflect the timing of future cash flows relating to proved oil and gas reserves. The reserves actually recovered and the timing of production may be substantially different from the reserve estimates and related costs. Numerous
uncertainties are inherent in estimating volumes and the value of proved reserves and in projecting future production rates and the timing of development of non-producing reserves. Such reserve estimates are
subject to change as market conditions change.
Detailed information concerning the number of wells on royalty properties is not generally
available to the owner of royalty interests. Consequently, the Registrant does not have information that would be disclosed by a company with oil and gas operations, such as an accurate account of the number of wells located on its royalty
properties, the number of exploratory or development wells drilled on its royalty properties during the periods presented by this report, or the number of wells in process or other present activities on its royalty properties, and the Registrant
cannot readily obtain such information.
4. 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.
New Accounting Pronouncements
There are no new pronouncements that are expected to have a significant impact on the Trusts financial statements.