What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-08-14 compared with 2020-05-15 · 127 added, 111 removed, 254 unchanged (48% of the section changed)

4 unchanged sentences

These condensed interim financial statements and notes thereto should be read in conjunction with the audited financial statements and notes thereto included in the Trusts 2019 Annual Report on Form 10-K (2019 Annual Report).

In the opinion of the Trustee, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the assets, liabilities and Trust corpus of PermRock Royalty Trust at March 31, 2020 and December 31, 2019, and the distributable income and changes in Trust corpus for the three-month periods ended March 31, 2020 and March 31, 2019 have been included.

In the opinion of the Trustee, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the assets, liabilities and Trust corpus of PermRock Royalty Trust at June 30, 2020 and December 31, 2019, and the distributable income and changes in Trust corpus for the three- and six-month periods ended June 30, 2020 and June 30, 2019 have been included.

Distributable income for such interim periods is not necessarily indicative of distributable income for the full year.

1 unchanged sentence

CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS

March 31, 2020

December 31, 2019

Cash and short-term investments

9 unchanged sentences

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)

Ended March 31,

Ended June 30,

Net profits income

2 unchanged sentences

Expenditures general and administrative

Interest received but not distributed

Cash reserves (1)

3 unchanged sentences

Based on 12,165,732 Trust units issued and outstanding as of March 31, 2020.

Based on 12,165,732 Trust units issued and outstanding as of August 14, 2020.

The accompanying notes to condensed financial statements are an integral part of these financial statements.

1 unchanged sentence

CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)

Ended March 31,

Ended June 30,

Trust corpus, beginning of period

42 unchanged sentences

Oil and natural gas prices historically have been volatile and may be subject to significant fluctuations in the future.

Revenue received by the Trust (and its ability to pay distributions) has been and will continue to be directly affected by the volatility in commodity prices, which have declined sharply since the beginning of 2020 in response to the economic effects of the COVID-19 pandemic and the dispute over production levels between Russia and the members of the Organization of Petroleum Exporting Countries.

The sharp decline in commodity prices has resulted in an oversupply of crude oil, further exacerbating the decline in crude oil prices, which could remain low for an extended period of time.

Contingencies.

5 unchanged sentences

Each Trust unitholder should consult his or her own tax advisor regarding income tax requirements, if any, applicable to such unitholders ownership of Trust units.

PERMROCK ROYALTY TRUST

NOTES TO CONDENSED FINANCIAL STATEMENTS

Cash Reserves

1 unchanged sentence

The Trustee is authorized to retain cash reserves (i) in an amount not to exceed $1.0 million at any one time and (ii) in such amounts as the Trustee in its discretion deems appropriate to pay for future liabilities of the Trust, but not less than $25,000 per month or more than $100,000 per month.

Boaz Energy provided the Trust with a $1.0 million letter of credit (the Letter of Credit) that could be drawn by the Trust to pay administrative expenses of the Trust until such time as the Trusts cash reserves equaled or exceeded $1.0 million, at which time, the Trustee was required to release the Letter of Credit.

Cash reserves held by the Trustee for administrative expenses totaled $900,000 as of March 31, 2020, and the Letter of Credit was decreased effective March 19, 2020 by the amount of the $900,000 cash reserves such that the amount of the Letter of Credit was $100,000.

In April 2020, the Trusts cash reserves reached $1,000,000 and therefore the Letter of Credit expired as of May 2, 2020.

PERMROCK ROYALTY TRUST

NOTES TO CONDENSED FINANCIAL STATEMENTS

Cash reserves held by the Trustee for administrative expenses totaled $1,000,000 as of June 30, 2020 .

Boaz Energy is entitled under the Conveyance to reserve up to $3 million from the net profits for certain taxes and development or operating expenses.

In February and March 2020, Boaz Energy held back $500,000 net to the Trust and $242,000 net to the Trust, respectively.

Those funds were applied against the balance of funds previously advanced by Boaz Energy in 2019.

As of March 31, 2020, the balance of funds previously advanced by Boaz Energy was $80,000.

Boaz Energy then held back $305,502 net to the Trust in April 2020, which was applied as recoupment of the $80,000 net to the Trust balance of previously advanced funds, plus $225,502 net to the Trust for future taxes and development or operating expenses.

In April 2020, Boaz Energy reserved $305,502 net to the Trust, which was applied in part to recoupment of the $80,000 net to the Trust balance of previously advanced funds, and the remaining $225,502 net to the Trust was reserved for certain taxes and future development expenses .

In May 2020, Boaz Energy reserved $254,868 net to the Trust for future expenses as well.

Then, in June 2020, Boaz Energy applied $287,649 net to the Trust of funds previously reserved in April and May 2020.

As of June 30, 2020, the balance of funds reserved by Boaz Energy, net to the Trust, was $192,721.

Distributions to Unitholders

The Trust makes monthly cash distributions of all of its monthly cash receipts, after deduction of fees and expenses for the administration of the Trust and any cash reserves, to holders of its Trust units as of the applicable record date on or before the 10th business day after the record date.

Based on 12,165,732 Trust units outstanding at each date listed below, the per unit distributions during the quarter ended March 31, 2020 were as follows:

January 31, 2020

February 14, 2020

February 28, 2020

March 13, 2020

March 31, 2020

The Trust makes monthly cash distributions of the net amount, if any, of its monthly cash receipts, after deduction of fees and expenses for the administration of the Trust and cash reserves to holders of its Trust units as of the applicable record date on or before the 10th business day after the record date.

Based on 12,165,732 Trust units outstanding at each date listed below, the per unit distributions during the quarter ended June 30, 2020 were as follows:

Distribution per Unit

April 30, 2020

June 12, 2020

June 30, 2020

July 14, 2020

Related Party Transactions

7 unchanged sentences

On May 4, 2018, the Trust entered into a registration rights agreement for the benefit of Boaz Energy and certain of its affiliates and transferees, pursuant to which the Trust agreed to register the offering of the Trust units held by Boaz Energy and certain of its affiliates and permitted transferees upon request by Boaz Energy.

As of March 31, 2020, Boaz Energy owned 5,878,332 Trust units of the 12,165,732 Trust units issued and outstanding .

As of June 30, 2020, Boaz Energy owned 5,878,332 Trust units of the 12,165,732 Trust units issued and outstanding.

PERMROCK ROYALTY TRUST

NOTES TO CONDENSED FINANCIAL STATEMENTS

Derivative Contracts

5 unchanged sentences

These contracts expired as of December 31, 2019, and after December 31, 2019 none of the production attributable to the Underlying Properties is hedged.

For the three months ended March 31, 2019, there was $688,562 ($550,850 net to the Trust) in cash proceeds from the settlement of derivative contracts.

Because the derivative contracts have since expired, there were no cash proceeds from settlement of derivative contracts during the three months ended March 31, 2020

PERMROCK ROYALTY TRUST

NOTES TO CONDENSED FINANCIAL STATEMENTS

For the six months ended June 30, 2019, there was $688,562 ($550,850 net to the Trust) in cash proceeds from the settlement of derivative contracts.

Because the derivative contracts have since expired, there were no cash proceeds from settlement of derivative contracts during the three or six months ended June 30, 2020.

Development Costs

Boaz Energys estimated 2020 capital budget for the Underlying Properties is $2 million, of which approximately $800,000 has been expended as of March 31, 2020.

The majority of what has been spent so far in 2020 is attributable to properties not operated by Boaz Energy .

Based on current oil and gas prices, Boaz Energy has informed the Trustee that it is not planning any new wells or other significant capital projects for the remainder of 2020, other than waterflood projects and workovers principally in the Permian Platform area, the costs of which are included in the $2 million estimate.

Boaz Energy has advised the Trustee that the estimate for Boaz Energys 2020 capital budget has been increased from $2.0 million to $2.5 million, based principally upon capital projects being implemented by outside operators, of which $1,800,00 has been expended as of June 30, 2020.

Based on current oil and gas prices, Boaz Energy has informed the Trustee that it is not planning any new Boaz Energy-operated wells or other significant capital projects for the remainder of 2020, other than waterflood projects and workovers principally in the Permian Platform area, the costs of which are included in the $2.5 million estimate.

The estimated 2020 capital budget is subject to change based on, among other things, changes in the price of oil and natural gas, the impact of the COVID-19 pandemic on prices and economic activity, Boaz Energys actual capital requirements, capital expenditure requirements of third-party operators, the pace of regulatory approvals and the mix of projects.

11 unchanged sentences

On January 17, 2020, the Trust and the other defendants filed a motion for summary judgment, which would dispose of the claims against the Trust if granted.

Mediation set for April 2020 did not occur and a hearing on the summary judgment motion was cancelled due to closures related to COVID-19.

However, all parties have now served their expert reports.

Mediation set for April 2020 did not occur and a hearing on the summary judgment motion was delayed due to closures related to COVID-19.

However, all parties have served their expert reports, there have been a series of depositions of parties and experts, and a summary judgment hearing is tentatively scheduled for August 27, 2020.

PERMROCK ROYALTY TRUST

NOTES TO CONDENSED FINANCIAL STATEMENTS

Subsequent Events

On April 20, 2020, the Trust declared there would be no cash distribution to record unit holders as of April 30, 2020 based upon production during the month of February 2020.

In April 2020, Boaz Energy held back $305,502 net to the Trust.

The capital hold back included $80,000 net to the Trust in recoupment of previously advanced amounts plus $225,502 net to the Trust for future capital expenditures.

In April 2020, the Trustee retained $100,000 from net profits income for cash reserves such that the Trusts cash reserves totaled $1,000,000.

The Letter of Credit provided by Boaz Energy was to expire at such time as the Trusts cash reserves reached $1,000,000, and therefore, the Letter of Credit expired as of May 2, 2020.

In April and May of 2020, the unfavorable oil and natural gas price environment continued.

The Trustee cannot predict the long-term impact on the Trust, however it is likely that there will be additional months in 2020 when the Trust will not declare distributions to unitholders.

On July 21, 2020, the Trust declared there would be no cash distribution to record unit holders as of July 31, 2020 based upon production during the month of May 2020.

In July 2020, Boaz Energy applied $192,721 net to the Trust of funds Boaz Energy previously reserved to cover certain taxes and future development expenses, and also advanced $140,606 net to the Trust to cover expenses, including Trust administrative expenses.

Boaz Energy reports it anticipates recouping the $140,606 net to the Trust advancement in calculating the Trusts Net Profits Interest in August 2020.

In July and August of 2020, the unfavorable oil and natural gas price environment continued.

The Trustee cannot predict the long-term impact on the Trust, however there may be additional months in 2020 when the Trust will not declare distributions to unitholders.

TRUSTEES DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

5 unchanged sentences

All statements other than statements of historical fact included in this Quarterly Report are forward-looking statements, including without limitation statements under this Trustees Discussion and Analysis of Financial Conditions and Results of Operations and all statements regarding Boaz Energy and Simmons Banks (as Trustee of the Trust) expectations, beliefs and plans regarding the following:

(i) capital projects, timing and estimated costs, and the resulting impact of those activities on the computation of the Net Profits Interest;

(ii) continued optimization of waterflood operations and converting additional wells to injection wells;

(iii) Boaz Energys estimated capital expenditures;

(iv) the timing of capital expenditures and capital reserve amounts;

(v) the expected timing of litigation proceedings;

(vi) the impact of current litigation matters on the Trust;

(vii) Boaz Energys staffing levels;

(viii) shut in of wells on the Underlying Properties;

(ix) the effects of COVID-19;

and (x) distributions to Trust unitholders .

(i) Boaz Energys capital projects, timing and estimated costs, and the resulting impact of those activities on the computation of the Net Profits Interest;

(ii) outside operators capital projects and the resulting impact of those activities on the Net Profits Interest;

(iii) implementation or continued use of waterflood projects and workovers and the location of waterflood projects and workovers;

(iv) Boaz Energys estimated capital expenditures;

(v) the timing of capital expenditures and capital reserve amounts;

(vi) the expected timing of litigation proceedings;

(vii) the impact of current litigation matters on the Trust;

(viii) Boaz Energys staffing levels or future reductions in staffing on the Underlying Properties;

(ix) shut in of wells on the Underlying Properties;

(x) the effects of COVID-19;

and (xi) distributions to Trust unitholders.

Such statements are based on certain assumptions of the Trustee, and certain assumptions of information provided to the Trust by Boaz Energy, the owner of the Underlying Properties;

34 unchanged sentences

The Net Profits Interest is passive in nature and neither the Trust nor the Trustee has any management control over or responsibility for costs relating to the operation of the Underlying Properties.

Although the Trust was formed on November 22, 2017, the conveyance of the Net Profits Interest did not occur until May 4, 2018, with an effective date of January 1, 2018, and no proceeds were received by the Trust from Boaz Energy during the three-month period ended March 31, 2018.

As a result, the Trust did not recognize any income or make any distributions during the three-month period ended March 31, 2018.

As a result, the Trust did not recognize any income or make any distributions during the three-month period ended June 30, 2018.

The Trust is required to make monthly cash distributions of substantially all of its monthly cash receipts, after deduction of fees and expenses for the administration of the Trust and any cash reserves, to holders of its Trust units as of the applicable record date on or before the 10th business day after the record date.

19 unchanged sentences

The second new well reached total depth and came on-line in December 2019.

In 2020, Boaz Energy has informed the Trustee that due to current oil and natural gas pricing it is not planning any new wells or other significant capital projects for the remainder of 2020, other than waterflood projects and workovers, principally in the Permian Platform area.

In 2020, Boaz Energy has informed the Trustee that due to current oil and natural gas pricing it is not planning any new Boaz Energy-operated wells or other significant capital projects for the remainder of 2020, other than waterflood projects and workovers, principally in the Permian Platform area.

Boaz Energy has implemented reduced staffing measures on the Underlying Properties and anticipates reacting on a monthly basis to the need to shut in wells on the Underlying Property to reduce the risk of a realization of negative oil prices in a production month.

2 unchanged sentences

Distributable Income

Three Months Ended March 31, 2020

For the three months ended March 31, 2020, net profits income received by the Trust was $1,754,255 compared to $2,323,209 for the same period of the prior year.

This decrease in net profits income was primarily due to decreased oil and natural gas prices and increased capital costs.

Three Months Ended June 30, 2020

For the three months ended June 30, 2020, net profits income received by the Trust was $376,992 compared to $3,140,783 for the same period of the prior year.

This decrease in net profits income was primarily due to decreased oil production and sales, as well as decreased oil prices and oversupply resulting from economic effects of the COVID-19 pandemic and the dispute over production levels between Russia and the members of the Organization of Petroleum Exporting Countries.

See Computation of Income from the Net Profits Interest Received by the Trust below.

After considering interest income of $3,073, general and administrative expenditures of $262,264 and cash reserves retained by the Trustee of $300,000, distributable income for the three months ended March 31, 2020 was $1,195,064, or $0.098230 per Trust unit.

For the three months ended March 31, 2019, total distributable income was $2,070,802, or $0.170215 per unit.

Interest income was essentially the same for the three months ended March 31, 2020 as compared to the prior year, due to lower interest rates.

General and administrative expenditures increased slightly by $7,000 for the three months ended March 31, 2020 as compared to the prior year, primarily due to timing of payments.

After considering interest income of $1,245, general and administrative expenditures of $278,237 and cash reserves retained by the Trustee of $100,000, distributable income for the three months ended June 30, 2020 was $0, or $0.000000 per Trust unit.

For the three months ended June 30, 2019, total distributable income was $2,645,711, or $0.217472 per unit.

Interest income was essentially the same for the three months ended June 30, 2020 as compared to the prior year, due to less investable cash received attributable to the Net Profits Interest and lower interest rates.

General and administrative expenditures decreased by $78,334 for the three months ended June 30, 2020 as compared to the prior year, primarily due to timing of payments.

Pursuant to the Trust Agreement, as of May 31, 2019, the Trustee was authorized to begin retaining cash reserves for administrative expenses.

Because the Trust Agreement did not permit the Trustee to retain cash prior to May 31, 2019, no cash reserves were retained during the three months ended March 31, 2019.

The Trustee retained $300,000 in cash reserves during the three months ended March 31, 2020.

Total cash reserves were $900,000 as of March 31, 2020.

Based on 12,165,732 Trust units outstanding at each date listed below, the per unit distributions during the three months ended March 31, 2020 were as follows:

January 31, 2020

February 14, 2020

February 28, 2020

March 13, 2020

March 31, 2020

The Trustee retained $100,000 in cash reserves during the three months ended June 30, 2020 compared to $140,000 in cash reserves retained in the same period of the prior year.

Total cash reserves were $1,000,000 as of June 30, 2020 compared to $140,000 as of June 30, 2019.

Based on 12,165,732 Trust units outstanding at each date listed below, the per unit distributions during the three months ended June 30, 2020 were as follows:

Distribution per Unit

April 30, 2020

June 12, 2020

June 30, 2020

July 14, 2020

Six Months Ended June 30, 2020

For the six months ended June 30, 2020, net profits income received by the Trust was $2,131,247 compared to $5,463,992 for the same period of the prior year.

See Computation of Income from the Net Profits Interest Received by the Trust below.

After considering interest income of $4,318, general and administrative expenditures of $540,501 and cash reserves retained by the Trustee of $400,000, distributable income for the six months ended June 30, 2020 was $1,195,064, or $0.098232 per Trust unit.

For the six months ended June 30, 2019, total distributable income was $4,716,513, or $0.387688 per unit.

Interest income decreased for the six months ended June 30, 2020 as compared to the prior year, due to less investable cash received attributable to the Net Profits Interest in 2020 and lower interest rates.

General and administrative expenditures decreased by $71,634 for the six months ended June 30, 2020 as compared to the prior year, primarily due to timing of payments and lower legal fees.

The Trustee retained $400,000 in cash reserves during the six months ended June 30, 2020 compared to $140,000 in cash reserves retained in the prior year period.

Pursuant the terms of the Trust Agreement, the Trustee was authorized to begin retaining cash reserves for administrative expenses in May of 2019, and therefore, no cash reserves were withheld in the first four months of 2019.

Computation of Income from the Net Profits Interest Received by the Trust

2 unchanged sentences

Because of the interval between the time of production and receipt of net profits income by the Trust, the Trust recognizes production during the month in which the related net profits income is paid to the Trust.

Net profits income for the three months ended March 31, 2020, was based on production during the months of November 2019 through January 2020.

The table below outlines the computation of income from the Net Profits Interest received by the Trust for the three months ended March 31, 2020 and March 31, 2019:

Net profits income for the three months ended June 30, 2020, was based on production during the months of February 2020 through April 2020.

The table below outlines the computation of income from the Net Profits Interest received by the Trust for the three and six months ended June 30, 2020 and June 30, 2019:

Three Months Ended

March 31, 2020

June 30, 2020

Three Months Ended

March 31, 2019

June 30, 2019

Six Months Ended

June 30, 2020

Six Months Ended

June 30, 2019

Underlying Properties sales volumes (1) :

2 unchanged sentences

Oil (per Bbl)

Natural gas (per MMBtu)

Natural gas (per Mcf)

Average realized sales price:

14 unchanged sentences

Net profits income (before capital reserve)

Capital reserve (4)

Operator advance

Capital reserve activity, net (4)

Net Profits Interest audit fee

Net profits income received by the Trust

Quarterly sales volumes are typically reported for a three-month period, and therefore sales volumes for the three months ended March 31, 2020 reflect production volumes for November 2019 through January 2020.

Quarterly sales volumes are typically reported for a three-month period, and therefore sales volumes for the three months ended June 30, 2020 reflect production volumes for February 2020 through April 2020.

Sales volumes for the six months ended June 30, 2020 reflect production volumes for November 2019 through April 2020.

Sales volumes for natural gas include NGLs.

1 unchanged sentence

Boaz Energy is entitled under the Conveyance to reserve up to $3 million from the net profits for certain taxes and expenses.

In February and March 2020, Boaz Energy held back $500,000 net to the Trust and $242,000 net to the Trust, respectively.

Those funds were applied against the balance of funds previously advanced by Boaz Energy in 2019.

As of March 31, 2020, the balance of funds previously advanced by Boaz Energy was $80,000, and in April 2020, Boaz Energy recouped the $80,000 balance of previously advanced amount and held back an additional $225,502 net to the Trust for future expenses.

In May 2020, Boaz Energy reserved $254,868 net to the Trust for future expenses as well.

Then, in June 2020, Boaz Energy applied $287,649 net to the Trust of funds previously reserved in April and May 2020.

As of June 30, 2020, the balance of funds reserved by Boaz Energy, net to the Trust, was $192,721.

Important factors used in calculating the Trusts net profits income include the volumes of oil and natural gas produced from the Underlying Properties and the realized prices received for the sale of those minerals, including oil and natural gas liquids, as well as direct operating expenses, lease operating expenses, severance and ad valorem taxes, development and other expenses and capital reserves.

Sales Volumes

Oil sales volumes decreased slightly by 8,000 Bbls (5%) for the three months ended March 31, 2020 as compared to the prior year period.

Boaz Energy reports this decrease was primarily because an unanticipated diversion of capital to non-operated properties in which Boaz Energy holds a relatively small interest, reduced the amounts which would otherwise have been invested in planned waterflooding projects intended to sustain production and offset the natural decline curves.

Natural gas sales volumes decreased slightly by 9,000 Mcf (6%) for the three months ended March 31, 2020 as compared to the prior year period.

Boaz Energy reports this decrease was primarily because of a shut in at a natural gas processing plant in Crane County during a portion of the first quarter of 2020.

The average realized oil price per Bbl decreased for the three months ended March 31, 2020 as compared to the prior year period.

The average realized oil price per Bbl for the three months ended March 31, 2020 is primarily related to production from November 2019 through January 2020 , when the average NYMEX price was $58.14 per Bbl.

The average realized natural gas price per Mcf decreased for the three months ended March 31, 2020 as compared to the prior year period.

The average realized natural gas price per Mcf for the three months ended March 31, 2020 is primarily related to production from November 2019 through January 2020 when the average NYMEX price was $2.51 per MMBtu.

Boaz Energy reports that its natural gas pricing is currently adversely affected in the Permian Basin where robust drilling activities have resulted in an oversupply of ethane and other natural gas liquids produced in conjunction with the oil and natural gas produced in those activities, requiring Boaz Energy to incur costs to dispose of those excess natural gas liquids .

Oil sales volumes decreased by 6,753 Bbls (5%) and 15,084 Bbls (5%), respectively, for the three and six months ended June 30, 2020 as compared to the same periods in the prior year.

Boaz Energy reports this decrease was primarily due to decreased oil demand as a result of oversupply and economic effects of COVID-19, as well as Boaz Energys shut in of a material amount of production in May 2020 due to price uncertainties.

Natural gas sales volumes decreased by 9,808 Mcf (7%) for the three months ended June 30, 2020 as compared to the prior year period.

Boaz Energy reports this decrease was primarily because of decreased natural gas demand as a result of oversupply and economic effects of COVID-19, as well as Boaz Energys shut in of a material amount of production in May 2020 due to price uncertainties.

Natural gas sales volumes decreased by 19,246 Mcf (6%) for the six months ended June 30, 2020 as compared to the prior year period.

Boaz Energy reports this decrease was primarily because of the effects of a shut in at a natural gas processing plant in Crane County during the first quarter of 2020 and Boaz Energys shut in of a material amount of production in May 2020 due to price uncertainties, but was also impacted by decreased natural gas demand and sales as a result of oversupply and economic effects of COVID-19.

The average realized oil price per Bbl decreased for the three months ended June 30, 2020 as compared to the prior year period primarily related to oversupply, decreased demand and economic effects of COVID-19.

The average realized oil price per Bbl for the three months ended June 30, 2020 is primarily related to production from February 2020 through April 2020, when the average NYMEX price was $32.56 per Bbl.

The average realized oil price per Bbl also decreased for the six months ended June 30, 2020 due to oversupply, decreased demand and economic effects of COVID-19.

The average realized oil price per Bbl for the six months ended June 30, 2020 is primarily related to production from November 2019 through April 2020, when the average NYMEX price was $45.37 per Bbl.

The average realized natural gas price per Mcf decreased for the three and six months ended June 30, 2020 as compared to the prior year period because of oversupply of ethane and other natural gas liquids, decreased demand, depressed pricing and costs to dispose of excess natural gas liquids.

The average realized natural gas price per Mcf for the three months ended June 30, 2020 is primarily related to production from February 2020 through April 2020 when the average NYMEX price was $2.13 per Mcf.

The decrease in the average realized natural gas price per Mcf for the six months ended June 30, 2020 is primarily related to production from November 2019 through April 2020, when the average NYMEX price was $1.85 per Mcf.

Direct Operating Expenses

Direct operating expenses decreased for the three months ended March 31, 2020 as compared to the prior year periods primarily because of a slowdown in operations in light of current prices for oil and natural gas.

Direct operating expenses decreased for the three and six months ended June 30, 2020 as compared to the prior year periods primarily because of a slowdown in operations in light of current prices for oil and natural gas and economic conditions during the COVID-19 pandemic.

Lease Operating Expenses

Lease operating expenses remained essentially the same for the three months ended March 31, 2020 as compared to the prior year period.

Lease operating expenses decreased slightly for the three and six months ended June 30, 2020 as compared to the prior year periods as a result of less operating activity and a decrease in staffing.

Severance and ad Valorem Taxes

Severance and ad valorem taxes decreased for the three months ended March 31, 2020 as compared to the prior year period primarily because of adjustments in accruals for the two periods and the result of a reduction in severance taxes relating to the Terry County Clearfork waterflood.

Severance and ad valorem taxes increased for the three months ended June 30, 2020 as compared to the prior year period primarily because of a one-time severance tax refund of $0.29 million on Boaz Energys Terry County Clearfork waterflood during the three-month period ended June 30, 2019.

Severance and ad valorem taxes decreased for the six months ended June 30, 2020 compared to the same period in the prior year as a result of economic uncertainty and decreased sales due to COVID-19 and also because of a credit to the Trust in the first quarter of 2020 when actual ad valorem taxes were less than the accrual amounts.

Development Expenses Related to the Underlying Properties

Development expenses related to the Underlying Properties increased for the three months ended March 31, 2020 as compared to the prior year period because of capital costs relating to properties not operated by Boaz Energy.

Also, Boaz Energy advanced funds to cover capital expenses in 2019 and then recouped the Trusts share of such costs over a period of months, including $742,000 net to the Trust recouped in the first quarter of 2020.

Development expenses related to the Underlying Properties increased for the three months ended June 30, 2020 as compared to the prior year period because of capital costs relating to properties not operated by Boaz Energy.

Development expenses related to the Underlying Properties also increased for the six months ended June 30, 2020 as compared to the prior year period as a result of capital costs relating to properties not operated by Boaz Energy.

Other Expenses

Other expenses increased slightly ($10,000) for the three months ended March 31, 2020 as compared to the prior year period, primarily because of timing of the payment for the annual net profits audit.

Other expenses increased by $40,380 for the three months ended June 30, 2020 as compared to the prior year period, primarily because of an adjustment to overhead in April 2020 and the timing of the payment for the annual net profits audit.

Other expenses increased by $50,674 for the six months ended June 30, 2020 as compared to the prior year period, primarily because of the annual adjustment to overhead in April 2020 and well as the timing of the payment for the annual net profits audit.

Capital Reserve

In February and March 2020, Boaz Energy held back $500,000 net to the Trust and $242,000 net to the Trust, respectively.

Those funds were applied against the balance of funds previously advanced by Boaz Energy in 2019 and no such reserves were held back as of March 31, 2020.

Boaz Energy held back $305,502 net to the Trust in April 2020 which was applied as recoupment of the $80,000 net to the Trust balance of previously advanced funds plus $225,502 net to the Trust for future taxes and development or operating expenses.

In May 2020, Boaz Energy reserved $254,868 net to the Trust for future expenses as well.

Then, in June 2020, Boaz Energy applied $287,649 net to the Trust of funds previously reserved in April and May 2020.

As of June 30, 2020, the balance of funds reserved by Boaz Energy, net to the Trust, was $192,721.

Derivative Contracts

5 unchanged sentences

These contracts expired as of December 31, 2019, and after December 31, 2019, none of the production attributable to the Underlying Properties is hedged.

For the three months ended March 31, 2019, there was $688,562 ($550,850 net to the Trust) in cash proceeds from the settlement of derivative contracts.

Because the derivative contracts have since expired, there were no cash proceeds from settlement of derivative contracts during the three months ended March 31, 2020.

For the three and six months ended June 30, 2019, there was $688,562 ($550,850 net to the Trust) in cash proceeds from the settlement of derivative contracts.

Because the derivative contracts have since expired, there were no cash proceeds from settlement of derivative contracts during the three or six months ended June 30, 2020.

LIQUIDITY AND CAPITAL RESOURCES

5 unchanged sentences

As authorized under the Trust Agreement, beginning May 31, 2019, the Trustee began retaining cash from the distributions the Trust received (i) in an amount not to exceed $1.0 million at any one time to be used by the Trust in the event that its cash on hand (including available cash reserves) is not sufficient to pay ordinary course administrative expenses as they become due and (ii) in such amounts as the Trustee in its discretion deems appropriate to pay for future liabilities of the Trust, but not less than $25,000 or more than $100,000 per month.

Boaz Energy initially provided the Trust with a $1.0 million letter of credit (the Letter of Credit) that the Trust was permitted to draw on to pay administrative expenses of the Trust until such time as the Trusts cash reserves equaled $1.0 million.

In April 2020, the Trusts cash reserves totaled $1,000,000 and therefore the Letter of Credit expired as of May 2, 2020.

Cash reserves held by the Trustee for administrative expenses totaled $1,000,000 as of June 30, 2020.

Boaz Energy Capital Expenditure Budget

Boaz Energys estimated 2020 capital budget for the Underlying Properties is $2 million, of which approximately $800,000 has been expended as of March 31, 2020.

The majority of what has been spent so far in 2020 is attributable to properties not operated by Boaz Energy.

Based on current oil and gas prices, Boaz Energy has informed the Trustee that it is not planning any new wells or other significant capital projects for the remainder of 2020, other than waterflood projects and workovers, principally in the Permian Platform area, the costs of which are included in the $2 million estimate.

Boaz Energy is entitled under the Conveyance to reserve up to $3 million from the net profits for certain taxes and development or operating expenses.

In February and March 2020, Boaz Energy held back $500,000 net to the Trust and $242,000 net to the Trust, respectively.

Those funds were applied against the balance of funds previously advanced by Boaz Energy in 2019 and no such reserves were held back as of March 31, 2020.

Boaz Energy held back $305,502 net to the Trust in April 2020.

In May 2020, Boaz Energy reserved $254,868 net to the Trust for future expenses as well.

Then, in June 2020, Boaz Energy applied $287,649 net to the Trust of funds previously reserved in April and May 2020.

As of June 30, 2020, the balance of funds reserved by Boaz Energy, net to the Trust, was $192,721.

Distributions Declared After Quarter End

On April 20, 2020, the Trust declared there would be no cash distribution to record unit holders as of April 30, 2020 based upon production during the month of February 2020.

On July 21, 2020, the Trust declared there would be no cash distribution to record unit holders as of July 31, 2020 based upon production during the month of May 2020.

Off-Balance Sheet Arrangements

As of March 31, 2020, the Trust had no off-balance sheet arrangements.

As of June 30, 2020, the Trust had no off-balance sheet arrangements.

New Accounting Pronouncements

6 unchanged sentences

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-Q

Item 1. Financial Statements