What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-16 compared with 2020-08-14 · 122 added, 114 removed, 267 unchanged (47% 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 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.

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 September 30, 2020 and December 31, 2019, and the distributable income and changes in Trust corpus for the three- and nine-month periods ended September 30, 2020 and September 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

September 30,

Cash and short-term investments

9 unchanged sentences

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)

Ended June 30,

Ended September 30,

Net profits income

6 unchanged sentences

The Trustee is authorized to retain cash from distributions received by the Trust in an amount not to exceed $1.0 million to be used in the event that cash on hand is not sufficient to pay ordinary course administrative expenses and to provide for future liabilities of the Trust.

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.

Based on 12,165,732 Trust units issued and outstanding as of November 16, 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 June 30,

Ended September 30,

Trust corpus, beginning of period

3 unchanged sentences

Trust corpus, end of period

The accompanying notes are an integral part of the condensed consolidated financial statements.

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

PERMROCK ROYALTY TRUST

7 unchanged sentences

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

The Trust has and will continue to make 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.

The Trust has and will continue to make monthly cash distributions of the balance, if any, 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.

Distributions generally relate to sales from a one-month period.

23 unchanged sentences

Actual results could differ from those estimates.

Estimated future cash flows used to determine amortization and potential impairment of the investment in the Net Profits Interest are subject to change.

Risks and Uncertainties.

1 unchanged sentence

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.

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 declined sharply during the first and second quarters of 2020 and remained depressed in the third quarter of 2020 in response to the economic effects of the COVID-19 pandemic.

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

Contingencies.

10 unchanged sentences

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.

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 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.

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

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

In July 2020, Boaz Energy applied $192,721 net to the Trust of funds previously reserved toward taxes and development expenses, plus an advancement from Boaz Energy to the Trust in the amount of $140,606.

Then, in August 2020, Boaz Energy reserved $320,960 net to the Trust, which was applied in part to recoupment of the $140,606 net to the Trust balance of previously advanced funds, and the remaining $180,354 net to the Trust was reserved for certain future taxes and development expenses.

In September 2020, Boaz Energy reserved an additional $117,802 net to the Trust for certain future taxes and development expenses.

As of September 30, 2020, the balance of funds reserved by Boaz Energy, net to the Trust, was $298,156.

Distributions to Unitholders

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:

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

Distribution per Unit

April 30, 2020

June 12, 2020

June 30, 2020

July 31, 2020

August 14, 2020

August 31, 2020

September 15, 2020

September 30, 2020

October 15, 2020

Related Party Transactions

2 unchanged sentences

The Delaware Trustees annual fee is $4,000.

For 2020, the Trustees annual administrative fee is $189,072.

For 2020, the Trustees annual administrative fee is $189,072, which is divided into twelve equal monthly payments throughout the year.

The Trustees annual administrative fee will increase at a rate of 3% per year for the first three years of the Trusts existence, increase at a rate of 2% per year for the following two years, then increase at a rate of 1% per year until the 20th anniversary of the Trusts formation and then remain flat thereafter.

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

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

PERMROCK ROYALTY TRUST

7 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 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.

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

There were no cash proceeds from settlement of derivative contracts during the three months ended September 30, 2019, but for the nine months ended September 30, 2019, there was $688,562 ($550,850 net to the Trust) in cash proceeds from the settlement of derivative contracts.

Development Costs

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.

Boaz Energy has advised the Trustee that the estimate for Boaz Energys 2020 capital budget has been increased from $2.5 million to $4.2 million, based principally upon capital projects being implemented by outside operators, of which $3.3 million has been expended as of September 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 $4.2 million estimate.

12 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 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.

After delays related to COVID-19, a hearing on the summary judgment motions filed by the Defendants and Goodnight was held on August 27, 2020.

As of September 30, 2020 the court had not yet ruled on the motion for summary judgment.

A mediation was conducted on November 10, 2020, but no settlement was reached.

PERMROCK ROYALTY TRUST

1 unchanged sentence

Subsequent Events

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.

On October 20, 2020, the Trust declared a cash distribution of 0.013487 per Trust unit based upon production during the month of August 2020 to record holders as of October 30, 2020.

The distribution will be paid on November 16, 2020.

The following table shows underlying oil and natural gas sales and average prices during the production month of August 2020 and attributable to the distribution declared on October 20, 2020:

Underlying Sales Volumes

Average Price

In October 2020, Boaz Energy reserved $104,000 net to the Trust for certain future taxes and development expenses.

A mediation was conducted on November 10, 2020 with respect to the 2018 Litigation, but no settlement was reached.

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

(i) Boaz Energys capital budget and 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;

6 unchanged sentences

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

(x) the effects of COVID-19;

(x) the effects of COVID-19 and OPEC production levels;

and (xi) distributions to Trust unitholders.

35 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 June 30, 2018.

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

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

14 unchanged sentences

The Permian Platform area consists of 4,169 net acres on the Central Basin Platform of the Permian Basin in Ward, Crane, Terry and Ector Counties, Texas.

2019 Recap and 2020 Outlook

In 2019, Boaz Energy optimized waterflood operations, converted additional wells to injection wells where prudent and continued to participate in Permian Platform drilling proposed by non-operating partners.

Boaz Energy completed two new wells operated by Boaz Energy in the Permian Clearfork area in 2019.

The first was completed in August 2019 and came on-line in September 2019.

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 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 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 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.

Three Months Ended September 30, 2020

For the three months ended September 30, 2020, net profits income received by the Trust was $326,946 compared to $2,950,430 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.

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

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.

After considering interest income of $127 and general and administrative expenditures of $205,416, distributable income for the three months ended September 30, 2020 was $121,657, or $0.010000 per Trust unit.

For the three months ended September 30, 2019, total distributable income was $2,556,326, or $0.210124 per unit.

Interest income was lower for the quarter ended September 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 $32,000 for the three months ended September 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.

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:

The Trustee did not retain any cash reserves during the three months ended September 30, 2020.

During the three months ended September 30, 2019, $160,000 in cash reserves were retained.

Total cash reserves were $1,000,000 as of September 30, 2020 compared to $300,000 as of September 30, 2019.

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

Distribution per Unit

April 30, 2020

June 12, 2020

June 30, 2020

July 31, 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.

August 14, 2020

August 31, 2020

September 15, 2020

September 30, 2020

October 15, 2020

Nine Months Ended September 30, 2020

For the nine months ended September 30, 2020, net profits income received by the Trust was $2,458,193 compared to $8,414,422 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.

After considering interest income of $4,446, general and administrative expenditures of $745,917, distributable income for the nine months ended September 30, 2020 was $1,316,722, or $0.108232 per Trust unit.

For the nine months ended September 30, 2019, total distributable income was $7,272,839, or $0.597812 per unit.

Interest income decreased for the nine months ended September 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 $103,000 for the nine months ended September 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 nine months ended September 30, 2020 compared to $160,000 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.

Total cash reserves were $1,000,000 as of September 30, 2020 compared to a total of $300,000 as of September 30, 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 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:

Net profits income for the three months ended September 30, 2020, was based on production during the months of May 2020 through July 2020.

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

Three Months Ended

June 30, 2020

September 30, 2020

Three Months Ended

June 30, 2019

Six Months Ended

June 30, 2020

Six Months Ended

June 30, 2019

September 30, 2019

Nine Months Ended

September 30, 2020

Nine Months Ended

September 30, 2019

Underlying Properties sales volumes (1) :

22 unchanged sentences

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 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.

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

Sales volumes for the nine months ended September 30, 2020 reflect production volumes for November 2019 through July 2020.

Sales volumes for natural gas include NGLs.

Reflects gross cash proceeds from settlement of derivative contracts relating to production as discussed in Note 7 to condensed financial statements and elsewhere in this Quarterly Report.

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

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

In September 2020, Boaz Energy reserved an additional $117,802 net to the Trust for certain future taxes and development expenses.

As of September 30, 2020, the balance of funds reserved by Boaz Energy, net to the Trust, was $298,156.

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 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.

Oil sales volumes decreased by 44,563 Bbls (32%) and 59,649 Bbls (14%), respectively, for the three and nine months ended September 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, and also, as pertains to the nine-month decrease, Boaz Energys shut in of a material amount of production in May 2020 due to price uncertainties.

Natural gas sales volumes decreased by 20,715 (14%) for the three months ended September 30, 2020 as compared to the prior year period.

Boaz Energy reports this decrease was primarily because of decreased natural gas demand and sales as a result of oversupply and economic effects of COVID-19.

Natural gas sales volumes decreased by 39,961 Mcf (9%) for the nine months ended September 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 also due to the decrease in 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 September 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 September 30, 2020 is primarily related to production from May 2020 through July 2020, when the average NYMEX price was $35.84 per Bbl.

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

The average realized oil price per Bbl for the nine months ended September 30, 2020 is primarily related to production from November 2019 through July 2020, when the average NYMEX price was $42.19 per Bbl.

The average realized natural gas price per Mcf decreased for the three and nine months ended September 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 September 30, 2020 is primarily related to production from May 2020 through July 2020 when the average NYMEX price was $1.72 per Mcf.

The decrease in the average realized natural gas price per Mcf for the nine months ended September 30, 2020 is primarily related to production from November 2019 through July 2020, when the average NYMEX price was $1.94 per Mcf.

Direct Operating Expenses

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.

Direct operating expenses decreased for the three and nine months ended September 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 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.

Lease operating expenses decreased for the three and nine months ended September 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 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.

Severance and ad valorem taxes decreased for the three and nine months ended September 30, 2020 as a result of reduced volumes and prices of oil and natural gas 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 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.

Development expenses related to the Underlying Properties decreased for the three and nine months ended September 30, 2020 as compared to the prior year period because of an overall slow-down in developmental activities in light of decreased oil and natural gas prices and economic uncertainty due to COVID-19.

Other Expenses

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.

Other expenses increased by $22,319 for the three months ended September 30, 2020 as compared to the prior year period, primarily due to the drilling of additional wells by outside operators.

Other expenses increased by $102,993 for the nine months ended September 30, 2020 as compared to the prior year period, primarily because of the drilling of additional wells as well as the annual adjustment to overhead made by Boaz Energy in January 2020.

Capital Reserve

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.

In September 2020, Boaz Energy reserved an additional $117,802 net to the Trust for certain future taxes and development expenses.

As of September 30, 2020, the balance of funds reserved by Boaz Energy, net to the Trust, was $298,156.

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 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.

Because the derivative contracts have expired, there were no cash proceeds from settlement of derivative contracts during the three or nine months ended September 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.

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

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

Boaz Energy Capital Expenditure Budget

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.

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.

In September 2020, Boaz Energy reserved an additional $117,802 net to the Trust for certain future taxes and development expenses.

As of September 30, 2020, the balance of funds reserved by Boaz Energy, net to the Trust, was $298,156.

Distributions Declared After Quarter End

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.

On October 20, 2020, the Trust declared a cash distribution of 0.013487 per Trust unit based upon production during the month of August 2020 to record holders as of October 30, 2020.

The distribution will be paid on November 16, 2020.

The following table shows underlying oil and natural gas sales and average prices attributable to the distribution declared on October 20, 2020:

Underlying Sales Volumes

Average Price

In October 2020, Boaz reserved $104,000 net to the Trust for certain future taxes and development expenses.

Off-Balance Sheet Arrangements

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

As of September 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