What changed in this filing

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Item 1. Financial Statements

2021-08-16 compared with 2021-05-17 · 81 added, 65 removed, 279 unchanged (34% 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 2020 Annual Report on Form 10-K (2020 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, 2021 and December 31, 2020, and the distributable income and changes in Trust corpus for the three-month periods ended March 31, 2021 and March 31, 2020 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, 2021 and December 31, 2020, and the distributable income and changes in Trust corpus for the three- and six-month periods ended June 30, 2021 and June 30, 2020 have been included.

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

12 unchanged sentences

CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)

Three Months Ended

Ended June 30,

Net profits income

2 unchanged sentences

Expenditures general and administrative

Interest received but not distributed

Cash reserves (1)

2 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, 2021.

Based on 12,165,732 Trust units issued and outstanding as of August 16, 2021.

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)

Three Months Ended

Ended June 30,

Trust corpus, beginning of period

13 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 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.

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.

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

1 unchanged sentence

In May 2018, Boaz Energy completed an initial public offering of 6,250,000 of the 12,165,732 total Trust units outstanding, retaining ownership of 5,915,732 Trust units.

As of March 31, 2021, Boaz Energy owned 5,878,332 Trust units of the 12,165,732 Trust units issued and outstanding.

As of June 30, 2021, Boaz Energy owned 5,878,332 Trust units of the 12,165,732 Trust units issued and outstanding.

Trust Significant Accounting Policies

1 unchanged sentence

The Trust uses the modified cash basis of accounting to report Trust receipts of the Net Profits Interest and payments of expenses incurred.

The Net Profits Interest represents the right to receive revenues (primarily oil and natural gas sales), less direct operating expenses, lease operating expenses, severance and ad valorem taxes and development expenses of the Underlying Properties, multiplied by 80%, less any payments made or plus any payments received in connection with the settlement of certain hedge contracts.

Cash distributions of the Trust are made based on the amount of cash received by the Trust pursuant to terms of the Conveyance creating the Net Profits Interest.

26 unchanged sentences

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 in response to the economic effects of the COVID-19 pandemic.

The decline in commodity prices resulted in an oversupply of crude oil, further exacerbating the decline in crude oil prices.

While crude oil prices have been higher during the first quarter of 2021, fluctuations and depressions could continue for an extended period of time.

The decline in commodity prices in 2020 resulted in an oversupply of crude oil, further exacerbating the decline in crude oil prices in 2020.

While crude oil prices have been higher during the first two quarters of 2021, fluctuations and depressions could continue 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 March 31, 202 1.

Cash reserves held by the Trustee for administrative expenses totaled $1,000,000 as of June 30, 202 1.

Boaz Energy is entitled under the Conveyance to reserve up to $3.0 million from the net profits for certain future taxes and development or operating expenses.

As of December 31, 2020, the balance of funds held back to cover certain future capital expenses was $222,157 net to the Trust.

As of March 31, 2021, the balance of funds reserved by Boaz Energy, net to the Trust, was $202,157.

As of June 30, 2021, the balance of funds reserved by Boaz Energy, net to the Trust, was $242,157.

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 March 31, 2021 were as follows:

Based on 12,165,732 Trust units outstanding at each date listed below, the per unit distributions during the quarter ended June 30, 2021 were as follows:

Distribution per Unit

January 29, 2021

February 12, 2021

February 26, 2021

March 12, 2021

March 31, 2021

April 30, 2021

June 14, 2021

June 30, 2021

July 14, 2021

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, 2021, Boaz Energy owned 5,878,332 Trust units of the 12,165,732 Trust units issued and outstanding.

As of June 30, 2021, Boaz Energy owned 5,878,332 Trust units of the 12,165,732 Trust units issued and outstanding.

PERMROCK ROYALTY TRUST

1 unchanged sentence

Development Costs

Boaz Energy has advised the Trustee that the estimate for Boaz Energys 2021 capital budget for the Underlying Properties is $5.5 million, of which approximately $0.9 million had been expended as of March 31, 2021.

Boaz Energy has advised the Trustee that the estimate for Boaz Energys 2021 capital budget for the Underlying Properties is $5.5 million, of which approximately $1.9 million had been expended as of June 30, 2021.

Based on current oil and gas prices, Boaz anticipates continuing to participate as a non-operator in certain drilling and waterflood conformance work in both Crane and Terry counties, as well as drilling two operated wells in Crane county sometime is 2021.

23 unchanged sentences

All other motions were carried forward.

At the time of the May 11, 2021 status conference, the plaintiffs had not yet retained replacement counsel, but the court advised it was going to move the case forward and would soon set a new trial date and a date for a pre-trial hearing to hear pending motions.

Replacement counsel have since appeared for the plaintiffs, and the court has set a hearing for October 1, 2021 to cover all pending motions.

Also on the docket currently are a November 1, 2021 pre-trial hearing and the trial set for November 8, 2021.

Subsequent Events

On April 20, 2021, the Trust declared a cash distribution of $0.044638 per Trust unit based upon production during the month of February 2021 to record holders as of April 30, 2021.

The distribution was paid on May 14, 2021.

The following table shows underlying oil and natural gas sales and average prices during the production month of February 2021 and attributable to the distribution declared on April 20, 2021:

On July 21, 2021 the Trust declared a cash distribution of $0.060425 per Trust unit based upon production during the month of May 2021.

Underlying Sales Volumes

75 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.

3 unchanged sentences

Distributable Income

Three Months Ended March 31, 2021

For the three months ended March 31, 2021, net profits income received by the Trust was $1,289,639 compared to $1,754,255 for the same period of the prior year .

This decrease in net profits income was primarily due to lower volumes and prices resulting from decreased demand during COVID-19 and temporary shut downs in production during extraordinary winter storms in February 2021.

Three Months Ended June 30, 2021

For the three months ended June 30, 2021, net profits income received by the Trust was $2,175,292 compared to $376,992 for the same period of the prior year.

This increase in net profits income was primarily due to higher prices and volumes.

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

After considering interest income of $62 and general and administrative expenditures of $241,274, distributable income for the three months ended March 31, 2021 was $1,048,425, or $0.086177 per Trust unit.

For the three months ended March 31, 2020, total distributable income was $1,195,064, or $0.098230 per unit .

Interest income was lower for the quarter ended March 31, 2021 as compared to the prior year, due to lower interest rates and a reduction in funds held for distribution.

General and administrative expenditures decreased by $21,000 for the three months ended March 31, 2021 as compared to the prior year, primarily due to the timing of payments.

After considering interest income of $31 and general and administrative expenditures of $215,094, distributable income for the three months ended June 30, 2021 was $1,960,229, or $0.161129 per Trust unit.

For the three months ended June 30, 2020, total distributable income was $0, or $0.000000 per unit.

Interest income was lower for the quarter ended June 30, 2021 as compared to the prior year, due to lower interest rates.

General and administrative expenditures decreased by $63,143 for the three months ended June 30, 2021 as compared to the prior year, primarily due to the timing of payments.

Pursuant to the Trust Agreement, as of May 31, 2019, the Trustee is authorized to retain cash reserves for administrative expenses.

The Trustee did not retain any cash reserves during the three months ended March 31, 2021.

During the three months ended March 31, 2020, $300,000 in cash reserves were retained.

Total cash reserves were $1,000,000 as of March 31, 2021 compared to $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, 2021 were as follows:

The Trustee did not retain any cash reserves during the three months ended June 30, 2021 compared to $100,000 in cash reserves retained in the same period of the prior year.

Total cash reserves were $1,000,000 as of June 30, 2021 and December 31, 2020.

Based on 12,165,732 Trust units outstanding at each date listed below, the per unit distributions during the quarter ended June 30, 2021 were as follows:

Distribution per Unit

January 29, 2021

February 12, 2021

February 26, 2021

March 12, 2021

March 31, 2021

April 30, 2021

June 14, 2021

June 30, 2021

July 14, 2021

Six Months Ended June 30, 2021

For the six months ended June 30, 2021, net profits income received by the Trust was $3,464,931 compared to $2,131,247 for the same period of the prior year.

This increase in net profits income was primarily due to higher oil and gas prices in 2021.

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

After considering interest income of $97, general and administrative expenditures of $456,389, distributable income for the six months ended June 30, 2021 was $3,008,639, or $0.247304 per Trust unit.

For the six months ended June 30, 2020, total distributable income was $1,195,064, or $0.098232 per Trust unit.

Interest income decreased for the six months ended June 30, 2021 as compared to the prior year, due to lower interest rates.

General and administrative expenditures decreased by $84,112 for the six months ended June 30, 2021 as compared to the prior year, primarily due to timing of payment of expenses.

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

The Trustee did not retain any cash reserves during the six months ended June 30, 2021 compared to $400,000 in cash reserves retained in the prior year period.

Total cash reserves were $1,000,000 as of June 30, 2021 and December 31, 2020.

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, 2021, was based on production during the months of November 2020 through January 2021.

The table below outlines the computation of income from the Net Profits Interest received by the Trust for the three months ended March 31, 2021 and March 31, 2020:

Net profits income for the three months ended June 30, 2021, was based on production during the months of February 2021 through April 2021.

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, 2021 and June 30, 2020:

Three Months Ended

June 30, 2021

Three Months Ended

June 30, 2020

Six Months Ended

June 30, 2021

Six Months Ended

June 30, 2020

Underlying Properties sales volumes (1) :

17 unchanged sentences

Capital reserve (3)

Operator advance

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, 2021 reflect production volumes for November 2020 through January 2021.

Quarterly sales volumes are typically reported for a three-month period, and therefore sales volumes for the three months ended June 30, 2021 reflect production volumes for February 2021 through April 2021.

Sales volumes for the six months ended June 30, 2021 reflect production volumes for November 2020 through April 2021.

Sales volumes for natural gas include NGLs.

Boaz Energy is entitled under the Conveyance to reserve up to $3.0 million from the net profits for certain future taxes and expenses.

As of March 31, 2021, Boaz had reserved $202,157 net to the Trust for future capital expense.

As of June 30, 2021, Boaz had reserved $242,157 net to the Trust for future capital expense.

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 29,164 Bbls (22%) for the three months ended March 31, 2021 as compared to the same period in the prior year.

Boaz Energy reports this decrease was primarily due to natural decline and some reduction in demand, offset by Boaz Energy methodically putting marginal wells back on post COVID-19 pandemic.

Natural gas sales volumes decreased by 3,905 Mcf (3%) for the three months ended March 31, 2021 compared to the prior year period.

Boaz Energy reports this decrease was primarily because of less demand due to the COVID-19 pandemic.

The average realized oil price per Bbl decreased for the three months ended March 31, 2021 as compared to the prior year period primarily related to decreased demand caused by the continuing COVID-19 pandemic.

The average realized natural gas price per Mcf increased for the three months ended March 31, 2021 as compared to the prior year period when there was an oversupply of ethane and other natural gas liquids, decreased demand and costs to dispose of excess natural gas liquids.

Oil sales volumes decreased by 32,088 Bbls (25%) for the three months ended June 30, 2021 as compared to the same period in 2020 and 61,252 Bbls (23%) for the six months ended June 30, 2021 as compared to the same period in the prior year primarily due to a natural decline and less demand partially offset by Boaz Energy methodically putting marginal wells back on line that were off-line due to the COVID-19 pandemic.

Natural gas sales volumes decreased by 11,293 Mcf (8%) for the three months ended June 30, 2021 as compared to the prior year period.

Boaz Energy reports this decrease was primarily because of lower demand during the COVID-19 pandemic .

Natural gas sales volumes decreased by 15,199 Mcf (5%) for the six months ended June 30, 2021 as compared to the prior year period.

Boaz Energy reports this decrease was also primarily because of lower demand during the COVID-19 pandemic.

The average realized oil price per Bbl increased for the three and six months ended June 30, 2021 as compared to the prior year periods primarily related to increasing industry averages during 2021 as COVID-19 pandemic restrictions were loosened.

The average realized natural gas price per Mcf increased for the three and six months ended June 30, 2021 as compared to the prior year periods because of increasing industry averages during 2021 as COVID-19 pandemic restrictions were loosened.

Direct Operating Expenses

Direct operating expenses decreased for the three months ended March 31, 2021 because while Boaz Energy was engaged in pulling unit operations, fewer overall operations were conducted than in the first quarter of the previous year.

Direct operating expenses increased for the three and six months ended June 30, 2021 as compared to the prior year periods primarily because of increased gas marketing fees and a workover to replace tubing and rods on a Terry County, Texas well in order to return the well to production.

Lease Operating Expenses

There was no material change in lease operating expenses for the three months ended March 31, 2021 as compared to the prior year period.

Lease operating expenses in creased slightly for the three and six months ended June 30, 2021 as compared to the prior year periods as a result of cost inflation and supply chain issues regarding the goods and services required to support operations .

During the first and second quarters of 2020, Boaz Energy shut in production as pricing decreased due to the COVID-19 pandemic.

With pricing increasing in 2021, Boaz Energy is returning many wells to production, including marginal wells.

Severance and ad Valorem Taxes

Severance and ad valorem taxes decreased for the three months ended March 31, 2021 as compared to the prior year period as a result of lower sales volumes.

Severance and ad valorem taxes decreased for the three and six months ended June 30, 2021 as compared to the prior year period primarily because of a distribution in June 2021 by Boaz of $350,000 previously accrued for payment of 2020 ad valorem taxes.

Development Expenses Related to the Underlying Properties

Development expenses related to the Underlying Properties decreased for the three months ended March 31, 2021 as compared to the prior year period because of a decrease in development activity due to the COVID-19 pandemic and lower oil prices.

Development expenses related to the Underlying Properties increased slightly for the three months ended June 30, 2021 as compared to the prior year period as a result of drilling a well in Crane County, Texas.

Development expenses related to the Underlying Properties decreased for the six months ended June 30, 2021 as compared to the prior year period as a result of higher development costs in early 2020 prior to the COVID-19 pandemic, and also due to strategic timing of development expenses in relation to oil prices.

Other Expenses

Other expenses increased by $90,973 for the three months ended March 31, 2021 as compared to the prior year period, primarily due to the annual adjustment in overhead rate which occurred in April 2020 and January 2021.

Other expenses increased slightly for the three and six months ended June 30, 2021 as compared to the prior year period, primarily due to an increase in the number of wells on the Underlying Properties not operated by Boaz Energy and the annual adjustment in overhead rate.

Also, Boaz Energy held back additional capital in the second quarter of 2021 for future drilling projects.

Capital Reserve

As of March 31, 2021, Boaz had reserved $202,157 net to the Trust for future capital expense.

As of June 30, 2021, Boaz Energy had reserved $242,157 net to the Trust for future capital expenses.

LIQUIDITY AND CAPITAL RESOURCES

5 unchanged sentences

As authorized under the Trust Agreement, the Trustee is authorized to retain cash from the distributions the Trust receives (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 previously retained and currently held by the Trustee for future administrative expenses total $1,000,000 as of March 31, 2021.

Cash reserves previously retained and currently held by the Trustee for future administrative expenses total $1,000,000 as of June 30, 2021.

Boaz Energy Capital Expenditure Budget

1 unchanged sentence

The $5.5 million estimate is subject to change based on, among other things, changes in the price of oil and natural gas, including the ongoing impact of the COVID-19 pandemic on such prices, Boaz Energys actual capital requirements, the pace of regulatory approvals and the mix of projects.

Distributions Declared After Quarter End

On April 20, 2021, the Trust declared a cash distribution of $0.044638 per Trust unit based upon production during the month of February 2021 to record holders as of April 30, 2021.

The distribution was paid on May 14, 2021.

The following table shows underlying oil and natural gas sales and average prices during the production month of February 2021 and attributable to the distribution declared on April 20, 2021:

On July 20, 2021, the Trust declared a cash distribution of $0.060425 per Trust unit based upon production during the month of May 2021 to record holders as of July 30, 2021.

The distribution was paid on August 13, 2021.

The following table shows underlying oil and natural gas sales and average prices during the production month of May 2021 and attributable to the distribution declared on July 20, 2021:

Underlying Sales Volumes

1 unchanged sentence

Off-Balance Sheet Arrangements

As of March 31, 2021, the Trust had no off-balance sheet arrangements.

As of June 30, 2021, 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