Permianville Royalty Trust 10-K

Item 5. Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities. The Trust Units trade on the New York Stock Exchange under the symbol “PVL.” At December 31, 2020, there were 33,000,000 Trust Units outstanding. On March 23, 2021, there were four unitholders of record. This number does not include owners for whom Trust Units may be held in “street” name. Distributions Each month, the Trustee determines the amount of funds available for distribution to the Trust unitholders. Available funds are the excess cash, if any, received by the Trust from the Net Profits Interest and other sources (such as interest earned on any amounts reserved by the Trustee) that month, over the Trust’s incurred expenses for that month. Available funds are reduced by any cash the Trustee decides to hold as a reserve against future liabilities. The holders of Trust Units as of the applicable record date (generally the last business day of each calendar month) are entitled to monthly distributions payable on or before the tenth business day after the record date (or the next succeeding business day). For further information on distributions to unitholders, see Note 5 of the Notes to Financial Statements in Item 8 of this Form 10-K. Equity Compensation Plans The Trust does not have any employees and does not maintain any equity compensation plans. Recent Sales of Unregistered Securities There were no equity securities sold by the Trust during the year ended December 31, 2020. Purchases of Equity Securities There were no purchases of Trust Units by the Trust or any affiliated purchaser during the fourth quarter of 2020. Item 6. Selected Financial Data. As a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K, the Trust is not required to provide information required by this Item. 45 Item 7. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations. This discussion contains forward-looking statements. Please refer to “Forward-Looking Statements” for an explanation of these types of statements. Overview Permianville Royalty Trust, previously known as Enduro Royalty Trust, a statutory trust created in May 2011, completed its initial public offering in November 2011. The Trust’s only asset and source of income is the Net Profits Interest, which entitles the Trust to receive 80% of the net profits from oil and natural gas production from the Underlying Properties. 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. Additionally, third parties operate substantially all of the wells on the Underlying Properties and, therefore, the Sponsor is not in a position to control the timing of development efforts, associated costs, or the rate of production of the reserves. The Trust is required to make monthly cash distributions of substantially all of its monthly cash receipts, after deducting the Trust’s administrative expenses, to holders of record (generally the last business day of each calendar month) on or before the tenth business day after the record date. The Net Profits Interest is entitled to a share of the profits from and after July 1, 2011 attributable to production occurring on or after June 1, 2011. The amount of Trust revenues and cash distributions to Trust unitholders depends on, among other things: • oil and natural gas sales prices; • volumes of oil and natural gas produced and sold attributable to the Underlying Properties; • production and development costs; • price differentials; • potential reductions or suspensions of production; • the amount and timing of Trust administrative expenses; and • the establishment, increase, or decrease of reserves for approved development expenses or future liabilities of the Trust. Generally, the Sponsor receives cash payment for oil production 30 to 60 days after it is produced and for natural gas production 60 to 90 days after it is produced. 2020 Recap and 2021 Outlook The average NYMEX oil price and gas price received for the production months included in 2020 distributions decreased 0% and 32%, respectively, from the prior year as a result of the corresponding decrease in the average NYMEX oil price and average NYMEX gas price for the relevant production months. In 2020, the development activity on the Underlying Properties included the successful drilling, with completion activities scheduled for the first half of 2021, of seven gross wells in the Haynesville area of Louisiana and four gross wells in the Permian area. Crude oil prices declined sharply in the first quarter of 2020 in response to the economic effects of the coronavirus pandemic and the dispute over production levels between Russia and members of OPEC. Prices have since rebounded for both crude oil and natural gas, but the effects of the global pandemic have resulted in continuing volatility for commodity prices and an oil and gas industry facing increasing capital constraint. Such factors, if they persist for the near term or longer, could adversely affect the operators of the Underlying Properties, production from the Underlying Properties and/or distributions to Trust unitholders. 46 The operators of the Underlying Properties continue to evaluate planned capital expenditures during 2021, but based on currently available information, the Sponsor anticipates 2021 capital expenditures to range from $2.0 million to $4.0 million attributable to the properties in which the Trust owns a net profits interest, or $1.6 million to $3.2 million net to the Trust’s 80% net profits interest. New York Stock Exchange Continued Listing Under the continued listing requirements of The New York Stock Exchange (“NYSE”), a company will be considered to be out of compliance with the exchange’s minimum price requirement if the company’s average closing price over a consecutive 30 trading day period (“Average Closing Price”) is less than $1.00 (the “Minimum Price Requirement”). Under NYSE rules, a company that is out of compliance with the Minimum Price Requirement has a cure period of six months to regain compliance if it notifies the NYSE within 10 business days of receiving a deficiency notice of its intention to cure the deficiency. A company may regain compliance if on the last trading day of any calendar month during the cure period the company has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30-trading-day period ending on the last trading day of that month. If at the expiration of the cure period, both a $1.00 closing share price on the last trading day of the cure period and a $1.00 average closing share price over the 30-trading-day period ending on the last trading day of the cure period are not attained, the NYSE will commence suspension and delisting procedures. On September 25, 2020, the Trust received written notification from the NYSE that the Trust was not in compliance with the Minimum Price Requirement. On March 11, 2021, the Trust received written notification from the NYSE that the Trust had regained compliance with the Minimum Price Requirement as of February 26, 2021. 47 Results of Operations The following table displays oil and natural gas sales volumes and average prices from the Underlying Properties, representing the amounts included in the net profits calculation for the distributions paid during the years ended December 31, 2020 and 2019. Underlying Properties Sales Volumes Average Price Month of Distribution Oil (Bbls) Natural Gas (Mcf) Oil (per Bbl) Natural Gas (per Mcf) 2020: January 47,611 231,303 $ 54.29 $ 1.68 February 53,754 285,393 $ 51.02 $ 1.85 March 56,862 307,446 $ 54.75 $ 1.85 April 69,862 262,576 $ 56.72 $ 2.00 May 54,239 268,941 $ 57.21 $ 2.06 June 49,425 344,106 $ 49.62 $ 1.70 July (1) 59,043 321,994 $ 31.19 $ 1.32 Total—2020 (1) 390,796 2,021,759 $ 50.67 $ 1.77 2019: February (2) 93,121 653,876 $ 52.83 $ 2.44 March 50,352 304,870 $ 49.22 $ 2.77 April 57,592 697,875 $ 45.48 $ 3.53 May 68,173 169,901 $ 46.95 $ 3.13 June 70,909 319,771 $ 43.04 $ 2.60 July 65,134 332,432 $ 53.36 $ 2.70 August 49,496 343,247 $ 59.53 $ 2.28 September 60,644 232,198 $ 55.82 $ 2.17 October 65,192 306,546 $ 49.55 $ 2.15 November 51,264 257,729 $ 53.11 $ 2.01 December 55,625 323,240 $ 49.11 $ 1.75 Total—2019 (2) 687,502 3,941,685 $ 50.56 $ 2.59 (1) The table for the year ended December 31, 2020 does not separately display sales volumes for August through December because the Trust did not pay a distribution with respect to those months, as the net profits interest calculation for each such period was negative. In August 2020, direct operating and development expenses and capital expenditures exceeded revenues, which resulted in negative net profits from the Underlying Properties which was carried forward to be deducted from future net profits generated by the Underlying Properties. (2) The table for the year ended December 31, 2019 does not separately display sales volumes for January because the Trust did not pay a distribution that month, as the net profits interest calculation for such period was negative. In January 2019, direct operating and development expenses and capital expenditures exceeded revenues, which resulted in negative net profits from the Underlying Properties that was carried forward to be deducted from future net profits generated by the Underlying Properties. In February 2019, net profits from the Underlying Properties were positive, and the aggregate shortfall was deducted from such net profits when calculating distributions paid in February 2019. As a result, sales volumes for January 2019 have been included in the sales volumes for February 2019. 48 Computation of Income from Net Profits Interest Received by the Trust In connection with the closing of the initial public offering in November 2011, Enduro contributed the Net Profits Interest to the Trust in exchange for 33,000,000 newly issued Trust Units. The Net Profits Interest entitles the Trust to receive 80% of the net profits from the sale and production of oil and natural gas attributable to the Underlying Properties that are produced during the term of the Conveyance, which commenced on July 1, 2011. The Trust’s Income from Net Profits Interest consists of monthly net profits attributable to the Income from Net Profits Interest. Net profits income for the years ended December 31, 2020 and 2019 were determined as shown in the following table: Year Ended December 31, 2020 2019 Gross profits: Oil sales $ 19,800,363 $ 34,761,157 Natural gas sales 3,572,906 10,196,537 Total 23,373,269 44,957,694 Costs: Direct operating expenses: Lease operating expenses 12,233,000 21,769,278 Compression, gathering and transportation 1,016,000 2,139,682 Production, ad valorem and other taxes 1,616,000 3,946,250 Development expenses 1,552,000 5,250,000 Total 16,417,000 33,105,210 Gross proceeds from sale/lease of undeveloped acreage — 221,615 Net profits attributable to underlying properties $ 6,956,269 $ 12,074,099 Percentage allocable to Net Profits Interest 80 % 80 % Net profits allocable to Net Profits Interest $ 5,565,015 $ 9,659,279 Release of Escrow — 751,732 Income from Net Profits Interest 5,565,015 10,411,011 Less: COERT Loan Repayment (101,148 ) — Less: Trust general and administrative expenses and cash withheld for expenses (440,277 ) (891,765 Distributable income $ 5,023,590 $ 9,519,246 In 2020, there were five months in which direct operating and development expenses exceeded revenues, thereby causing net profits attributable to the Underlying Properties to be negative. This resulted in an aggregate net profits shortfall of $2.7 million, prior to repayment of Sponsor advances, as of August 31, 2020. As a result, there were no distributions to Trust unitholders from August through December 2020. As of December 31, 2020, the remaining aggregate shortfall of $1.7 million will be carried forward to be deducted from future net profits generated by the Underlying Properties. As net profits for the five months were negative and therefore no distributions were paid to unitholders with respect to these five months, the corresponding revenues and associated direct operating and development expenses are excluded from the calculation of distributable income for 2020 detailed in the table above as well as the related sales volumes detailed below. The following table displays oil and natural gas sales volumes and average prices from the Underlying Properties, representing the amounts included in the net profits calculation for distributions paid during the years ended December 31, 2020 and 2019: Year Ended December 31, 2020 2019 Underlying Properties Sales Volumes: Oil (Bbls) 390,796 687,502 Natural Gas (Mcf) 2,021,759 3,941,685 Combined (Boe) 727,756 1,344,450 Average Prices: Oil – NYMEX (September-August) ($/Bbl) $ 52.34 $ 58.59 Differential $ (1.67 ) $ (8.03 ) Oil prices realized ($/Bbl) $ 50.67 $ 50.56 Natural gas – NYMEX (August-July) ($/Mcf) $ 2.31 $ 3.02 Differential $ (0.54 ) $ (0.43 ) Natural gas prices realized ($/Mcf) $ 1.77 $ 2.59 49 Years Ended December 31, 2020 and 2019 Net profits attributable to the Underlying Properties for the year ended December 31, 2020 are calculated from the following: • oil sales related to oil produced from the Underlying Properties primarily from September 2019 through March 2020; • natural gas sales related to natural gas produced from the Underlying Properties primarily from August 2019 through February 2020; and • direct operating and development expenses related to expenses and capital incurred primarily from October 2019 to April 2020. Net profits attributable to the Underlying Properties for the year ended December 31, 2020 were $7.0 million compared to $12.1 million for the year ended December 31, 2019. As a result of direct operating expenses and development expenses exceeding oil and natural gas sales for the last five months of 2020, the Trust did not pay a distribution to unitholders from August through December 2020. Accordingly, under the modified cash basis of accounting, the oil and natural gas sales, direct operating expenses and development expenses for such periods were not included in the last five months of 2020 and instead will be included in a future period once the net profits shortfall has been recouped. Therefore, several variances between the periods are due to the inclusion of only seven months of results in the year ended December 31, 2020 compared to twelve months included in the year ended December 31, 2019. The $5.1 million decrease in net profits attributable to the Underlying Properties from the 2019 period to the 2020 period was primarily due to the following items: • Oil sales decreased $15.0 million, primarily due to lower sales volumes, which decreased oil sales by $15.0 million. Oil sales volumes decreased 43% primarily because the year ended December 31, 2020 included only seven months of oil sales volumes while the year ended December 31, 2019 included twelve months of oil sales volumes. • Natural gas sales decreased $6.6 million due to lower sales volumes, which decreased natural gas sales by $4.9 million. Natural gas volumes decreased 49% primarily because the year ended December 31, 2020 included only seven months of natural gas sales volumes while the year ended December 31, 2019 included twelve months of natural gas sales volumes. The remaining $1.7 million decrease in natural gas sales was due to lower realized prices. The average natural gas price received decreased 32% as a result of the corresponding decreases in the average NYMEX natural gas price for the relevant production months. • Compression, gathering and transportation (“CGT”) expenses decreased from $2.1 million in 2019 to $1.0 million in 2020. The decrease in CGT expenses is primarily due to the difference in the number of months included in the respective periods. 50 • Lease operating expenses decreased $9.5 million in 2020 compared to 2019, primarily attributable to the difference in the number of months included in the respective periods. • Production, ad valorem and other taxes decreased $2.3 million in 2020 compared to 2019 primarily due to the decrease in production volumes. • Development expenses decreased $3.7 million, or 70%, in 2020 compared to 2019 primarily due decrease in drilling activity during 2020. In 2017, pursuant to an agreement between Enduro and the Trust, Enduro withheld $0.8 million (the “Holdback Amount”) from the net proceeds allocable to the Trust from the sale by Enduro of certain properties in the Permian Basin. This amount was intended to cover possible indemnification obligations arising within 25 months of the of the closing of the sale, or by the end of October 2019 (the “Indemnification Period”). In connection with the Sale Transaction, Enduro released the Holdback Amount to the Trustee on September 4, 2018. The Trustee retained the Holdback Amount for the remainder of the Indemnification Period and released the Holdback Amount totaling $0.8 million, including interest, as part of the Trust distribution to unitholders paid in October 2019. The Trust withheld $0.5 million and paid $0.9 million for general and administrative expenses during the year ended December 31, 2020. Expenses paid during the period primarily consisted of fees for the preparation of 2019 tax information for unitholders, preparation of the Trust’s 2020 reserve report and Annual Report on Form 10-K, 2020 financial statement audit fees, preparation of the Trust’s 2020 monthly press releases and Quarterly Reports on Form 10-Q, Trustee fees, and New York Stock Exchange listing fees. For the year ended December 31, 2019, the Trust withheld $0.8 million and paid $0.9 million for general and administrative expenses. Liquidity and Capital Resources The Trust’s principal sources of liquidity are cash flow generated from the Net Profits Interest and borrowing capacity under the letter of credit described below. Other than Trust administrative expenses, including any reserves established by the Trustee for future liabilities, the Trust’s only use of cash is for distributions to Trust unitholders. Available funds are the excess cash, if any, received by the Trust from the Net Profits Interest and other sources (such as interest earned on any amounts reserved by the Trustee) in any given month, over the Trust’s expenses paid for that month. Available funds are reduced by any cash the Trustee determines to hold as a reserve against future expenses. The Trustee may create a cash reserve to pay for future liabilities of the Trust. If the Trustee determines that the cash on hand and the cash to be received are, or will be, insufficient to cover the Trust’s liabilities, the Trustee may authorize the Trust to borrow money to pay administrative or incidental expenses of the Trust that exceed cash held by the Trust. The Trustee may authorize the Trust to borrow from any person, including the Trustee or the Delaware Trustee or an affiliate thereof, although none of the Trustee, the Delaware Trustee or any affiliate thereof intends to lend funds to the Trust. The Trustee may also cause the Trust to mortgage its assets to secure payment of the indebtedness. The terms of such indebtedness and security interest, if funds were to be loaned by the entity serving as Trustee or Delaware Trustee or an affiliate thereof, would be similar to the terms which such entity would grant to a similarly situated commercial customer with whom it did not have a fiduciary relationship. In addition, the Sponsor has provided the Trust with a $1.2 million letter of credit to be used by the Trust if its cash on hand (including available cash reserves) is insufficient to pay ordinary course administrative expenses. Further, if the Trust requires more than the $1.2 million under the letter of credit to pay administrative expenses, the Sponsor has agreed to loan funds to the Trust necessary to pay such expenses. Any loan made by the Sponsor to the Trust would be evidenced by a written promissory note, be on an unsecured basis, and have terms that are no less favorable to the Sponsor than those that would be obtained in an arm’s length transaction between the Sponsor and an unaffiliated third party. If the Trust borrows funds or draws on the letter of credit, no further distributions will be made to Trust unitholders until such amounts borrowed or drawn are repaid. Except for the foregoing, the Trust has no source of liquidity or capital resources. The Trustee has no current plans to authorize the Trust to borrow money other than Sponsor advances to pay the Trust’s monthly operating expenses. At December 31, 2020 and 2019, the Trust held cash reserves of $29,639 and $90,665, respectively, for future Trust expenses. Since its formation, the Trust has not borrowed any funds other than Sponsor advances to pay the Trust’s monthly operating expenses and no amounts have been drawn on the letter of credit. 51 From time to time, if the Trust’s cash on hand (including available cash reserves, if any) is not sufficient to pay the Trust’s ordinary course administrative expenses that are due prior to the monthly payment to the Trust of proceeds from the Net Profits Interest, COERT may advance funds to the Trust to pay such expenses. Such advances are recorded as a liability on the Statements of Assets, Liabilities and Trust Corpus until repaid. As of December 31, 2020 and 2019, Advances to the Trust were $348,821 and $34,818, respectively. Cash held by the Trustee as a reserve against future liabilities or for distribution at the next distribution date may be held in a noninterest-bearing account or may be invested in: • interest-bearing obligations of the United States government; • money market funds that invest only in United States government securities; • repurchase agreements secured by interest-bearing obligations of the United States government; or • bank certificates of deposit. Neither Enduro nor the Sponsor has entered into any hedge contracts relating to oil and natural gas volumes produced from the Underlying Properties, attributable to the Net Profits Interest for the years ended December 31, 2020 or 2019, and the terms of the Conveyance prohibit COERT from entering into new hedging arrangements burdening the Trust. The Trust pays the Trustee an administrative fee of $200,000 per year. The Trust pays the Delaware Trustee an annual fee of $2,000. The Trust also incurs, either directly or as a reimbursement to the Trustee, legal, accounting, tax and engineering fees, printing costs and other expenses that are deducted by the Trust before distributions are made to Trust unitholders. The Trust also is responsible for paying other expenses incurred as a result of being a publicly traded entity, including costs associated with annual and quarterly reports to Trust unitholders, tax return and Form 1099 preparation and distribution, NYSE listing fees, independent auditor fees and registrar and transfer agent fees. The Trust does not have any transactions, arrangements or other relationships with unconsolidated entities or persons that could materially affect the Trust’s liquidity or the availability of capital resources. Contractual Obligations As of December 31, 2020, the Trust had no obligations or commitments to make future contractual payments other than the administrative fee payable to the Trustee and the Delaware Trustee. See “Certain Relationships and Related Transactions, and Director Independence—Trustee Administrative Fee” in Item 13 of this Form 10-K. New Accounting Pronouncements As the Trust’s financial statements are prepared on the modified cash basis, most accounting pronouncements are not applicable to the Trust’s financial statements. No new accounting pronouncements have been adopted or issued that would impact the financial statements of the Trust. Critical Accounting Policies and Estimates The Trust uses the modified cash basis of accounting to report Trust receipts of income from the Net Profits Interest and payments of expenses incurred. The Net Profits Interest represents the right to receive revenues (oil and natural gas sales), less direct operating expenses (lease operating expenses and production and property taxes) and development expenses of the Underlying Properties plus any payments made or net payments received in connection with the settlement of certain hedge contracts, multiplied by 80%. Cash distributions of the Trust are made based on the amount of cash received by the Trust pursuant to terms of the Conveyance. Under the terms of the Conveyance, the monthly Net Profits Interest calculation includes oil and natural gas revenues received. Monthly operating expenses and capital expenditures represent incurred expenses, and as a result, represent accrued expenses as well as expenses paid during the period. 52 The financial statements of the Trust are prepared on the following basis: (a) Income from Net Profits Interest is recorded when distributions are received by the Trust; (b) Distributions to Trust unitholders are recorded when paid by the Trust; (c) Trust general and administrative expenses (which includes the Trustee’s fees as well as accounting, engineering, legal, and other professional fees) are recorded when paid; (d) Cash reserves for Trust expenses may be established by the Trustee for certain future expenditures that would not be recorded as contingent liabilities under accounting principles generally accepted in the United States of America (“GAAP”); (e) Amortization of the Net Profits Interest in oil and natural gas properties is calculated on a unit-of-production basis and is charged directly to the Trust corpus. Such amortization does not affect cash earnings of the Trust; and (f) The Net Profits Interest in oil and natural gas properties is periodically assessed whenever events or circumstances indicate that the aggregate value may have been impaired below its total capitalized cost based on the Underlying Properties. If an impairment loss is indicated by the carrying amount of the assets exceeding the sum of the undiscounted expected future net cash flows of the Net Profits Interest, then an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value determined using discounted cash flows. The financial statements of the Trust differ from financial statements prepared in accordance with GAAP because revenues are not accrued in the month of production; certain cash reserves may be established for contingencies which would not be accrued in financial statements prepared in accordance with GAAP; general and administrative expenses are recorded when paid instead of when incurred; and amortization of the net profits interest calculated on a unit-of-production basis is charged directly to trust corpus instead of as an expense. While these statements differ from financial statements prepared in accordance with GAAP, the modified cash basis of reporting revenues, expenses, and distributions is considered to be the most meaningful because monthly distributions to the Trust unitholders are based on net cash receipts. This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the SEC as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts . The preparation of financial statements requires the Trust to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Oil and Natural Gas Reserves. The proved oil and natural gas reserves for the Underlying Properties are estimated by independent petroleum engineers. Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof. Estimates by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using prices at the date of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices. Accordingly, oil and natural gas quantities ultimately recovered and the timing of production may be substantially different from original estimates. The Financial Accounting Standards Board requires supplemental disclosures for oil and gas producers based on a standardized measure of discounted future net cash flows relating to proved oil and natural gas reserve quantities. Under this disclosure, future cash inflows are computed by applying the average prices during the 12-month period prior to fiscal year-end, determined as an unweighted arithmetic average of the first-day-of-the-month benchmark price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. Future price changes are only considered to the extent provided by contractual arrangements in existence at year-end. The standardized measure of discounted future net cash flows is achieved by using a discount rate of 10% a year to reflect the timing of future cash flows relating to proved oil and natural gas reserves. Changes in any of these assumptions, including consideration of other factors, could have a significant impact on the standardized measure. The standardized measure does not necessarily result in an estimate of the current fair market value of proved reserves. 53 Amortization of Net Profits Interest. The Trust calculates amortization of the Net Profits Interest in oil and natural gas properties on a unit-of-production basis based on the Underlying Properties’ production and reserves. The reserves upon which the amortization rate is based are quantity estimates which are subject to numerous uncertainties inherent in the estimation of proved reserves. The volumes considered to be commercially recoverable fluctuate with changes in prices and operating costs. These estimates are expected to change as additional information becomes available in the future. Downward revisions in proved reserves may result in an increased rate of amortization. Amortization is recorded on sales volumes paid by the Trust during the relevant period and is charged directly to the Trust corpus balance. As a result, amortization does not affect the cash earnings of the Trust. Impairment of Net Profits Interest. The Net Profits Interest in oil and natural gas properties is periodically assessed for impairment whenever events or circumstances indicate that the current fair value based on expected future cash flows of the Underlying Properties may be less than the carrying value of the Net Profits Interest. The Trust did not realize any impairment during the years ended December 31, 2019 or 2018. Future downward revisions in actual production volumes relative to current forecasts, higher than expected operating costs, or lower than anticipated market pricing could result in recognition of impairment in future periods. Any impairment of the Net Profits Interest will result in a non-cash charge to Trust corpus and will not affect distributable income. For further information, see “Note 5. Fair Value Measurements” of the Notes to Financial Statements in Item 8 of this Form 10-K. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. As a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K, the Trust is not required to provide information required by this Item. 54