Permianville Royalty Trust 10-K

Item 8. Financial Statements and Supplementary Data. Report of Independent Registered Public Accounting Firm To the Trustee and Unitholders of Permianville Royalty Trust: Opinion on the Financial Statements We have audited the accompanying statements of assets, liabilities, and trust corpus of Permianville Royalty Trust (the Trust) as of December 31, 2020 and 2019, the related statements of distributable income and changes in trust corpus for each of the two years ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust at December 31, 2020 and 2019, and its distributable income for each of the two years in the period ended December 31, 2020, in conformity with the modified cash basis of accounting, as described in Note 2, which is a comprehensive basis of accounting other than U.S. generally accepted accounting principles. Basis of Accounting As described in Note 2 to the financial statements, these financial statements were prepared on the modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Trustee. Our responsibility is to express an opinion on the Trust’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by the Trustee, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the Trustee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. 55 Amortization of Net Profits Interest in oil and natural gas properties Description of the Matter At December 31, 2020, the net book value of the Trust’s Net Profits Interest in oil and natural gas properties was $71,265,032, and amortization was $5,900,923 for the year then ended. As described in Note 2, amortization of Net Profits Interest in oil and natural gas properties is calculated using the unit-of-production method based on the oil and natural gas reserves of the Underlying Properties, as estimated by the Trust’s independent petroleum engineers. Oil and natural gas reserves are those quantities of natural gas, crude oil, and natural gas liquids, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. Significant judgment is required by the Trust’s independent petroleum engineers in evaluating geological and engineering data when estimating oil and natural gas reserves. Estimating reserves also requires the selection of inputs, including oil and gas price assumptions, future operating and capital costs assumptions, among others. Auditing the Trust’s amortization of Net Profits Interest is complex because of the use of the work of the independent petroleum engineers and the evaluation of Trustee’s determination of the inputs described above used by the engineers in estimating oil and natural gas reserves. How We Addressed the Matter in Our Audit Our audit procedures included, among others, evaluating the professional qualifications and objectivity of the Trust’s independent petroleum engineers used to prepare the reserve estimates. In addition, in assessing whether we can use the work of the independent petroleum engineers we evaluated the completeness and accuracy of the financial data and inputs described above used by the engineers in estimating oil and natural gas reserves by agreeing them to source documentation, and we identified and evaluated corroborative and contrary evidence. For proved undeveloped reserves, we evaluated the Sponsor’s development plan for compliance with the SEC rule that undrilled locations are scheduled to be drilled within five years and by assessing consistency of the development projections with the Sponsor’s development plan. We also tested the mathematical accuracy of the amortization calculation, including comparing the oil and natural gas reserve amounts used in the calculations to the Trust’s reserve reports. /s/ Ernst & Young LLP We have served as the Trust’s auditor since 2011. Houston, Texas March 23, 2021 56 PERMIANVILLE ROYALTY TRUST Statements of Assets, Liabilities and Trust Corpus December 31, 2020 2019 ASSETS Cash and cash equivalents $ 29,639 $ 90,665 Net profits interest in oil and natural gas properties, net 71,265,032 77,165,956 Total assets $ 71,294,671 $ 77,256,621 LIABILITIES AND TRUST CORPUS Advances to the Trust $ 348,821 $ 34,818 Total liabilities 348,821 34,818 Trust corpus (33,000,000 units issued and outstanding) 70,945,850 77,221,803 Total liabilities and Trust corpus $ 71,294,671 $ 77,256,621 The accompanying notes to financial statements are an integral part of these statements. 57 PERMIANVILLE ROYALTY TRUST Statements of Distributable Income Year Ended December 31, 2020 2019 Income from net profits interest $ 5,565,015 $ 9,481,987 Income from sale of net profits interest on undeveloped acreage — 177,292 Interest and investment income 446 16,659 General and administrative expenses (916,900 ) (928,014 ) Cash reserves used (withheld) for Trust expenses 375,030 771,322 Distributable income $ 5,023,591 $ 9,519,246 Distributable income per unit (33,000,000 units) $ 0.152230 $ 0.288462 The accompanying notes to financial statements are an integral part of these statements. 58 PERMIANVILLE ROYALTY TRUST Statements of Changes in Trust Corpus Year Ended December 31, 2020 2019 Trust corpus, beginning of period $ 77,221,803 $ 84,084,189 Cash reserves (used) withheld for Trust expenses (375,030 ) (771,322 ) Distributable income 5,023,591 9,519,246 Distributions to unitholders (5,023,591 ) (9,519,246 ) Amortization of net profits interest (5,900,923 ) (6,091,064 ) Trust corpus, end of period $ 70,945,850 $ 77,221,803 The accompanying notes to financial statements are an integral part of these statements. 59 PERMIANVILLE ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS 1. TRUST ORGANIZATION AND PROVISIONS Permianville Royalty Trust (the “Trust”), previously known as Enduro Royalty Trust, is a Delaware statutory trust formed in May 2011 pursuant to a trust agreement (the “Trust Agreement”) among Enduro Resource Partners LLC (“Enduro”), as trustor, The Bank of New York Mellon Trust Company, N.A. (the “Trustee”), as trustee, and Wilmington Trust Company (the “Delaware Trustee”), as Delaware Trustee. The Trust was created to acquire and hold for the benefit of the Trust unitholders a net profits interest representing the right to receive 80% of the net profits from the sale of oil and natural gas production from certain properties in the states of Texas, Louisiana and New Mexico held by Enduro as of the date of the conveyance of the net profits interest to the Trust (the “Net Profits Interest”). The properties in which the Trust holds the Net Profits Interest are referred to as the “Underlying Properties.” 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 units of beneficial interest in the Trust (the “Trust Units”). Through the initial public offering in 2011 and a secondary offering in 2013, Enduro sold a total of 24,400,000 Trust Units. As of December 31, 2017, Enduro owned 8,600,000 Trust Units, or 26% of the issued and outstanding Trust Units. At a special meeting of Trust unitholders held on August 30, 2017, unitholders approved several proposals, including amendments to the Trust Agreement. In September 2017, Enduro, the Trustee and the Delaware Trustee entered into the First Amendment to Amended and Restated Trust Agreement, which amended certain provisions of the Trust Agreement to, among other things, allow Enduro to sell interests in the Underlying Properties free and clear of the Net Profits Interest with the approval of Trust unitholders holding at least 50% of the then outstanding units of the Trust at a meeting held in accordance with the requirements of the Trust Agreement. This amendment reduced the required threshold for approval of such sales from 75% to 50% of the outstanding units of the Trust. In July 2018 Enduro entered into a purchase and sale agreement with COERT Holdings 1 LLC (“COERT” or the “Sponsor”) for the Underlying Properties and all of the outstanding Trust Units owned by Enduro (the “Sale Transaction”), and on August 31, 2018, the parties closed the Sale Transaction. In connection with the Sale Transaction, COERT assumed all of Enduro’s obligations under the Trust Agreement and other instruments to which Enduro and the Trustee were parties. As of December 31, 2019, the Sponsor owned 8,600,000 Trust Units, or 26% of the issued and outstanding Trust Units. 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. The Trust Agreement provides, among other provisions, that: • the Trust’s business activities are limited to owning the Net Profits Interest and any activity reasonably related to such ownership, including activities required or permitted by the terms of the Conveyance of Net Profits Interest, dated effective as of July 1, 2011 (as supplemented and amended to date, the “Conveyance”). As a result, the Trust is not permitted to acquire other oil and natural gas properties or net profits interests or otherwise to engage in activities beyond those necessary for the conservation and protection of the Net Profits Interest; • the Trust may dispose of all or any material part of the assets of the Trust (including the sale of the Net Profits Interests) if approved by at least 75% of the outstanding Trust Units; • the Sponsor may sell a divided or undivided portion of its interests in the Underlying Properties, free from and unburdened by the Net Profits Interest, if approved by at least 50% of the outstanding Trust Units at a meeting of Trust unitholders; • the Trustee will make monthly cash distributions to unitholders (Note 5); 60 PERMIANVILLE ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS—Continued • the Trustee may create a cash reserve to pay for future liabilities of the Trust; • the Trustee may authorize the Trust to borrow money to pay administrative or incidental expenses of the Trust that exceed its cash on hand and available reserves. No further distributions will be made to Trust unitholders until such amounts borrowed are repaid; and • the Trust is not subject to any pre-set termination provisions based on a maximum volume of oil or natural gas to be produced or the passage of time. The Trust will dissolve upon the earliest to occur of the following: • the Trust, upon approval of the holders of at least 75% of the outstanding Trust Units, sells the Net Profits Interest; • the annual cash proceeds received by the Trust attributable to the Net Profits Interest are less than $2 million for each of any two consecutive years; • the holders of at least 75% of the outstanding Trust Units vote in favor of dissolution; or • the Trust is judicially dissolved. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting 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 (including lease operating expenses and production and property taxes) and development expenses of the Underlying Properties, multiplied by 80%. Cash distributions of the Trust are made based on the amount of cash received by the Trust from the Sponsor pursuant to terms of the Conveyance creating the Net Profits Interest. Under the terms of the Conveyance, the monthly Net Profits Interest calculation includes oil and natural gas revenues received by the Sponsor during the relevant month. Monthly operating expenses and capital expenditures represent estimated incurred expenses, and as a result, represent accrued expenses as well as expenses paid during the period. 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; and 61 PERMIANVILLE ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS—Continued (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 U.S. Securities and Exchange Commission (“SEC”) as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts . Use of Estimates The preparation of financial statements in conformity with the basis of accounting described above requires the Trust to make estimates and assumptions that affect reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Significant estimates affecting these financial statements include estimates of proved oil and natural gas reserves, which are used to compute the Trust’s amortization of net profits interest and its impairment assessments. Although the Trustee believes that these estimates are reasonable, actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash in banks, money market accounts, and all highly liquid investments with an original maturity of three months or less. Impairment 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. While the Trust did not record an impairment during the years ended December 31, 2020 or 2019, future downward revisions in actual production volumes relative to current forecasts, higher than expected operating costs, or lower than anticipated commodity prices could result in recognition of impairment in future periods. 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. 62 PERMIANVILLE ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS—Continued 3. NET PROFITS INTEREST IN OIL AND NATURAL GAS PROPERTIES The Net Profits Interest in oil and natural gas properties was recorded at its fair value on the date of conveyance. Amortization of the Net Profits Interest in oil and natural gas properties is calculated 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 commodity 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 charged directly to the Trust corpus balance and does not affect the distributable income of the Trust. Accumulated amortization as of December 31, 2020 and 2019 was $285,826,125 and $279,925,202, respectively. The Net Profits Interest 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. While the Trust did not record an impairment during the years ended December 31, 2020 or 2019, future downward revisions in actual production volumes relative to current forecasts, higher than expected operating costs, or lower than anticipated commodity prices could result in recognition of impairment in future periods. Impairment of Net Profits Interest Fair value accounting guidance includes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3). When indicators of impairment are present and it is determined that the carrying value of the Net Profits Interest exceeds the estimated undiscounted cash flows of the subject interest, fair value estimates utilized in the impairment assessment are determined based on inputs not observable in the market and thus represent Level 3 measurements. 4. INCOME TAXES Federal Income Taxes For federal income tax purposes, the Trust is a grantor trust and therefore is not subject to tax at the trust level. Trust unitholders are treated as owning a direct interest in the assets of the Trust, and each Trust unitholder is taxed directly on his or her pro rata share of the income and gain attributable to the assets of the Trust and entitled to claim his or her pro rata share of the deductions and expenses attributable to the assets of the Trust. The income of the Trust is deemed to have been received or accrued by each unitholder at the time such income is received or accrued by the Trust rather than when distributed by the Trust. The deductions of the Trust consist of severance taxes and administrative expenses. In addition, each unitholder is entitled to depletion deductions because the Net Profits Interest constitutes “economic interests” in oil and natural gas properties for federal income tax purposes. Each unitholder is entitled to amortize the cost of the Trust Units through cost depletion over the life of the Net Profits Interest or, if greater, through percentage depletion. Unlike cost depletion, percentage depletion is not limited to a unitholder’s depletable tax basis in the Trust Units. Rather, a unitholder could be entitled to percentage depletion as long as the applicable Underlying Properties generate net income. Some Trust Units are held by a middleman, as such term is broadly defined in U.S. Treasury Regulations (and includes custodians, nominees, certain joint owners, and brokers holding an interest for a custodian in street name). Therefore, the Trustee considers the Trust to be a non-mortgage widely held fixed investment trust (“WHFIT”) for U.S. federal income tax purposes. The Bank of New York Mellon Trust Company, N.A., 601 Travis, 16 th Floor, Houston, Texas 77002, telephone number (512) 236-6545, is the representative of the Trust that will provide tax information in accordance with applicable U.S. Treasury Regulations governing the information reporting requirements of the Trust as a WHFIT. Tax information is also posted by the Trustee at www.permianvilleroyaltytrust.com . Notwithstanding the foregoing, the middlemen holding units on behalf of unitholders, and not the Trustee of the Trust, are solely responsible for complying with the information reporting requirements under the U.S. Treasury Regulations with respect to such units, including the issuance of IRS Forms 1099 and certain written tax statements. Unitholders whose units are held by middlemen should consult with such middlemen regarding the information that will be reported to them by the middlemen with respect to the Trust Units. 63 PERMIANVILLE ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS—Continued The tax consequences to a unitholder of ownership of Trust Units will depend in part on the unitholder’s tax circumstances. Unitholders should consult their tax advisors about the federal tax consequences relating to owning the Trust Units. State Taxes The Trust’s revenues are from sources in the states of Louisiana, New Mexico and Texas. Because it distributes all of its net income to unitholders, the Trust is not taxed at the trust level in Louisiana or New Mexico. Although the Trust does not owe tax, the Trustee is required to file a return with Louisiana reflecting the income and deductions of the Trust attributable to properties located in that state. Louisiana and New Mexico presently have income taxes which tax income of nonresidents from real property located within that state. Louisiana and New Mexico also impose a corporate income tax which may apply to unitholders organized as corporations. Texas imposes a franchise tax at a rate of 0.75% on gross revenues less certain deductions for returns originally due on or after January 1, 2016, as specifically set forth in the Texas franchise tax statutes. Entities subject to tax generally include trusts unless otherwise exempt. Trusts that receive at least 90% of their federal gross income from designated passive sources, including royalties from mineral properties and other income from other non-operating mineral interests, and do not receive more than 10% of their income from operating an active trade or business, generally are exempt from the Texas franchise tax as “passive entities.” Although the Trust is intended to be exempt from Texas franchise tax at the trust level as a passive entity, each unitholder that is considered a taxable entity under the Texas franchise tax would generally be required to include its portion of Trust net income in its own Texas franchise tax computation. Each unitholder should consult his or her own tax advisor regarding state tax requirements, if any, applicable to such person’s ownership of Trust Units. 64 PERMIANVILLE ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS—Continued 5. DISTRIBUTIONS TO UNITHOLDERS 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 liabilities for that month, subject to adjustments for changes made by the Trustee during the month in any cash reserves established for future liabilities of the Trust. Distributions are made to the holders of Trust Units as of the applicable record date (generally the last business day of each calendar month) and are payable on or before the tenth business day after the record date. The following table provides information regarding the Trust’s distributions paid during the periods indicated: Declaration Date Record Date Payment Date Distribution per Unit 2020: December 16, 2019 December 31, 2019 January 15, 2020 $ 0.018000 January 17, 2020 January 31, 2020 February 14, 2020 $ 0.020630 February 18, 2020 February 28, 2020 March 13, 2020 $ 0.024500 March 16, 2020 March 31, 2020 April 14, 2020 $ 0.041000 April 17, 2020 April 30, 2020 May 12, 2020 $ 0.029000 May 15, 2020 May 29, 2020 June 15, 2020 $ 0.015300 June 15, 2020 June 30, 2020 July 15, 2020 $ 0.003800 Total—2020 $ 0.152230 2019: January 18, 2019 January 31, 2019 February 14, 2019 $ 0.005135 February 15, 2019 February 28, 2019 March 14, 2019 $ 0.026550 March 18, 2019 March 29, 2019 April 15, 2019 $ 0.076357 April 18, 2019 April 30, 2019 May 14, 2019 $ 0.016800 May 20, 2019 May 31, 2019 June 14, 2019 $ 0.006988 June 17, 2019 June 28, 2019 July 15, 2019 $ 0.041556 July 19, 2019 July 31, 2019 August 14, 2019 $ 0.021476 August 16, 2019 August 30, 2019 September 16, 2019 $ 0.020600 September 16, 2019 September 30, 2019 October 15, 2019 $ 0.044000 October 18, 2019 October 31, 2019 November 14, 2019 $ 0.019000 November 15, 2019 November 29, 2019 December 13, 2019 $ 0.010000 Total—2019 $ 0.288462 6. TRUSTEE FEES AND RELATED PARTY TRANSACTIONS Trustee Administrative Fee. Under the terms of the Trust Agreement, the Trust pays an annual administrative fee of $200,000 to the Trustee and $2,000 to the Delaware Trustee. During the years ended December 31, 2020 and 2019, the Trust paid $200,000 to the Trustee and $2,000 to the Delaware Trustee, respectively, pursuant to the terms of the Trust Agreement. Letter of Credit . Under the terms of the Trust Agreement, COERT has provided the Trust with a $1.2 million letter of credit 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. The letter of credit is issued to the benefit of the Trustee. The standby letter of credit was issued by West Texas National Bank and matures February 10, 2021. On February 11, 2021, COERT provided the Trust with a new letter of credit for $1.2 million which matures on February 11, 2022. This letter is set to automatically renew for 1 year from the date of maturity unless otherwise notified by the lender 30 days prior to its maturity. The letter of credit to the Trustee is unfunded as of December 31, 2020. Advances from COERT . 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. 65 PERMIANVILLE ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS—Continued Registration Rights Agreement. The Trust and COERT (as the assignee of Enduro, in connection with the Sale Transaction) are parties to a Registration Rights Agreement, as amended, whereby COERT, its affiliates and certain permitted transferees holding registrable Trust Units are entitled, upon receipt by the Trustee of written notice from holders of a majority of the then outstanding registrable Trust Units, to demand that the Trust effect the registration of the registrable Trust Units. The holders of the registrable Trust Units are entitled to demand a maximum of five such registrations. In connection with the preparation and filing of any registration statement, COERT will bear all costs and expenses incidental to any registration statement, excluding certain internal expenses of the Trust, which will be borne by the Trust. Any underwriting discounts and commissions will be borne by the seller of the Trust Units. 7. SUBSEQUENT EVENTS Distributions Paid or Declared The Trust did not declare any distributions subsequent to December 31, 2020 and up to the date of the financial statements. 66 PERMIANVILLE ROYALTY TRUST UNAUDITED SUPPLEMENTARY INFORMATION 8. Supplementary Oil and Natural Gas Information (Unaudited) Oil and Natural Gas Reserve Quantities Estimates of proved reserves attributable to the Trust and the related valuations were based 100% on reports prepared by the Trust’s independent petroleum engineers, Cawley, Gillespie & Associates, Inc. Estimates were prepared in accordance with guidelines prescribed by the SEC and the Financial Accounting Standards Board, which require that reserve estimates be prepared under existing economic and operating conditions based upon an average of the first-day-of-the-month commodity price during the 12-month period ending on the balance sheet date with no provision for price and cost escalations except by contractual arrangements. Prices used in estimating reserves were as follows: 2020 2019 Oil (per Bbl) $ 39.57 $ 55.69 Natural gas (per MMBTU) $ 1.99 $ 2.58 Proved reserve quantity estimates are subject to numerous uncertainties inherent in the estimation of proved reserves and in the projection of future rates of production and the timing of development expenditures. The accuracy of such estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of subsequent drilling, testing and production may cause either upward or downward revisions of previous estimates. Further, the volumes considered to be commercially recoverable fluctuate with changes in prices and operating costs. The process of estimating quantities of oil and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reserve. Consequently, these estimates are expected to change as additional information becomes available in the future. As of December 31, 2020 and 2019, all of the Underlying Properties’ oil and natural gas reserves were attributable to properties within the United States. Proved reserves attributable to the Trust and related standardized measure valuations are prepared on an accrual basis, which is the basis on which Enduro and, following the Sale Transaction, the Sponsor, and the Underlying Properties maintain their production records and is different from the basis on which the Trust production records are computed. The following is a summary of the changes in quantities of proved oil and natural gas reserves attributable to the Trust for the periods indicated: Trust Net Profits Interest Oil (1) (MBbls) Natural Gas (MMcf) Total (MBOE) Balance—January 1, 2019 4,174 16,362 6,901 Revisions of previous estimates (915 ) (1,241 ) (1,122 ) Income from Net Profits Interest (138 ) (788 ) (269 ) Balance—December 31, 2019 3,121 14,333 5,510 Extensions and discoveries 12 1,231 217 Revisions of previous estimates (614 ) (3,093 ) (1,130 ) Income from Net Profits Interest (313 ) (1,617 ) (582 ) Balance—December 31, 2020 2,206 10,854 4,015 Proved developed reserves: December 31, 2019 2,878 6,149 3,903 December 31, 2020 2,206 10,854 4,015 Proved undeveloped reserves: December 31, 2019 243 8,184 1,607 December 31, 2020 2 4,552 761 (1) Reserves for natural gas liquids are immaterial and included as a component of oil reserves. 67 PERMIANVILLE ROYALTY TRUST UNAUDITED SUPPLEMENTARY INFORMATION—Continued Revisions of previous estimates . During the year ended December 31, 2020, revisions of previous estimates decreased oil reserves by 20%, primarily due to a decrease in the average oil price used to estimate future net reserves. The NYMEX average oil price of $39.57 per Bbl used to determine reserves as of December 31, 2020 was 29% lower than the $55.69 per Bbl average NYMEX oil price as of December 31, 2019. During the year ended December 31, 2019, revisions of previous estimates decreased oil reserves by 22%, primarily due to a decrease in the average oil price used to estimate future net reserves. The NYMEX average oil price of $55.69 per Bbl used to determine reserves as of December 31, 2019 was 15% lower than the $65.56 per Bbl average NYMEX oil price as of December 31, 2018. Standardized Measure of Discounted Future Net Cash Flows The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves is computed by applying commodity prices used in determining proved reserves (with consideration of price changes only to the extent provided by contractual arrangements) to the estimated future production of proved reserves less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, discounted using a rate of 10% per year to reflect the estimated timing of the future cash flows. Future cash inflows were computed by applying the commodity prices utilized in determining proved reserves to estimated future production. Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at year-end, based on year-end costs and assuming continuation of existing economic conditions. As the Trust is not subject to federal income taxes, future income taxes have been excluded. 68 PERMIANVILLE ROYALTY TRUST UNAUDITED SUPPLEMENTARY INFORMATION—Continued The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves attributable to the Trust was as follows as of the dates indicated: December 31, 2020 2019 (in thousands) Future cash inflows $ 74,646 $ 170,487 Future production taxes (6,421 ) (13,857 ) Future net cash flows $ 68,225 $ 156,630 10% annual discount for estimated timing of cash flows (35,837 ) (83,478 ) Standardized measure of discounted future net cash flows $ 32,388 $ 73,152 The changes in standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves attributable to the Trust for the periods indicated were as follows (in thousands): Year Ended December 31, 2020 2019 Extensions, discoveries, and other additions $ 880 $ — Accretion of discount 6,587 11,101 Revisions of previous estimates and other (42,666 ) (39,476 ) Income from Net Profits Interest (5,565 ) (9,482 ) Change in present value of future net revenues (40,764 ) (37,857 ) Balance, beginning of period 73,152 111,009 Balance, end of year $ 32,388 $ 73,152 69 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable.