PermRock Royalty Trust

Distributable Income

Three Months Ended March 31, 2024

For the three months ended March 31, 2024, net profits income received by the Trust was $1,296,408 compared to $2,366,677 for the same period of the prior year. This decrease in net profits income was primarily due to decreased oil and gas prices and sales volumes. See “Computation of Income from the Net Profits Interest Received by the Trust” below.

After considering interest income of $14,962 and general and administrative expenditures of $188,868, distributable income for the three months ended March 31, 2024, was $1,122,502, or $0.092268 per Trust unit.

Interest income was higher for the quarter ended March 31, 2024, as compared to the prior year, due to higher interest rates. General and administrative expenditures increased by$11,752 for the three months ended March 31, 2024, 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, 2024, or March 31, 2023. Total cash reserves were $1,000,000 as of March 31, 2024, and March 31, 2023.

Based on 12,165,732 Trust units outstanding at each date listed below, the per unit distributions during the quarter ended March 31, 2024, were as follows:

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

The Net Profits Interest entitles the Trust to receive 80% of the net profits attributable to Boaz Energy’s interest from the sale of oil and natural gas production from the Underlying Properties. The Trust’s income from the Net Profits Interest consists of monthly net profits attributable to income from the Underlying Properties. 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, 2024, was based on production during the months of November 2023 through January 2024.

(1)

Quarterly sales volumes are typically reported for a three-month period, and therefore sales volumes for the three months ended March 31, 2024, reflect production volumes for November 2023 through January 2024.

(2)

Sales volumes for natural gas include NGLs.

(3)

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, 2024, Boaz had reserved $930,157 net to the Trust for future capital expenses.

Important factors used in calculating the Trust’s 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

Oil sales volumes decreased by 11,407 Bbls (13.3%) for the three months ended March 31, 2024, as compared to the same period in 2023. Boaz Energy reports this decrease was primarily due to a natural decline in the producing properties and a decrease in demand.

Natural Gas

Natural gas sales volumes decreased by 20,344 Mcf (19.5%) for the three months ended March 31, 2024, as compared to the same period in 2023. Boaz Energy reports this decrease was primarily due to a natural decline in the producing properties and a decrease in demand.

Sales Prices

Oil

The average realized oil price per Bbl decreased for the three months ended March 31, 2024, as compared to the same period in 2023. Boaz Energy reports this decrease was primarily due to a decrease in the WTI benchmark oil price.

Natural Gas

The average realized natural gas price per Mcf decreased for the three months ended March 31, 2024, as compared to the same period in 2023. Boaz Energy reports this decrease was primarily due to a decrease in the Henry Hub benchmark price for natural gas.

Costs

Direct Operating Expenses

Direct operating expenses decreased for the three months ended March 31, 2024, as compared to the prior year periods primarily because of fewer projects to return wells to production.

Lease Operating Expenses

Lease operating expenses decreased for the three months ended March 31, 2024, as compared to the prior year periods because of fewer projects to return wells to production.

Severance and Ad Valorem Taxes

Severance and ad valorem taxes decreased for the three months ended March 31, 2024, as compared to the prior year periods primarily because of lower revenues and valuations of properties resulting from decreased oil prices.

Development Expenses Related to the Underlying Properties

Development expenses related to the Underlying Properties decreased for the three months ended March 31, 2024, as compared to the prior year period as a result of fewer capital projects.

Other Expenses

Other expenses decreased for the three months ended March 31, 2024, as compared to the prior year periods primarily due to adjustments to overhead.

Capital Reserve

As of March 31, 2024, Boaz Energy had reserved $930,157 net to the Trust for future capital expenses.

LIQUIDITY AND CAPITAL RESOURCES

The Trust’s principal sources of liquidity and capital are cash flow generated from the Net Profits Interest, the amounts held by the Trustee as cash reserves to pay future liabilities, and borrowings, if any to fund administrative expenses. The Trust’s primary uses of cash are distributions to Trust unitholders, payment of Trust administrative expenses, including, if applicable, any reserves established by the Trustee for future liabilities.

Administrative expenses include the Trustee and Delaware Trustee fees, accounting, engineering, legal, tax advisory and other professional fees, and tax reporting and distribution expenses. The Trust is also responsible for paying other expenses incurred as a result of being a publicly traded entity, including costs associated with annual, quarterly and current reports to the SEC, New York Stock Exchange listing fees, independent auditor fees and registrar and transfer agent fees. If the Trustee determines that cash on hand and cash to be received in respect of the Net Profits Interest are, or will be, insufficient to cover the Trust’s liabilities and expenses, the Trustee may cause the Trust to borrow funds to pay liabilities of the Trust.

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, 2024.

Boaz Energy Capital Expenditure Budget

Boaz Energy’s estimated capital budget for 2024 for the Underlying Properties is $4.5 million, of which approximately $0.9 million has been expended as of March 31, 2024. Based on current oil and gas prices, Boaz anticipates continuing to participate in Crane and Glasscock Counties non-operated drilling and waterflood conformance and expansion work in Crane & Terry Counties, as well as drilling 1 new operated wells in Crane County sometime in 2024. The majority of capital spent in 2024 to date was spent on non-operated projects in the Permian Shelf Area. The $4.5 million estimate is subject to change based on, among other things, changes in the price of oil and natural gas, Boaz Energy’s actual capital requirements, the pace of regulatory approvals and the mix of projects.

Distributions Declared After Quarter End

On April 19, 2024, the Trust declared a cash distribution of $0.030674 per Trust unit based upon production during the month of February 2024.

Off-Balance Sheet Arrangements

As of March 31, 2024, the Trust had no off-balance sheet arrangements.

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

Refer to Note 2 to the unaudited condensed financial statements contained in this Quarterly Report and the Trust’s 2023 Annual Report on Form 10-K, including the audited financial statements of the Trust and notes thereto included therein, for a description of the Trust’s accounting policies and use of estimates.