Permianville Royalty Trust

Previous wording

The average NYMEX oil and natural gas prices experienced significant volatility in 2023, with the average NYMEX oil price declining from $94.57 per Bbl in calendar year 2022 to $77.65 per Bbl in calendar year 2023, a decline of 18%. Meanwhile, the price range varied from a low of $66.74 per Bbl in March 2023 to a high of $93.68 per Bbl in September 2023, before declining during the fourth quarter in response to increasing conflict in the Middle East. Natural gas prices faced even greater challenges in 2023 after seeing some of the highest prices in prior years in 2022. The average NYMEX natural gas price declined from $6.41 per MMBtu in calendar year 2022 to $2.54 per MMBtu in calendar year 2023, a decline of 60%. Prices for natural gas experienced similar volatility, ranging from a low of $1.77 per MMBtu in June 2023 to a high of $3.77 per MMBtu in January 2023. The year-over-year decline in commodity prices also drove a significant reduction in third-party operator drilling activity on the Underlying Properties, which led to a 45% decrease in development expenses for the production months of 2023 compared to 2022.

Current wording

The average NYMEX oil and natural gas prices experienced continued volatility in 2024, with average oil prices relatively unchanged year-over-year but seeing lower highs than the prior year. The average NYMEX oil price declined from $77.61 per Bbl in calendar year 2023 to $75.79 per Bbl in calendar year 2024, a decline of 2%. Meanwhile, the price range varied from high of $86.91 per Bbl in April 2024 to a low of $65.75 per Bbl in September 2024. The second half of 2024 saw more muted prices as the U.S. general election approached and macroeconomic concerns remained. Natural gas prices faced continued volatility as well, but ended the year higher compared to crude oil’s lower trajectory over the same period. The average NYMEX natural gas price declined from $2.66 per MMBtu in calendar year 2023 to $2.41 per MMBtu in calendar year 2024, a decline of 10%. Prices for natural gas saw some of the lowest levels ever on an inflation-adjusted basis in 2024, ranging from a low of $1.56 per MMBtu in March 2024 to a high of $3.95 per MMBtu in late December 2024, near the high for the year and among the highest levels since December 2022. Although average commodity prices declined for the year amid continued volatility, recorded third-party operator drilling activity on the Underlying Properties increased materially, which contributed to a 202% increase in development expenses for the production months of 2024 compared to 2023. The increase in activity despite lower average prices s due in part to the nature of the operators of the Underlying Properties, with a substantial majority of the capital expenditures being directed by large, public operators, most of which are investment grade rated with longer-term capital planning cycles.

Previous wording

The Sponsor believes that the outlook for the oil and gas industry remains mixed, with oil prices having ended 2023 within a range consistent with prior years, but with natural gas prices currently facing levels generally below operator-targeted forward prices for capital deployment. In addition, mergers and acquisitions have continued to change the makeup of the companies deploying capital in the sector. As larger public companies continue to acquire smaller public companies and private operators, these larger companies are likely to react differently to commodity price volatility than smaller operators have in historical cycles. This merger and acquisition activity has also affected the operators of the Underlying Properties, with several of the largest and/or most active operators for the Underlying Properties announcing merger events in 2023. Nevertheless, the capital spending activity or operating performance for the Underlying Properties under new third-party operatorship in the future may not be consistent with such activity or performance experienced under previous third-party operators in prior years.

Current wording

COERT believes that the outlook for the oil and gas industry remains mixed, with oil prices having ended 2024 at the low end of the $65-90 per Bbl range experienced since August 2022 and with geopolitical and tariff concerns weighing further on the outlook for global demand. However, the price of natural gas, which is more regional given historical export constraints, rallied at the end of 2024 given a colder winter compared to recent years and an expected expanding U.S. LNG export capacity in the coming years. In addition, mergers and acquisitions have continued to change the makeup of the companies deploying capital in the sector over the last several years. As larger public companies continue to acquire smaller public companies and private operators, COERT believes that these larger companies are likely to react differently to commodity price volatility than smaller operators have in historical cycles, as evidenced by the material increase in capital expenditures on the Underlying Properties in 2024 despite lower year-over-year average prices. Nevertheless, the capital spending activity or operating performance for the Underlying Properties under new third-party operatorship in the future may not be consistent with such activity or performance experienced under previous third-party operators in prior years. Although the estimated 2025 capital spending budgets for operators of the Underlying Properties are still to be determined, COERT has advised the Trustee that early indications suggest 2025 will see lower total spending than the elevated levels of 2024.

Previous wording

Given the commodity price volatility as well as the recent merger activity in the industry, the operators of the Underlying Properties continue to evaluate planned capital expenditures during 2024. Based on currently available information, the Sponsor anticipates 2024 capital expenditures on the Underlying Properties to range from $5.0 million to $9.0 million, or $4.0 million to $7.2 million net to the Trust’s 80% Net Profits Interest. This would represent a decrease from 2023 levels, partly due to lower projected natural gas prices, which could reduce capital activity on the Haynesville area of the Underlying Properties, but somewhat offset by continued activity strength in the portion of the Underlying Properties located in the Permian region. The expected range is also wider compared to 2023 given the volatility and recent third-party operator merger activity. The Sponsor indicates that it continues to have access to adequate capital and liquidity to fund such capital expenditures as they come due.

Current wording

Given forward commodity prices, changing ownership between some of the operators of the Underlying Properties as well as an uncertain macroeconomic outlook, planned capital expenditures during 2025 remain somewhat uncertain. Based on currently available information, COERT anticipates 2025 capital expenditures on the Underlying Properties to range from $7.0 million to $13.0 million, or $5.6 million to $10.4 million net to the Trust’s 80% Net Profits Interest. This would represent a decrease from 2024 levels, partly due to lower projected oil prices, somewhat offset by possibly sustained activity levels in the Haynesville area of the Underlying Properties given higher relative natural gas prices. COERT indicates that it continues to have access to adequate capital and liquidity to fund such capital expenditures as they come due.

Previous wording

In addition to continued capital expenditure participation, the Sponsor believes there could be further opportunity in 2024 for prospective divestitures, as operators of some of the Underlying Properties look to consolidate non-operated interests and acreage given recent merger and acquisition activity in the industry.

Current wording

In addition to continued capital expenditure participation, COERT believes there could be further opportunity in 2025 for prospective divestitures of some or all of the Underlying Properties, as operators of some of the Underlying Properties look to consolidate non-operated interests and acreage given recent merger and acquisition activity in the industry.******

Previous wording

On September 20, 2023, the Trust announced a special cash distribution to Trust unitholders of $0.069670 per Trust Unit, payable on October 13, 2023 to Trust unitholders of record on October 2, 2023, reflecting 50% of the Trust’s share of the net proceeds, after accounting for the Indemnification Escrow Amount. The remaining 50% of the Trust’s share of the net proceeds was temporarily retained by the Sponsor as a source of payment of the Trust’s proportionate share of any post-closing purchase price adjustments, with any amount remaining (less any amounts in dispute) after such adjustments to be paid to the Trust within five business days after finalization of the settlement statement and included in a distribution to Trust unitholders. On November 6, 2023, the Trust announced a special cash distribution to Trust unitholders of $0.077250 per Trust Unit, payable on November 22, 2023 to Trust unitholders of record on November 16, 2023, reflecting the remaining 50% of the Trust’s share of the net proceeds (net of the Indemnification Escrow Amount). Within 12 months after the closing of the sale, any remaining amount from the Indemnification Escrow Amount (less any amounts in dispute) will be released to the Trust and included in a distribution to Trust unitholders.

Current wording

On September 20, 2023, the Trust announced a special cash distribution to Trust unitholders of $0.069670 per Trust Unit, payable on October 13, 2023 to Trust unitholders of record on October 2, 2023, reflecting 50% of the Trust’s share of the net proceeds, after accounting for the Indemnification Escrow Amount. The remaining 50% of the Trust’s share of the net proceeds was temporarily retained bythe Sponsor as a source of payment of the Trust’s proportionate share of any post-closing purchase price adjustments, with any amount remaining (less any amounts in dispute) after such adjustments to be paid to the Trust within five business days after finalization of the settlement statement and included in a distribution to Trust unitholders. On November 6, 2023, the Trust announced a special cash distribution to Trust unitholders of $0.077250 per Trust Unit, payable on November 22, 2023 to Trust unitholders of record on November 16, 2023, reflecting the remaining 50% of the Trust’s share of the net proceeds (net of the Indemnification Escrow Amount). On March 17, 2025, the Trust announced a special cash distribution to Trust unitholders of $0.008548 per Trust Unit, payable on April 14, 2025 to Trust unitholders of record on March 31, 2025, reflecting the release of the Indemnification Escrow Amount, together with interest, for a total of $282,072.

Previous wording

Net profits attributable to the Underlying Properties for the year ended December 31, 2023 were $12.0 million compared to $20.2 million for the year ended December 31, 2022. As discussed in “—Computation of Income from Net Profits Interest Received by the Trust” above, no distribution was made to Trust unitholders in December 2023 due to the Net Profits Interest shortfall. Accordingly, under the modified cash basis of accounting, the oil and natural gas sales, direct operating expenses and development expenses attributable to that period was not included and instead will be included in the Trust’s results once the shortfall is recouped. Therefore, several variances between the periods are due to the inclusion of only eleven months of results in the year ended December 31, 2023 compared to twelve months in the year ended December 31, 2022. The $8.2 million decrease in net profits attributable to the Underlying Properties from the 2022 period to the 2023 period was primarily due to the following items:

Current wording

Net profits attributable to the Underlying Properties for the year ended December 31, 2024 were $6.7 million compared to $12.0 million for the year ended December 31, 2023. As discussed in “—Computation of Income from Net Profits Interest Received by the Trust” above, no distribution was made to Trust unitholders in December 2023 due to the Net Profits Interest shortfall. Accordingly, under the modified cash basis of accounting, the oil and natural gas sales, direct operating expenses and development expenses attributable to the corresponding production period were excluded from the calculation of distributable income for the year ended December 31, 2023 and instead were included in the Trust’s results for the year ended December 31, 2024, once the shortfall was recouped. Therefore, several variances between the periods are due to the inclusion of thirteen months of results in the year ended December 31, 2024 compared to eleven months in the year ended December 31, 2023. The $5.3 million decrease in net profits attributable to the Underlying Properties from the 2023 period to the 2024 period was primarily due to the following items:

Previous wording

During the year ended December 31, 2022, the Sponsor withheld from the net profits otherwise payable to the Trust a net aggregate of $1.0 million for the establishment of a cash reserve for approved, future development expenses. This reserve was intended to fund an expected increase in development expenses; however, if those expenses are ultimately delayed or are less than expected, or if the outlook changes, amounts reserved but unspent would be released as an incremental cash distribution in a future period. This cash reserve for future development was fully released to the Trust during the year ended 2023.

Current wording

During the year ended December 31, 2023, COERT fully released the total cash reserve of $1.0 million that it had previously established for approved, future development expenses. During the year ended December 31, 2024, the Sponsor withheld from the net profits otherwise payable to the Trust a net aggregate total of $1.0 million for the establishment of a cash reserve for approved, future development expenses. This reserve was intended to fund an expected increase in development expenses; however, if those expenses are ultimately delayed or are less than expected, or if the outlook changes, amounts reserved but unspent would be released as an incremental cash distribution in a future period. This cash reserve for future development was fully released to the Trust in early 2025.

Previous wording

The Trust withheld $1.3 million and paid $0.9 million for general and administrative expenses during the year ended December 31, 2023. Expenses paid during the period primarily consisted of fees for the preparation of 2022 tax information for Trust unitholders, preparation of the Trust’s 2022 reserve report and Annual Report on Form 10-K, 2022 financial statement audit fees, preparation of the Trust’s 2023 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, 2022, the Trust withheld $1.7 million and paid $0.8 million for general and administrative expenses.

Current wording

The Trust withheld $1.6 million and paid $1.0 million for general and administrative expenses during the year ended December 31, 2024. Expenses paid during the period primarily consisted of fees for the preparation of 2023 tax information for Trust unitholders, preparation of the Trust’s 2023 reserve report and Annual Report on Form 10-K, 2023 financial statement audit fees, preparation of the Trust’s 2024 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, 2023, the Trust withheld $1.3 million and paid $0.9 million for general and administrative expenses.

Previous wording

The Trustee may create a cash reserve to pay for future liabilities of the Trust. In November 2021, the Trustee notifiedthe Sponsor of the Trustee’s intent to build a cash reserve for the payment of future known, anticipated or contingent expenses or liabilities of the Trust. From February 2022 through March 2023, the Trustee withheld $37,833, and commencing with the distribution to Trust unitholders paid in April 2023 has been withholding and, in the future, intends to withhold $50,000, from the funds otherwise available for distribution each month to gradually build a cash reserve of approximately $2.3 million. The Trustee may increase or decrease the targeted cash reserve amount at any time and may increase or decrease the rate at which it is withholding funds to build the cash reserve at any time, without advance notice to the Trust unitholders. Cash held in reserve will be invested as required by the Trust Agreement. Any cash reserved in excess of the amount necessary to pay or provide for the payment of future known, anticipated or contingent expenses or liabilities eventually will be distributed to Trust unitholders, together with interest earned on the funds. As of December 31, 2023, this cash reserve totaled $941,386.

Current wording

The Trustee may create a cash reserve to pay for future liabilities of the Trust. In November 2021, the Trustee notified COERT of the Trustee’s intent to build a cash reserve for the payment of future known, anticipated or contingent expenses or liabilities of the Trust. From February 2022 through March 2023, the Trustee withheld $37,833, and commencing with the distribution to Trust unitholders paid in April 2023 has been withholding and, in the future, intends to withhold $50,000, from the funds otherwise available for distribution each month to gradually build a cash reserve of approximately $2.3 million. The Trustee may increase or decrease the targeted cash reserve amount at any time and may increase or decrease the rate at which it is withholding funds to build the cash reserve at any time, without advance notice to the Trust unitholders. Cash held in reserve will be invested as required by the Trust Agreement. Any cash reserved in excess of the amount necessary to pay or provide for the payment of future known, anticipated or contingent expenses or liabilities eventually will be distributed to Trust unitholders, together with interest earned on the funds. As of December 31, 2024, this cash reserve totaled $1,241,386.

Previous wording

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, 2023 and 2022, the Trust held cash reserves of $1,394,697 and $922,913, 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.

Current wording

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, COERT 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, COERT has agreed to loan funds to the Trust necessary to pay such expenses. Any loan made by COERT 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 COERT than those that would be obtained in an arm’s length transaction between COERT 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, 2024 and 2023, the Trust held cash reserves of $2,193,787 and $1,394,697, 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.

Previous wording

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, the Sponsormay 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.

Current wording

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, the Sponsor 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.

Previous wording

The Sponsor has not entered into any hedge contracts relating to oil and natural gas volumes produced fromthe Underlying Properties, attributable to the Net Profits Interest for the years ended December 31, 2023 or 2022, and the terms of the Conveyance prohibit the Sponsor from entering into new hedging arrangements burdening the Trust.

Current wording

The Sponsor has not entered into any hedge contracts relating to oil and natural gas volumes produced fromthe Underlying Properties, attributable to the Net Profits Interest for the years ended December 31, 2024 or 2023, and the terms of the Conveyance prohibit COERT from entering into new hedging arrangements burdening the Trust.