PermRock Royalty Trust

Overview

PermRock Royalty Trust, a Delaware statutory trust formed in November 2017 by Boaz Energy, completed its initial public offering in May 2018. 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.

The Trust is required to make monthly cash distributions of substantially all of its monthly cash receipts, after deduction of fees and expenses for the administration of the Trust and any cash reserves, to holders of its Trust units as of the applicable record date on or before the 10th business day after the record date. The Net Profits Interest is entitled to a share of the profits attributable to production. T2S typically receives 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. The Trust is not subject to pre-set termination provisions based on a maximum volume of oil or natural gas to be produced or the passage of time. The amount of Trust revenues and cash distributions to Trust unitholders depends on, among other things:

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volumes produced;

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wellhead prices;

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price differentials;

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production and development costs;

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potential reductions or suspensions of production; and

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the amount and timing of Trust administrative expenses.

Low oil and gas prices received for production from the Underlying Properties could cause (i) a reduction in the amount of net proceeds to which the Trust is entitled, which could materially reduce or completely eliminate the amount of cash available for distribution to Trust unitholders and (ii) a reduction in the amount of oil and natural gas that are economic to produce from the Underlying Properties.

On January 13, 2025, the Trust announced that Boaz Energy and its affiliate Boaz Energy II Royalty, LLC entered into a Purchase and Sale Agreement on January 10, 2025 with T2S Permian Acquisition II LLC ( "T2S" ) with respect to the Underlying Properties. Pursuant to the Purchase and Sale Agreement, Boaz sold and conveyed (a) to T2S all of Boaz Energy’s right, title and interest in and to the Underlying Properties (which shall remain burdened by the Net Profits Interest and subject to the Conveyance); and (b) to Ustx, LLC, all of Boaz Energy’s 4,884,861 Trust units representing beneficial interests in the Trust. Boaz Energy reported that the Purchase and Sale Agreement contained customary conditions to the parties’ obligations to consummate the (the “Closing”). The Closing occurred on March 31, 2025. From and after the Closing, the Buyer owns the Underlying Properties (burdened by the Trust’s Net Profits Interest and subject to the Conveyance, Ustx, LLC owns the Boaz Trust Units, and the Buyer has become the operator of the Underlying Properties.

2025 Recap and 2026 Outlook

T2S and its predecessor, Boaz Energy, initially established a $4.5 million capital and workover budget for 2025 for the Underlying Properties (the "2025 Plan"). In response to the market environment and economic pressures affecting the oil and gas sector during the second half of 2025, including continued commodity price volatility, increased service and labor costs, and tightening capital markets, T2S revised the Plan downward to approximately $1.0 million (the “Revised 2025 Plan”). The reduction under the Revised 2025 Plan was made to preserve liquidity, maintain financial flexibility, and align spending levels with prevailing industry and macroeconomic conditions, and was primarily related to the postponement of the drilling of two wells originally scheduled for 2025 in Crane County, Texas—one injector well and one producer well. The drilling of these two wells was postponed until T2S makes a decision to move forward based on improved market visibility and commodity price stability. The Revised 2025 Plan included T2S’s participation in two non-operated wells in the Permian Shelf Area, which were successfully drilled in 2025, but not completed until the first quarter 2026, as well as ongoing investments in workovers, waterflood pattern optimization, and the reactivation of certain shut-in wells to sustain production levels. Total capital expenditure by the end of 2025 was $515,530. T2S advised the Trustee that it believed this revision provided an appropriate balance between near-term cash preservation and the continued development of the Underlying Properties.

Distributable Income

Based on 12,165,732 Trust units outstanding at each date listed below, the per unit distributions during the year ended December 31, 2025, were as follows:

Years Ended December 31, 2025, and 2024

The decrease in net profits income was primarily due to decreased oil and natural gas sales volumes and oil prices, offset somewhat by a slight increase in natural gas prices. See “Computation of Income from the Net Profits Interest Received by the Trust” below.

Interest Income. Interest income decreased slightly for the year ended December 31, 2025, as compared to the prior year, primarily due to the decrease in income available for investment, along with lower interest rates.

General and Administrative Expenditures. General and administrative expenditures increased for the year ended December 31, 2025, as compared to the prior year, primarily due to an increase in legal expenses and differences in the timing and payment of some expenses.

Cash Reserves. Pursuant to the Trust Agreement, the Trustee was authorized to begin retaining cash reserves for administrative expenses beginning in May 2019. In April 2020, the cash reserves retained reached $1,000,000 and no further cash reserves have been retained by the Trustee since April 2020. As of December 31, 2025, the Trustee continued to hold the previously retained $1,000,000 in cash reserves.

Years Ended December 31, 2024, and 2023

The decrease in net profits income was primarily due to decreased oil and natural gas sales volumes and prices. See “Computation of Income from the Net Profits Interest Received by the Trust” below.

Interest Income. Interest income decreased for the year ended December 31, 2024, as compared to the prior year, primarily due to lower interest rates, along with less cash available for investment.

General and Administrative Expenditures. General and administrative expenditures decreased for the year ended December 31, 2024, as compared to the prior year, primarily because of a decrease in legal fees and differences in the timing and payment of some expenses.

Cash Reserves. Pursuant to the Trust Agreement, the Trustee was authorized to begin retaining cash reserves for administrative expenses beginning in May 2019. In April 2020, the cash reserves retained reached $1,000,000 and no further cash reserves have been retained by the Trustee since April 2020. As of December 31, 2024, the Trustee continued to hold the previously retained $1,000,000 in cash reserves.

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

The table below outlines the computation of income from the Net Profits Interest received by the Trust for the years ended December 31, 2025, 2024, and 2023:

(1)

Annual sales volumes for 2025 reflect production volumes for November 2024 through October 2025. Annual sales volumes for 2024 reflect production volumes for November 2023 through October 2024. Annual sales volumes for 2023 reflect production volumes for November 2022 through October 2023.

(2)

Sales volumes for natural gas include NGLs.

(3)

T2S is entitled under the Conveyance to reserve up to $3 million from the net profits for certain taxes and development expenses. As of December 31, 2025, the balance of funds held back to cover certain future capital expenses was $74,933 net to the Trust. The balance of funds held, net to the Trust, as of December 31, 2024 and 2023 was $526,174 and $650,157, respectively.

Years Ended December 31, 2025, and 2024

Important factors used in calculating the Trust’s net profits income include the volumes of oil and gas produced from the Underlying Properties and the realized prices received for the sale of those minerals, including natural gas liquids, as well as direct operating and development expenses.

Sales Volumes

Oil. Oil sales volumes decreased for the year ended December 31, 2025, as compared to the prior year. This was primarily due to decreased demand and the natural decline in production.

Natural Gas. Natural gas sales volumes decreased for the year ended December 31, 2025, as compared to the prior year. This was primarily due to decreased demand and the natural decline in production.

Sales Prices

Oil. The average realized oil price per Bbl decreased for the year ended December 31, 2025, as compared to the prior year. The average realized oil price per Bbl for the year ended December 31, 2025, is primarily related to production from November 2024 through October 2025, when the average NYMEX price was $67.18 per Bbl.

Natural Gas. The average realized natural gas price per Mcf increased for the year ended December 31, 2025, as compared to the prior year. The average realized natural gas price per Mcf for the year ended December 31, 2025, is primarily related to production from November 2024 through October 2025, when the average NYMEX price was $3.28 per Mcf.

Costs

Direct Operating Expenses. Direct operating expenses decreased for the year ended December 31, 2025, as compared to the prior year primarily due to a decrease in capital projects to return wells to production.

Lease Operating Expenses. Lease operating expenses decreased for the year ended December 31, 2025, as compared to the prior year primarily due to returning fewer wells to production.

Severance and Ad Valorem Taxes. Severance and ad valorem taxes increased for the year ended December 31, 2025, as compared to the prior year primarily due to higher assessed property values driven by stronger commodity prices in 2024 and updated valuation inputs (e.g., price forecasts, production expectations, and discount rates). Because ad valorem taxes are based on the fair market value of underlying reserves and production, increases in oil and gas prices or revisions to valuation assumptions directly increase taxable values and resulting tax expense. Additionally, jurisdiction-specific changes- such as updated appraisal methodologies, higher mill levies, or reduced tax credits- may have further contributed to the year-over-year increase.

Development Expenses Related to the Underlying Properties. Development expenses related to the Underlying Properties decreased for the year ended December 31, 2025, as compared to the prior year primarily due to fewer drilling and recompletion projects.

Other Expenses. Other expenses increased for the year ended December 31, 2025, as compared to the prior year primarily due to an increase in overhead expenses.

Capital Reserve and Operator Advance. T2S is entitled under the Conveyance to reserve up to $3 million from the net profits for certain taxes and development expenses. As of December 31, 2025, the balance of funds held back by T2S to cover certain future capital expenses was $74,933 net to the Trust.

Years Ended December 31, 2024, and 2023

Important factors used in calculating the Trust’s net profits income include the volumes of oil and gas produced from the Underlying Properties and the realized prices received for the sale of those minerals, including natural gas liquids, as well as direct operating and development expenses.

Sales Volumes

Oil. Oil sales volumes decreased for the year ended December 31, 2024, as compared to the prior year. This was primarily due to decreased demand and the natural decline in production.

Natural Gas. Natural gas sales volumes decreased for the year ended December 31, 2024, as compared to the prior year. This was primarily due to decreased demand and the natural decline in production.

Sales Prices

Oil. The average realized oil price per Bbl decreased for the year ended December 31, 2024, as compared to the prior year. The average realized oil price per Bbl for the year ended December 31, 2024, is primarily related to production from November 2023 through October 2024, when the average NYMEX price was $77.34 per Bbl.

Natural Gas. The average realized natural gas price per Mcf decreased for the year ended December 31, 2024, as compared to the prior year. The average realized natural gas price per Mcf for the year ended December 31, 2024, is primarily related to production from November 2023 through October 2024, when the average NYMEX price was $2.32 per Mcf.

Costs

Direct Operating Expenses. Direct operating expenses decreased for the year ended December 31, 2024, as compared to the prior year primarily due to a decrease in capital projects to return wells to production.

Lease Operating Expenses. Lease operating expenses decreased for the year ended December 31, 2024, as compared to the prior year primarily due to returning fewer wells to production.

Severance and Ad Valorem Taxes. Severance and ad valorem taxes decreased for the year ended December 31, 2024, as compared to the prior year primarily due to lower sales valuation due to decreased industry prices for oil and natural gas.

Development Expenses Related to the Underlying Properties. Development expenses related to the Underlying Properties decreased for the year ended December 31, 2024, as compared to the prior year primarily due to fewer drilling and recompletion projects.

Other Expenses. Other expenses increased for the year ended December 31, 2024, as compared to the prior year primarily due to an increase in overhead expenses.

Capital Reserve and Operator Advance. Boaz Energy, as predecessor to T2S, was entitled under the Conveyance to reserve up to $3 million from the net profits for certain taxes and development expenses. As of December 31, 2024, the balance of funds held back by Boaz Energy to cover certain future capital expenses was $526,174 net to the Trust.

Liquidity and Capital Resources

The Trust’s principal sources of liquidity and capital are cash flow generated from the Net Profits Interest 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. If the Trustee causes the Trust to borrow funds, the Trust unitholders will not receive distributions until the borrowed funds or the amount drawn, as applicable, are repaid.

Pursuant to the Trust Agreement, the Trustee was authorized beginning May 2019 to retain cash from the distributions it 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. Boaz Energy provided the Trust with a $1.0 million Letter of Credit that could be drawn by the Trust to pay its administrative expenses. The Trustee is permitted to retain cash from distributions in such amount as the Trustee determines but not less than $25,000 per month or more than $100,000 per month until the reserve described in clause (i) equals or exceeds $1.0 million, at which time, the Trustee is required to release the Letter of Credit. The Letter of Credit expired May 2, 2020, as the Trustee had retained a total of $1,000,000 in cash reserves. As of December 31, 2025, the Trustee continued to hold the previously retained $1,000,000 in cash reserves.

On May 4, 2018, the Trust entered into a registration rights agreement for the benefit of Boaz Energy and certain of its affiliates and transferees, pursuant to which the Trust agreed to register the offering of the Trust units held by Boaz Energy and certain of its affiliates and permitted transferees upon request by Boaz Energy. As of March 31, 2022, Boaz Energy owned 5,878,332 Trust units of the 12,165,732 Trust units issued and outstanding. The Trust filed a Registration Statement on Form S-3 on April 28, 2022 (the “Registration Statement”) seeking the registration of 5,801,675 Trust units held by Boaz Energy. The SEC confirmed the effectiveness of the Registration Statement on May 9, 2022. The Trust has not and will not receive any of the proceeds received from the sale of the Trust units. Boaz Energy sold its remaining 4,884,861 units to Ustx, LLC as part of the sale of the assets underlying the Trust that was finalized on March 31, 2025. As of March 25, 2026, Ustx, LLC owned 4,884,861 Trust units of the 12,165,732 units issued and outstanding.

T2S Capital Expenditure Budget

2025 Recap and 2026 Outlook

T2S and its predecessor, Boaz Energy, initially established a $4.5 million capital and workover budget for 2025 for the Underlying Properties (the "2025 Plan"). In response to the market environment and economic pressures affecting the oil and gas sector during the second half of 2025, including continued commodity price volatility, increased service and labor costs, and tightening capital markets, T2S revised the Plan downward to approximately $1.0 million (the “Revised 2025 Plan”). The reduction under the Revised Plan was made to preserve liquidity, maintain financial flexibility, and align spending levels with prevailing industry and macroeconomic conditions, and was primarily related to the postponement of the drilling of two wells originally scheduled for 2025 in Crane County, Texas—one injector well and one producer well. The drilling of these two wells was postponed until T2S makes a decision to move forward based on improved market visibility and commodity price stability. The Revised 2025 Plan included T2S’s participation in two non-operated wells in the Permian Shelf Area, which were successfully drilled in 2025, but not completed until the first quarter 2026, as well as ongoing investments in workovers, waterflood pattern optimization, and the reactivation of certain shut-in wells to sustain production levels. Total capital expenditure by the end of 2025 was $515,000. T2S advised the Trustee that it believed this revision provided an appropriate balance between near-term cash preservation and the continued development of the Underlying Properties.

T2S advised the Trustee that it has not budgeted any capital for 2026 (the “2026 Plan”). The 2026 Plan reflects T2S’s ongoing evaluation of project economics, commodity price forecasts, and regulatory timing, and may be further adjusted based on changes in market conditions, operating performance, and capital requirements. T2S does have a workover budget of $0.75 million in 2026.

Off-Balance Sheet Arrangements

As of December 31, 2025, 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

The Trust uses the modified cash basis of accounting to report Trust receipts of the Net Profits Interest and payments of expenses incurred. The Net Profits Interest represents the right to receive revenues (oil and natural gas sales), less direct operating expenses (lease operating expenses and severance and ad valorem 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 pursuant to terms of the Conveyance creating the Net Profits Interest.

The financial statements of the Trust, as prepared on a modified cash basis, reflect the Trust’s assets, liabilities, Trust corpus, earnings and distributions as follows:

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Income from the Net Profits Interest is recorded when distributions are received by the Trust;

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Distributions to Trust unitholders are recorded when declared by the Trust;

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Trust general and administrative expenses (which includes the Trustee’s fees as well as accounting, engineering, legal, tax advisory and other professional fees) are recorded when paid;

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Cash reserves for Trust expenses may be established by the Trustee for certain expenditures that would not be recorded as contingent liabilities under accounting principles generally accepted in the United States of America (“GAAP”);

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Amortization of the investment in the Net Profits Interest is calculated on a unit-of-production basis and is charged directly to Trust corpus, and such amortization does not affect distributions from the Trust; and

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The Trust’s investment in the Net Profits Interest is periodically assessed to determine whether its aggregate value has been impaired below its total capitalized cost basis and, if an impairment loss is indicated by the carrying amount of the assets exceeding the sum of the undiscounted expected future net cash flows, then an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value.

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The Trustee determined that an impairment in the amount of $39.9 million occurred for the year ended December 31, 2025, after reviewing the undiscounted and discounted cash flow that had been revised to reflect future crude oil and natural gas commodity prices published by third-party industry experts (adjusted for base differentials) and a risk-adjusted discount rate. The Net Profits Interest was written down to its fair value of $26.6 million and the impairment is charged directly to the Trust corpus, which does not affect distributable income. For more information on impairment, see Note 3 to the financial statements included in Part II, Item 8 of this Annual Report.

The financial statements of the Trust are prepared on a modified cash basis of accounting, which is considered to be the most meaningful basis of preparation for a royalty trust because monthly distributions to the Trust unitholders are based on net cash receipts. Although this basis of accounting is permitted for royalty trusts by the SEC, the financial statements of the Trust differ from financial statements prepared in accordance with GAAP because net profits income is not accrued in the month of production, expenses are not recognized when incurred and cash reserves may be established for certain contingencies, and overpayments received do not need to be paid back and are instead taken from future payments that would not be recorded in GAAP financial statements. 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. Estimated future cash flows used to determine amortization and potential impairment of the investment in the Net Profits Interest are subject to change.

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.

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 Trustee reviews the Trust’s Net Profits Interest in oil and natural gas properties for impairment annually and whenever events or circumstances indicate that the carrying value of the Net Profits Interest may not be recoverable. In the event of material revisions, the Trustee reviews the impact of these revisions on the amortization of Trust Units and impairment estimates. During 2025, a material revision was made to reserves resulting in the additional recognition of amortization of Trust Units. The Trust recognized $5,905,119 of amortization of Trust Units for the year ended December 31, 2025.

In general, neither the Trustee nor T2S view temporarily low prices as an indication of impairment. The markets for crude oil and natural gas have a history of significant price volatility and though prices will occasionally drop significantly, industry prices over the long term will continue to be driven by market supply and demand. However, the prolonged historically low prices for oil and natural gas in 2025 and into the future, coupled with no development budget for T2S for 2026, caused the future undiscounted net cash flows of the Net Profits Interest to be lower than the carrying value, resulting in events and circumstances indicating that the carrying value may not be recoverable. Since the undiscounted future net cash flows from the Net Profits Interest are less than the Net Profits Interest carrying value, the Trust has recognized an impairment loss for the difference between the Net Profits Interest carrying value and the estimated fair value of the Net Profits Interest. The determination as to whether the Net Profits Interest is impaired is based on the best information available to the Trustee at the time of the evaluation, including information provided by T2S such as estimates of future production and development and operating expenses.

The Trustee determined that an impairment in the amount of $39.9 million occurred for the year ended December 31, 2025, after reviewing the undiscounted and discounted cash flow that had been revised to reflect future crude oil and natural gas commodity prices published by third-party industry experts (adjusted for base differentials) and a risk-adjusted discount rate. The Net Profits Interest was written down to its fair value of $26.6 million and the impairment is charged directly to the Trust corpus, which does not affect distributable income. Impairments recorded for book purposes will not result in a loss for tax purposes for the unitholders until the loss is recognized.

There was no impairment present for the year ended December 31, 2024.

Refer to Note 2 to the financial statements included in Item 8 of this report for the Trust’s significant accounting policies.