-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CZ35Chz58pQDzHxFn32ocaDaOEnAWMI4RXYQLO7VZ6Y4K0r7BlRYeNKNnDSkFebI nERJx5T+KWysVDWBDyVpEA== 0000950134-01-002836.txt : 20010330 0000950134-01-002836.hdr.sgml : 20010330 ACCESSION NUMBER: 0000950134-01-002836 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERMIAN BASIN ROYALTY TRUST CENTRAL INDEX KEY: 0000319654 STANDARD INDUSTRIAL CLASSIFICATION: OIL ROYALTY TRADERS [6792] IRS NUMBER: 756280532 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08033 FILM NUMBER: 1584540 BUSINESS ADDRESS: STREET 1: BANK OF AMERICA N A TRUST DEPARTMENT STREET 2: P O BOX 1317 NK OF TEXAS NA TRUST DEPT CITY: FT WORTH STATE: TX ZIP: 76102 BUSINESS PHONE: 8173906905 MAIL ADDRESS: STREET 1: 1300 SUMMIT AVENUE SUITE 300 CITY: FORTH WORTH STATE: TX ZIP: 76102 10-K405 1 d85529e10-k405.txt FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - -------------------------------------------------------------------------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-8033 PERMIAN BASIN ROYALTY TRUST (Exact Name of Registrant as Specified in the Permian Basin Royalty Trust Indenture) ------------------------------ Texas 75-6280532 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) Bank of America, N.A. Trust Department P.O. Box 830650 Dallas, Texas 75202 (Address of Principal Executive Offices; Zip Code) (Registrant's Telephone Number, Including Area Code) (214) 209-2400 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of Each Exchange on Title of Each Class Which Registered ---------------------------- ----------------------- Units of Beneficial Interest New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] At March 1, 2001, there were 46,608,796 Units of Beneficial Interest of the Trust outstanding with an aggregate market value on that date of $305,287,614. DOCUMENTS INCORPORATED BY REFERENCE "Units of Beneficial Interest" at page 1; "Trustee's Discussion and Analysis for the Three-Year Period Ended December 31, 2000" at pages 7 through 8; "Results of the 4th Quarters of 2000 and 1999" at pages 8 through 9; and "Statements of Assets, Liabilities and Trust Corpus," "Statements of Distributable Income," "Statements of Changes in Trust Corpus," "Notes to Financial Statements" and "Independent Auditors' Report" at page 10 et seq., in registrant's Annual Report to security holders for fiscal year ended December 31, 2000 are incorporated herein by reference for Item 5, Item 7 and Item 8 of Part II of this Report. ================================================================================ 2 TABLE OF CONTENTS
Page ---- PART I .......................................................................1 ITEM 1. Business ...................................................1 ITEM 2. Properties .................................................3 PRODUCING ACREAGE, WELLS AND DRILLING ....................3 OIL AND GAS PRODUCTION ...................................4 PRICING INFORMATION ......................................5 OIL AND GAS RESERVES .....................................5 REGULATION ...............................................8 Federal Natural Gas Regulation ..............8 State Regulation ............................9 Other Regulation ............................9 ITEM 3. Legal Proceedings ..........................................9 ITEM 4. Submission of Matters to a Vote of Security Holders ........9 PART II ......................................................................9 ITEM 5. Market for Units of the Trust and Related Security Holder Matters ..................................................9 ITEM 6. Selected Financial Data ....................................9 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation .......................9 ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk .....................................................9 ITEM 8. Financial Statements and Supplementary Data ...............10 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .....................10 PART III ....................................................................10 ITEM 10. Directors and Executive Officers of the Registrant ........10 ITEM 11. Executive Compensation ....................................10 ITEM 12. Security Ownership of Certain Beneficial Owners and Management ..............................................11 ITEM 13. Certain Relationships and Related Transactions ............12 PART IV .....................................................................13 ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ................................................13
i 3 FORWARD LOOKING INFORMATION Certain information included in this report contains, and other materials filed or to be filed by the Trust with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Trust) may contain or include, forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such forward looking statements may be or may concern, among other things, capital expenditures, drilling activity, development activities, production efforts and volumes, hydrocarbon prices and the results thereof, and regulatory matters. Although the Trustee believes that the expectations reflected in such forward looking statements are reasonable, such expectations are subject to numerous risks and uncertainties and the Trustee can give no assurance that they will prove correct. There are many factors, none of which is within the Trustee's control, that may cause such expectations not to be realized, including, among other things, factors such as actual oil and gas prices and the recoverability of reserves, capital expenditures, general economic conditions, actions and policies of petroleum-producing nations and other changes in the domestic and international energy markets. Such forward looking statements generally are accompanied by words such as "estimate," "expect," "anticipate," "goal," "should," "assume," "believe," or other words that convey the uncertainty of future events or outcomes. PART I ITEM 1. BUSINESS The Permian Basin Royalty Trust (the "Trust") is an express trust created under the laws of the state of Texas by the Permian Basin Royalty Trust Indenture (the "Trust Indenture") entered into on November 3, 1980, between Southland Royalty Company ("Southland Royalty") and The First National Bank of Fort Worth, as Trustee. Bank of America, N.A., a banking association organized under the laws of the United States, as the successor of The First National Bank of Fort Worth, is now the Trustee of the Trust. The principal office of the Trust (sometimes referred to herein as the "Registrant") is located at 901 Main Street, Dallas, Texas (telephone number 214/209-2400). On October 23, 1980, the stockholders of Southland Royalty approved and authorized that company's conveyance of net overriding royalty interests (equivalent to net profits interests) to the Trust for the benefit of the stockholders of Southland Royalty of record at the close of business on the date of the conveyance consisting of a 75% net overriding royalty interest carved out of that company's fee mineral interests in the Waddell Ranch properties in Crane County, Texas and a 95% net overriding royalty interest carved out of that company's major producing royalty properties in Texas. The conveyance of these interests (the "Royalties") was made on November 3, 1980, effective as to production from and after November 1, 1980 at 7:00 a.m. The properties and interests from which the Royalties were carved and which the Royalties now burden are collectively referred to herein as the "Underlying Properties." The Underlying Properties are more particularly described under "Item 2. Properties" herein. The function of the Trustee is to collect the income attributable to the Royalties, to pay all expenses and charges of the Trust, and then distribute the remaining available income to the Unit holders. The Trust is not empowered to carry on any business activity and has no employees, all administrative functions being performed by the Trustee. The Royalties constitute the principal asset of the Trust and the beneficial interests in the Royalties are divided into that number of Units of Beneficial Interest (the "Units") of the Trust equal to the number of shares of the common stock of Southland Royalty outstanding as of the close of business on November 3, 1980. Each stockholder of Southland Royalty of record at the close of business on November 3, 1980, received one Unit for each share of the common stock of Southland Royalty then held. In 1985, Southland Royalty became a wholly-owned subsidiary of Burlington Northern Inc. ("BNI"). In 1988, BNI transferred its natural resource operations to Burlington Resources Inc. ("BRI") as a result of which Southland Royalty became a wholly-owned indirect subsidiary of BRI. As a result of these transactions, El Paso Natural Gas Company ("El Paso") also became an indirect subsidiary of BRI. In March 1992, El Paso completed an initial public offering of 5,750,000 newly issued shares of El Paso common stock, thereby decreasing BRI's ownership of El Paso to approximately eighty-five percent (85%). On June 30, 1992, BRI distributed all of the shares of El Paso common 1 4 stock owned by BRI to BRI's stockholders of record as of June 15, 1992. See "Pricing Information" under "ITEM 2. Properties" herein. Effective January 1, 1996, Southland Royalty, a wholly-owned subsidiary of Meridian Oil Inc. ("MOI") was merged with and into MOI, by which action the separate corporate existence of Southland Royalty ceased and MOI survived and succeeded to the ownership of all of the assets of Southland Royalty and has assumed all of its rights, powers and privileges, and all of its liabilities and obligations. In 1996, MOI changed its name to Burlington Resources Oil & Gas Company ("BROG"). The term "net proceeds" as used in the above described conveyance means the excess of "gross proceeds" received by BROG during a particular period over "production costs" for such period. "Gross proceeds" means the amount received by BROG (or any subsequent owner of the Underlying Properties) from the sale of the production attributable to the Underlying Properties, subject to certain adjustments. "Production costs" means, generally, costs incurred on an accrual basis in operating the Underlying Properties, including both capital and non-capital costs; for example, development drilling, production and processing costs, applicable taxes, and operating charges. If production costs exceed gross proceeds in any month, the excess is recovered out of future gross proceeds prior to the making of further payment to the Trust, but the Trust is not liable for any production costs or liabilities attributable to these properties and interests or the minerals produced therefrom. If at any time the Trust receives more than the amount due from the Royalties, it shall not be obligated to return such overpayment, but the amounts payable to it for any subsequent period shall be reduced by such overpaid amount, plus interest, at a rate specified in the conveyance. To the extent it has the legal right to do so, BROG is responsible for marketing the production from such properties and interests, either under existing sales contracts or under future arrangements at the best prices and on the best terms it shall deem reasonably obtainable in the circumstances. BROG also has the obligation to maintain books and records sufficient to determine the amounts payable to the Trustee. BROG, however, can sell its interests in the Underlying Properties. Proceeds from production in the first month are generally received by BROG in the second month, the net proceeds attributable to the Royalties are paid by BROG to the Trustee in the third month and distribution by the Trustee to the Unit holders is made in the fourth month. The identity of Unit holders entitled to a distribution will generally be determined as of the last business day of each calendar month (the "monthly record date"). The amount of each monthly distribution will generally be determined and announced ten days before the monthly record date. Unit holders of record as of the monthly record date will be entitled to receive the calculated monthly distribution amount for each month on or before ten business days after the monthly record date. The aggregate monthly distribution amount is the excess of (i) net revenues from the Trust properties, plus any decrease in cash reserves previously established for contingent liabilities and any other cash receipts of the Trust over (ii) the expenses and payments of liabilities of the Trust plus any net increase in cash reserves for contingent liabilities. Cash held by the Trustee as a reserve for liabilities or contingencies (which reserves may be established by the Trustee in its discretion) or pending distribution is placed, at the Trustee's discretion, in obligations issued by (or unconditionally guaranteed by) the United States or any agency thereof, repurchase agreements secured by obligations issued by the United States or any agency thereof, or certificates of deposit of banks having a capital surplus and undivided profits in excess of $50,000,000, subject, in each case, to certain other qualifying conditions. The income to the Trust attributable to the Royalties is not subject in material respects to seasonal factors nor in any manner related to or dependent upon patents, licenses, franchises or concessions. The Trust conducts no research activities. The Trust has no employees since all administrative functions are performed by the Trustee. BROG has advised the Trustee that it believes that comparable revenues could be obtained in the event of a change in purchasers of production. 2 5 ITEM 2. PROPERTIES The net overriding royalties conveyed to the Trust include: (1) a 75% net overriding royalty carved out of BROG's (as successor to Southland Royalty) fee mineral interests in the Waddell Ranch in Crane County, Texas (the "Waddell Ranch properties"); and (2) a 95% net overriding royalty carved out of BROG's (as successor to Southland Royalty) major producing royalty interests in Texas (the "Texas Royalty properties"). The net overriding royalty for the Texas Royalty properties is subject to the provisions of the lease agreements under which such royalties were created. References below to "net" wells and acres are to the interests of BROG (from which the Royalties were carved) in the "gross" wells and acres. The following information under this ITEM 2 is based upon data and information furnished to the Trustee by BROG. PRODUCING ACREAGE, WELLS AND DRILLING Waddell Ranch Properties. The Waddell Ranch properties consist of 78,175 gross (34,205 net) producing acres. A majority of the proved reserves are attributable to six fields: Dune, Sand Hills (Judkins), Sand Hills (McKnight), Sand Hills (Tubb), University-Waddell (Devonian) and Waddell. At December 31, 2000, the Waddell Ranch properties contained 792 gross (328 net) productive oil wells, 175 gross (73 net) productive gas wells and 336 gross (133 net) injection wells. BROG is operator of record of the Waddell Ranch properties. All field, technical and accounting operations have been contracted by an agreement between the working interest owners and Coastal Management Corporation ("CMC") but remain under the direction of BROG. The Waddell Ranch properties are mature producing properties, and all of the major oil fields are currently being waterflooded for the purpose of facilitating enhanced recovery. Proved reserves and estimated future net revenues attributable to the properties are included in the reserve reports summarized below. BROG does not own the full working interest in any of the tracts constituting the Waddell Ranch properties and, therefore, implementation of any development programs will require approvals of other working interest holders as well as BROG. In addition, implementation of any development programs will be dependent upon oil and gas prices currently being received and anticipated to be received in the future. No wells were drilled and completed on the Waddell Ranch properties during 2000. At December 31, 2000 there were 10 gross (4.88 net) wells in progress on the Waddell Ranch properties. During 1999 there were 6 gross (2.625 net) wells drilled on the Waddell Ranch properties. At December 31, 1999 there were 3 gross (1.375 net) wells in progress on the Waddell Ranch properties. During 1998 there were 52 gross (22.75 net) wells drilled on the Waddell Ranch properties. At December 31, 1998 there were 3 gross (1.375 net) wells in progress on the Waddell Ranch properties. BROG has advised the Trustee that the total amount of capital expenditures for 2000 with regard to the Waddell Ranch properties totalled $8.6 million. Capital expenditures include the cost of remedial and maintenance activities. This amount spent is approximately $5.8 million less than the budgeted amount projected by BROG for 2000. BROG has advised the Trustee that the capital expenditures budget for 2001 totals approximately $11 million, of which approximately $4.7 million is attributable to the 2001 drilling program, and $5.5 to workovers and recompletions. Accordingly, there is an increase in capital expenditures for 2001 as compared with the 2000 capital expenditures. Texas Royalty Properties. The Texas Royalty properties consist of royalty interests in mature producing oil fields, such as Yates, Wasson, Sand Hills, East Texas, Kelly-Snyder, Panhandle Regular, N. Cowden, Todd, Keystone, Kermit, McElroy, Howard-Glasscock, Seminole and others. The Texas Royalty properties contain approximately 303,000 gross (approximately 51,000 net) producing acres. Detailed information concerning the number of wells on royalty properties is not generally available to the owners of royalty interests. Consequently, an accurate count of the number of wells located on the Texas Royalty properties cannot readily be obtained. In February 1997, BROG sold its interests in the Texas Royalty properties that are subject to the Net Overriding Royalty Conveyance to the Trust dated effective November 1, 1980 ("Texas Royalty Conveyance") to Riverhill Energy Corporation ("Riverhill Energy"), which was then a wholly-owned subsidiary of Riverhill Capital Corporation 3 6 ("Riverhill Capital") and an affiliate of CMC. At the time of such sale, Riverhill Capital was a privately owned Texas corporation with offices in Bryan and Midland, Texas. The Trustee was informed by BROG that, as required by the Texas Royalty Conveyance, Riverhill Energy succeeded to all of the requirements upon and the responsibilities of BROG under the Texas Royalty Conveyance with regard to the Texas Royalty properties. BROG and Riverhill Energy further advised the Trustee that all accounting operations pertaining to the Texas Royalty properties were being performed by CMC under the direction of Riverhill Energy. BROG indicated to the Trustee that BROG will work together with CMC and Riverhill Energy in an effort to assure that various administrative functions and reporting requirements assumed by Riverhill Energy are met. The Trustee has been advised that independent auditors representing Riverhill Energy and CMC are Arthur Andersen LLP. The Trustee has been advised that in the first quarter of 1998 Schlumberger Technology Corporation ("Schlumberger"), acquired all of the shares of stock of Riverhill Capital. Prior to such acquisition by Schlumberger, CMC and Riverhill Energy were wholly-owned subsidiaries of Riverhill Capital. The Trustee has further been advised that in connection with Schlumberger's acquisition of Riverhill Capital, the shareholders of Riverhill Capital acquired ownership of all of the shares of stock of Riverhill Energy. Thus, the ownership in the Texas Royalty properties referenced above remained in Riverhill Energy, the stock ownership of which was acquired by the former shareholders of Riverhill Capital. Accounting operations pertaining to the Texas Royalty properties are being performed by CMC under the direction of Riverhill Energy. CMC also currently conducts all field, technical and accounting operations on behalf of BROG with regard to the Waddell Ranch properties. OIL AND GAS PRODUCTION The Trust recognizes production during the month in which the related distribution is received. Production of oil and gas attributable to the Royalties and the Underlying Properties and the related average sales prices attributable to the Underlying Properties for the three years ended December 31, 2000, excluding portions attributable to the adjustments discussed below, were as follows:
WADDELL RANCH TEXAS ROYALTY PROPERTIES PROPERTIES --------------------------------- --------------------------------- 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- -------- -------- ROYALTIES: Production Oil (barrels) ......... 584,269 601,148 87,187 335,160 308,204 369,823 Gas (Mcf) ............. 2,654,731 2,754,393 666,864 691,714 709,815 766,085 UNDERLYING PROPERTIES: Production Oil (barrels) ......... 1,119,835 1,309,396 1,475,258 366,275 365,502 434,444 Gas (Mcf) ............. 5,134,829 6,066,149 6,458,411 755,194 841,018 915,025 Average Price Oil/barrel ............ $ 28.28 $ 14.26 $ 12.76 $ 26.58 $ 14.40 $ 12.44 Gas/Mcf ............... $ 3.65 $ 2.11 $ 2.13 $ 3.58 $ 2.09 $ 2.06 TOTAL --------------------------------- 2000 1999 1998 -------- -------- -------- ROYALTIES: Production Oil (barrels) ......... 919,429 909,352 457,010 Gas (Mcf) ............. 3,346,445 3,464,20 1,432,949 UNDERLYING PROPERTIES: Production Oil (barrels) ......... 1,486,110 1,674,898 1,909,702 Gas (Mcf) ............. 5,890,023 6,907,167 7,373,436 Average Price Oil/barrel ............ $ 27.66 $ 14.29 $ 12.69 Gas/Mcf ............... $ 3.63 $ 2.11 $ 2.12
Since the oil and gas sales attributable to the Royalties are based on an allocation formula that is dependent on such factors as price and cost (including capital expenditures), production amounts do not necessarily provide a meaningful comparison. In calculating Trust royalty income for the months of June through December 1998, costs exceeded revenues in the Waddell Ranch properties by $1,218,732. Pursuant to the Waddell Ranch Net Overriding Royalty Conveyance dated effective November 1, 1980 ("Waddell Ranch Conveyance"), excess costs plus accrued interest must be recovered from future net proceeds relating to the underlying Waddell Ranch properties before the properties can again contribute to Trust royalty income. As a result of this, no royalty income was received for those months. Production attributable to the Trust is calculated based on net royalty income. As there was no royalty income, no production was reported for the Waddell Ranch properties at the Trust level for those months. Production at the Trust level for the Waddell Ranch properties was not recorded again until February 1999 when the cumulative excess amounts had been recovered. 4 7 In September 1998, the Trust received $1,041,340 from BROG which represented the Trust's portion of amounts that had been previously held in suspense by BROG relating to the Texas Royalty properties. The Trustee was advised that these amounts relate to revenues received by BROG prior to the conveyance of its interest in the Texas Royalty properties to Riverhill Energy in February 1997. In October 1998, Riverhill Energy advised the Trustee that an overpayment of $521,183 with regard to the suspended funds had been made to the Trust. Pursuant to the Texas Royalty Conveyance, Riverhill Energy offset the overpayment against royalty income attributable to the Texas Royalty properties for the months of October and November 1998. The suspense amounts are not reflected in Trust production or used in calculating average prices in 1998 or prior years. The Trustee was notified in the third quarter of 1996 of the settlement of a class action lawsuit pending in the 270th District Court of Harris County, Texas (the "Court") styled Caroline Altheide and Langdon Harrison vs. Meridian Oil Inc., Meridian Oil Holding Inc., Meridian Oil Trading Inc., Meridian Oil Production Inc., Southland Royalty Company, El Paso Production Company, Meridian Oil Hydrocarbons Inc., Meridian Oil Gathering Inc., Meridian Oil Services Inc. and Edward Parker ("Class Action"), in which the Trust was a class member. The judgment approving the settlement of the Class Action was the subject of an appeal. The Trustee was advised that such appeal was dismissed and in October 1998, the Trust's portion of such settlement proceeds, in the amount of $766,051 was received by the Trustee. The proceeds were subsequently distributed with the regular monthly Trust distribution on November 16, 1998, to the Trust's Unit holders of record on October 31, 1998. The settlement proceeds are not reflected in Trust production in 1998 or prior years. PRICING INFORMATION Reference is made to "Regulation" for information as to federal regulation of prices of natural gas. The following paragraphs provide information regarding sales of oil and gas from the Waddell Ranch properties. As a royalty owner, BROG is not furnished detailed information regarding sales of oil and gas from the Texas Royalty properties. Oil. The Trustee has been advised by BROG that for the period August 1, 1993 through June 30, 2001, the oil from the Waddell Ranch properties is being sold under a competitive bid to independent third parties. Gas. The gas produced from the Waddell Ranch properties is processed through a natural gas processing plant and sold at the tailgate of the plant. Plant products are marketed by Burlington Resources Hydrocarbons Inc., an indirect subsidiary of BRI. The processor of the gas (Warren Petroleum Company, L.P.) receives 15% of the liquids and residue gas as a fee for gathering, compression, treating and processing the gas. OIL AND GAS RESERVES The following are definitions adopted by the Securities and Exchange Commission ("SEC") and the Financial Accounting Standards Board which are applicable to terms used within this Item: "Proved reserves" are those estimated quantities of crude oil, natural gas and natural gas liquids, which, upon analysis of geological and engineering data, appear with reasonable certainty to be recoverable in the future from known oil and gas reservoirs under existing economic and operating conditions. "Proved developed reserves" are those proved reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. "Proved undeveloped reserves" are those proved reserves which are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required. "Estimated future net revenues" are computed by applying current prices of oil and gas (with consideration of price changes only to the extent provided by contractual arrangements and allowed by federal regulation) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, and assuming continuation of existing economic conditions. 5 8 "Estimated future net revenues" are sometimes referred to herein as "estimated future net cash flows." "Present value of estimated future net revenues" is computed using the estimated future net revenues and a discount factor of 10%. The independent petroleum engineers' reports as to the proved oil and gas reserves attributable to the Royalties conveyed to the Trust were obtained from Cawley, Gillespie & Associates, Inc. The following table presents a reconciliation of proved reserve quantities from January 1, 1998 through December 31, 2000 (in thousands):
WADDELL RANCH TEXAS ROYALTY PROPERTIES PROPERTIES TOTAL -------------------------- ------------------------- --------------------------- OIL GAS OIL GAS OIL GAS (Bbls) (Mcf) (Bbls) (Mcf) (Bbls) (Mcf) ----------- ---------- ---------- ---------- ---------- ----------- January 1, 1998 ................. 5,023 24,175 4,441 4,629 9,464 28,804 Extensions, discoveries, and other additions ................. 10 4 -0- -0- 10 4 Revisions of previous estimates.. (2,231) (6,123) (285) 100 (2,516) (6,023) Production ...................... (87) (667) (370) (766) (457) (1,433) ------- ------- ------- ------- ------- ------- December 31, 1998 ............... 2,715 17,389 3,786 3,963 6,501 21,352 Extensions, discoveries, and other additions ................. 15 49 -0- -0- 15 49 Revisions of previous estimates.. 3,357 8,320 667 2,375 4,024 10,695 Production ...................... (601) (2,754) (308) (710) (909) (3,464) ------- ------- ------- ------- ------- ------- December 31, 1999 ............... 5,486 23,004 4,145 5,628 9,631 28,632 Extensions, discoveries, and other additions ................. 314 1,106 0 0 314 1,106 Revisions of previous estimates.. 1,095 9,088 97 1,012 1,192 10,099 Production ...................... (584) (2,655) (335) (692) (919) (3,346) ------- ------- ------- ------- ------- ------- December 31, 2000 ............... 6,311 30,543 3,907 5,948 10,218 36,491 ======= ======= ======= ======= ======= =======
Estimated quantities of proved developed reserves of crude oil and natural gas as of December 31, 2000, 1999 and 1998 were as follows (in thousands):
CRUDE OIL NATURAL GAS (Bbls) (Mcf) --------------------- --------------------- December 31, 2000 ....... 8,937 31,665 December 31, 1999 ....... 8,200 24,248 December 31, 1998 ....... 5,476 17,444
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 gas reserve quantities. Under this disclosure, future cash inflows are computed by applying year-end prices of oil and gas relating to the enterprise's proved reserves to the year-end quantities of those reserves. 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 gas reserves. Estimates of proved oil and gas reserves are by their very nature imprecise. Estimates of future net revenue attributable to proved reserves are sensitive to the unpredictable prices of oil and gas and other variables. 6 9 The 2000, 1999 and 1998 change in the standardized measure of discounted future net cash flows related to future royalty income from proved reserves discounted at 10% is as follows (in thousands):
WADDELL RANCH TEXAS ROYALTY PROPERTIES PROPERTIES ----------------------------------- ----------------------------------- 2000 1999 1998 2000 1999 1998 -------- -------- -------- -------- --------- -------- January 1 ................ $ 102,088 $ 25,043 $ 63,179 $ 52,126 $ 22,031 $ 40,956 Extensions, discoveries, and other additions....... 10,281 226 81 0 0 0 Accretion of discount .... 10,209 2,504 6,318 5,213 2,203 4,096 Revisions of previous estimates and other ...... 116,353 88,598 (39,982) 19,379 33,627 (16,796) Royalty income ........... (24,902) (14,283) (4,553) (10,934) (5,735) (6,225) --------- --------- --------- --------- --------- --------- December 31 .............. $ 214,029 $ 102,088 $ 25,043 $ 65,784 $ 52,126 $ 22,031 TOTAL ------------------------------------ 2000 1999 1998 --------- ---------- --------- January 1 ................ $ 154,214 $ 47,074 $ 104,135 Extensions, discoveries, and other additions....... 10,281 226 81 Accretion of discount .... 15,422 4,707 10,414 Revisions of previous estimates and other ...... 135,732 122,225 (56,778) Royalty income ........... (35,836) (20,018) (10,778) --------- --------- --------- December 31 .............. $ 279,813 $ 154,214 $ 47,074
Oil and gas prices of $24.65 and $26.46 per barrel and $8.98 and $7.03 per Mcf were used to determine the estimated future net revenues from the Waddell Ranch properties and the Texas Royalty properties, respectively, at December 31, 2000. The extension, discoveries and other additions for the Waddell Ranch properties are proved reserves related to the Waddell (Greyburg) and Running WN (Wolfcamp) fields. The upward revisions of both reserves and discounted future net cash flows for the Waddell Ranch properties and the Texas Royalty properties are due to increases in oil and gas prices from 1999 to 2000. Oil and gas prices of $24.05 and $24.19 per barrel and $2.74 and $3.18 per Mcf, respectively, were used to determine the estimated future net revenues from the Waddell Ranch properties and the Texas Royalty properties, respectively, at December 31, 1999. The extension, discoveries and other additions for the Waddell Ranch properties are proved developed producing reserves related to the RM (Clearfork) field. The upward revisions of both reserves and discounted future net cash flows for the Waddell Ranch properties and the Texas Royalty properties were due to increases in oil and gas prices from 1998 to 1999. Oil and gas prices of $8.56 and $9.96 per barrel and $1.74 and $1.88 per Mcf, respectively, were used to determine the estimated future net revenues from the Waddell Ranch properties and the Texas Royalty properties at December 31, 1998. The following presents estimated future net revenue and the present value of estimated future net revenue, for each of the years ended December 31, 2000, 1999 and 1998 (in thousands except amounts per Unit):
2000 1999 1998 --------------------- ---------------------- -------------------- ESTIMATED PRESENT ESTIMATED PRESENT ESTIMATED PRESENT FUTURE NET VALUE AT FUTURE NET VALUE AT FUTURE NET VALUE AT REVENUE 10% REVENUE 10% REVENUE 10% ---------- -------- --------- --------- --------- --------- Total Proved Waddell Ranch properties ..... $405,530 $214,029 $184,957 $102,088 $ 50,322 $ 25,043 Texas Royalty properties ..... 138,860 65,784 113,838 52,126 43,290 22,031 -------- -------- -------- -------- -------- -------- Total .......... $544,390 $279,813 $298,795 $154,214 $ 93,612 $ 47,074 ======== ======== ======== ======== ======== ======== Total Proved per Unit ............ $ 11.68 $ 6.00 $ 6.41 $ 3.31 $ 2.01 $ 1.01 ======== ======== ======== ======== ======== ======== Proved Developed Waddell Ranch properties ..... $334,734 $187,575 $140,808 $ 85,612 $ 35,607 $ 22,032 Texas Royalty properties ..... 138,860 65,784 113,838 52,126 43,290 22,031 -------- -------- -------- -------- -------- -------- Total .......... $473,594 $253,359 $254,646 $137,738 $ 78,897 $ 44,063 ======== ======== ======== ======== ======== ========
Reserve quantities and revenues shown in the preceding tables for the Royalties were estimated from projections of reserves and revenue attributable to the combined Southland Royalty and Trust interests in the Waddell Ranch properties and Texas Royalty properties. Reserve quantities attributable to the Royalties were estimated by allocating to the Royalties a portion of the total estimated net reserve quantities of the interests, based upon gross revenue less production taxes. Because the reserve quantities attributable to the Royalties are estimated using an allocation of the reserves, any changes in prices or costs will result in changes in the estimated reserve quantities allocated to the Royalties. Therefore, the reserve quantities estimated will vary if different future price and cost assumptions occur. 7 10 Proved reserve quantities are estimates based on information available at the time of preparation and such estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of those reserves may be substantially different from the original estimate. Moreover, the present values shown above should not be considered as the market values of such oil and gas reserves or the costs that would be incurred to acquire equivalent reserves. A market value determination would include many additional factors. REGULATION Many aspects of the production, pricing and marketing of crude oil and natural gas are regulated by federal and state agencies. Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden on affected members of the industry. Exploration and production operations are subject to various types of regulation at the federal, state and local levels. Such regulation includes requiring permits for the drilling of wells, maintaining bonding requirements in order to drill or operate wells, and regulating the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled and the plugging and abandonment of wells. Natural gas and oil operations are also subject to various conservation laws and regulations that regulate the size of drilling and spacing units or proration units and the density of wells which may be drilled and unitization or pooling of oil and gas properties. In addition, state conservation laws establish maximum allowable production from natural gas and oil wells, generally prohibit the venting or flaring of natural gas and impose certain requirements regarding the ratability of production. The effect of these regulations is to limit the amounts of natural gas and oil that can be produced and to limit the number of wells or the locations which can be drilled. FEDERAL NATURAL GAS REGULATION The Federal Energy Regulatory Commission (the "FERC") is primarily responsible for federal regulation of natural gas. The interstate transportation and sale for resale of natural gas is subject to federal governmental regulation, including regulation of transportation and storage tariffs and various other matters, by FERC. The Natural Gas Wellhead Decontrol Act of 1989 ("Decontrol Act") terminated federal price controls on wellhead sales of domestic natural gas on January 1, 1993. Consequently, sales of natural gas may be made at market prices, subject to applicable contract provisions. The FERC's jurisdiction over natural gas transportation and storage was unaffected by the Decontrol Act. Sales of natural gas are affected by the availability, terms and cost of transportation. The price and terms for access to pipeline transportation remain subject to extensive federal and state regulation. Several major regulatory changes have been implemented by Congress and the FERC from 1985 to the present that affect the economics of natural gas production, transportation, and sales. In addition, the FERC continues to promulgate revisions to various aspects of the rules and regulations affecting those segments of the natural gas industry, most notably interstate natural gas transmission companies, that remain subject to the FERC's jurisdiction. These initiatives may also affect the intrastate transportation of gas under certain circumstances. The stated purpose of many of these regulatory changes is to promote competition among the various sectors of the natural gas industry and these initiatives generally reflect more light-handed regulation of the natural gas industry. The ultimate impact of the rules and regulations issued by the FERC since 1985 cannot be predicted. In addition, many aspects of these regulatory developments have not become final but are still pending judicial and FERC final decisions. Additional proposals and proceedings that might affect the natural gas industry are considered from time to time by Congress, the FERC, state regulatory bodies and the courts. The Trust cannot predict when or if any such proposals might become effective, or their effect, if any, on the Trust. The natural gas industry historically has been very heavily regulated; therefore, there is no assurance that the less stringent regulatory approach recently pursued by the FERC and Congress will continue. Sales of crude oil, condensate and gas liquids are not currently regulated and are made at market prices. Crude oil prices are affected by a variety of factors. Since domestic crude price controls were lifted in 1981, the principal factors influencing the prices received by producers of domestic crude oil have been the pricing and production of the members of the Organization of Petroleum Export Countries (OPEC). 8 11 STATE REGULATION The various states regulate the production and sale of oil and natural gas, including imposing requirements for obtaining drilling permits, the method of developing new fields, the spacing and operation of wells and the prevention of waste of oil and gas resources. The rates of production may be regulated and the maximum daily production allowables from both oil and gas wells may be established on a market demand or conservation basis, or both. OTHER REGULATION The petroleum industry is also subject to compliance with various other federal, state and local regulations and laws, including, but not limited to, environmental protection, occupational safety, resource conservation and equal employment opportunity. The Trustee does not believe that compliance with these laws by the operating parties will have any material adverse effect on Unit holders. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Trust is a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of Unit holders, through the solicitation of proxies or otherwise, during the fourth quarter ended December 31, 2000. PART II ITEM 5. MARKET FOR UNITS OF THE TRUST AND RELATED SECURITY HOLDER MATTERS The information under "Units of Beneficial Interest" at page 1 of the Trust's Annual Report to security holders for the year ended December 31, 2000, is herein incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ 2000 1999 1998 1997 1996 ----------- ---------- ---------- ---------- ---------- Royalty income ..................... $35,835,746 $18,799,659 $10,777,901 $22,598,873 $19,930,354 Distributable income ............... 35,545,141 18,471,842 10,414,382 22,190,115 19,488,574 Distributable income per Unit ...... 0.762627 0.396317 0.223443 0.476092 0.418131 Distributions per Unit ............. 0.762627 0.396317 0.223443 0.476092 0.418131 Total assets, December 31 .......... $ 5,651,376 $ 5,305,223 $ 3,861,776 $ 5,220,786 $ 5,913,931
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The "Trustee's Discussion and Analysis for the Three Year Period Ended December 31, 2000" and "Results of the 4th Quarters of 2000 and 1999" at pages 7 through 9 of the Trust's Annual Report to security holders for the year ended December 31, 2000 is herein incorporated by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Trust is a passive entity and other than the Trust's ability to periodically borrow money as necessary to pay expenses, liabilities and obligations of the Trust that cannot be paid out of cash held by the Trust, the Trust is prohibited from engaging in borrowing transactions. The amount of any such borrowings is unlikely to be material to the Trust. The Trust periodically holds short term investments acquired with funds held by the Trust pending 9 12 distribution to Unit holders and funds held in reserve for the payment of Trust expenses and liabilities. Because of the short-term nature of these borrowings and investments and certain limitations upon the types of such investments which may be held by the Trust, the Trustee believes that the Trust is not subject to any material interest rate risk. The Trust does not engage in transactions in foreign currencies which could expose the Trust or Unit holders to any foreign currency related market risk. The Trust invests in no derivative financial instruments and has no foreign operations or long-term debt instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements of the Trust and the notes thereto at page 10 et seq. of the Trust's Annual Report to security holders for the year ended December 31, 2000, are herein incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in accountants and no disagreements with accountants on any matter of accounting principles or practices or financial statement disclosures during the twenty-four months ended December 31, 2000. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Trust has no directors or executive officers. The Trustee is a corporate trustee which may be removed, with or without cause, at a meeting of the Unit holders, by the affirmative vote of the holders of a majority of all the Units then outstanding. ITEM 11. EXECUTIVE COMPENSATION During the years ended December 31, 2000, 1999, and 1998, the Trustee received total remuneration as follows:
NAME OF INDIVIDUAL OR NUMBER CAPACITIES IN CASH OF PERSONS IN GROUP WHICH SERVED COMPENSATION YEAR ---------------------------- ------------- ------------ ---- Bank of America, N.A ................................ Trustee $54,761(1) 1998 $40,272(1) 1999 $57,680(1) 2000
- -------------------- (1) Under the Trust Indenture, the Trustee is entitled to an administrative fee for its administrative services, preparation of quarterly and annual statement with attention to tax and legal matters of: (i) 1/20 of 1% of the first $100 million and (ii) Trustee's standard hourly rate in excess of 300 hours annually. The administrative fee is subject to reduction by a credit for funds provision. 10 13 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners. The following table sets forth as of March 1, 2001, information with respect to each person known to own beneficially more than 5% of the outstanding Units of the Trust:
AMOUNT AND NATURE OF NAME AND ADDRESS BENEFICIAL OWNERSHIP PERCENT OF CLASS ---------------- --------------------- ---------------- Burlington Resources Oil & Gas Company(1) 27,577,741 Units 59.17% 5051 Westheimer Suite 1400 Houston, Texas 77056-2124 McMorgan & Company (2) 5,000,000 Units 10.73% One Bush Street Suite 800 San Francisco, CA 94104 Alpine Capital, L.P.(3) 4,260,800 Units 9.10% 201 Main Street Suite 3100 Fort Worth, Texas 76102
- ---------------------- (1) This information was provided to the Securities and Exchange Commission and to the Trust in a Schedule 13G filed with the Securities and Exchange Commission on July 12, 1999 on behalf of McMorgan & Company, an investment adviser registered under the Investment Advisers Act of 1940, (McMorgan), Thomas Allan Morton ("Morton"), and Terry Allen O'Toole ("O'Toole"). Such Schedule 13G reports that McMorgan, Morton, and O'Toole have beneficial ownership of such Units. It is reported in such Schedule 13G that McMorgan, Morton, and O'Toole have sole voting and sole dispositive power with regard to such Units. Morton and O'Toole filed in their capacities as control persons of McMorgan and disclaimed beneficial ownership to such Units involved in such Schedule 13G. The address of Morton and O'Toole is One Bush Street, Suite 800, San Francisco, California 94104. (2) This information was provided to the Securities and Exchange Commission and to the Trust in a Schedule 13G filed with the Securities and Exchange Commission on July 12, 1999 on behalf of McMorgan & Company, an investment adviser registered under the Investment Advisers Act of 1940, (McMorgan), Thomas Allan Morton ("Morton"), and Terry Allen O'Toole ("O'Toole"). Such Schedule 13G reports that McMorgan, Morton, and O'Toole have beneficial ownership of such Units. It is reported in such Schedule 13G that McMorgan, Morton, and O'Toole have sole voting and sole dispositive power with regard to such Units. Morton and O'Toole filed in their capacities as control persons of McMorgan and disclaimed beneficial ownership to such Units involved in such Schedule 13G. The address of Morton and O'Toole is One Bush Street, Suite 800, San Francisco, California 94104. The Schedule 13G filed with the Securities and Exchange Commission on behalf of McMorgan, Morton, and O'Toole may be reviewed for more detailed information concerning the matters summarized herein. (3) This information was provided to the Securities and Exchange Commission and to the Trust in a Schedule 13D filed with the Securities and Exchange Commission on behalf of Alpine Capital L.P., a Texas limited partnership, ("Alpine"), Robert W. Bruce III ("Bruce"), Algenpar, Inc., a Texas corporation, ("Algenpar") and J. Taylor Crandall ("Crandall"), on August 6, 1999, as amended by a Schedule 13D/A filed on October 5, 1999, as further amended by a Schedule 13D/A filed December 21, 1999, and as further amended by a Schedule 13D/A filed February 25, 2000. The Schedule 13D/A filed on February 25, 2000, was filed on behalf of The Ann T. and Robert M. Bass Foundation, a Texas non-profit corporation, (the "Foundation"), Ann T. Bass ("A. Bass"), and Robert M. Bass ("R. Bass"), in addition to Alpine, Bruce, Algenpar, and Crandall and relates to a total of 4,335,200 Units, of which 4,260,800 Units were acquired by Alpine and 74,400 Units were acquired by the 11 14 Foundation. The source of funds for the Units acquired by Alpine was working capital of Alpine. The source of funds for the Units acquired by the Foundation was working capital of the Foundation. The address of Algenpar and Crandall is 201 Main Street, Suite 3100, Fort Worth, Texas 76102. The address of Bruce is 96 Spring Street, South Salem, New York 10590. The address of the Foundation and of R. Bass is 201 Main Street, Suite 3100, Fort Worth, Texas 76102. The address of A. Bass is 6221 Westover Drive, Fort Worth, Texas 76107. It is reported that Bruce and Algenpar are the two general partners of Alpine, and Crandall is the President and sole stockholder of Algenpar. It is further reported that, because of these relationships, Bruce, Algenpar, and Crandall may be deemed to be beneficial owners of the Units acquired by Alpine as set forth in the next paragraph. It is reported that Bruce is a principal of The Bruce Management Co., Inc. which has shared investment discretion over the Units owned by the Foundation, and that Crandall, A. Bass, and R. Bass are directors of the Foundation. It is further reported that, because of these relationships, Bruce, Crandall, A. Bass, and R. Bass may be deemed to be beneficial owners of the Units acquired by the Foundation as set forth in the next paragraph. It is reported that as of February 22, 2000, of such 4,335,200 Units, (i) Alpine had sole voting and dispositive power with regard to 4,260,800 of such Units or 9.1% of the outstanding Units; (ii) the Foundation had sole voting and dispositive power with regard to 74,400 of such Units or .2% of the outstanding Units; (iii) Bruce and Crandall each shared voting and dispositive power with regard to all of such 4,335,200 Units or 9.3% of the outstanding Units; (iv) Algenpar had shared voting and dispositive power with regard to 4,260,800 of such Units or 9.1% of the outstanding Units; and (v) A. Bass and R. Bass each shared voting and dispositive power with regard to 74,400 of such Units or .2% of the outstanding Units. The Schedule 13D and its amendments filed with the Securities and Exchange Commission may be reviewed for more detailed information concerning the matters summarized herein. (b) Security Ownership of Management. The Trustee owns beneficially no securities of the Trust. In various fiduciary capacities, Bank of America, N.A. owned as of March 1, 2001, an aggregate of 249,995 Units with no right to vote 139,196 of these Units, shared right to vote 4,000 of these Units and sole right to vote 106,799 of these Units. Bank of America, N.A., disclaims any beneficial interests in these Units. The number of Units reflected in this paragraph includes Units held by all branches of Bank of America, N.A. (c) Change In Control. The Trustee knows of no arrangements which may subsequently result in a change in control of the Trust. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Trust has no directors or executive officers. See Item 11 for the remuneration received by the Trustee during the years ended December 31, 2000, 1999 and 1998 and Item 12(b) for information concerning Units owned by Bank of America, N.A. in various fiduciary capacities. 12 15 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following documents are filed as a part of this Report: 1. Financial Statements Included in Part II of this Report by reference to the Annual Report of the Trust for the year ended December 31, 2000: Independent Auditors' Report Statements of Assets, Liabilities and Trust Corpus at December 31, 2000 and 1999 Statements of Distributable Income for Each of the Three Years in the Period Ended December 31, 2000 Statements of Changes in Trust Corpus for Each of the Three Years in the Period Ended December 31, 2000 Notes to Financial Statements 2. Financial Statement Schedules Financial statement schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. 3. Exhibits
EXHIBIT NUMBER EXHIBIT - ------ ------- (4)(a) -- Permian Basin Royalty Trust Indenture dated November 3, 1980, between Southland Royalty Company and The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, heretofore filed as Exhibit (4)(a) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980, is incorporated herein by reference.* (b) -- Net Overriding Royalty Conveyance (Permian Basin Royalty Trust) from Southland Royalty Company to The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(b) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980, is incorporated herein by reference.* (c) -- Net Overriding Royalty Conveyance (Permian Basin Royalty Trust -- Waddell Ranch) from Southland Royalty Company to The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(c) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980, is incorporated herein by reference.* (13) -- Registrant's Annual Report to security holders for fiscal year ended December 31, 2000.**
13 16 (23) -- Consent of Cawley, Gillespie & Associates, Inc., reservoir engineer.**
- -------------------- * A copy of this Exhibit is available to any Unit holder, at the actual cost of reproduction, upon written request to the Trustee, Bank of America, N.A., P.O. Box 830650, Dallas, Texas 75283-0650. ** Filed herewith. REPORTS ON FORM 8-K During the last quarter of the Trust's fiscal year ended December 31, 2000, there were no reports on Form 8-K filed by the Trust. 14 17 SIGNATURE PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED. PERMIAN BASIN ROYALTY TRUST BY: BANK OF AMERICA, N.A., Trustee By /s/ RON E. HOOPER ---------------------------------- Ron E. Hooper Senior Vice President Date: March 29, 2001 (The Trust has no directors or executive officers.) 15 18 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------- ------- (4)(a) -- Permian Basin Royalty Trust Indenture dated November 3, 1980, between Southland Royalty Company and The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, heretofore filed as Exhibit (4)(a) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980, is incorporated herein by reference.* (b) -- Net Overriding Royalty Conveyance (Permian Basin Royalty Trust) from Southland Royalty Company to The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(b) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980, is incorporated herein by reference.* (c) -- Net Overriding Royalty Conveyance (Permian Basin Royalty Trust -- Waddell Ranch) from Southland Royalty Company to The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(c) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980, is incorporated herein by reference.* (13) -- Registrant's Annual Report to security holders for fiscal year ended December 31, 2000.** (23) -- Consent of Cawley, Gillespie & Associates, Inc., reservoir engineer.**
- -------------------- * A copy of this Exhibit is available to any Unit holder, at the actual cost of reproduction, upon written request to the Trustee, Bank of America, N.A., P.O. Box 830650, Dallas, Texas 75283-0650. ** Filed herewith. EX-13 2 d85529ex13.txt ANNUAL REPORT FOR FISCAL YEAR ENDED 12/31/00 1 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 [COVER PAGE] [PERMIAN BASIN ROYALTY TRUST LOGO] PERMIAN BASIN ROYALTY TRUST ANNUAL REPORT & FORM 10-K 2000 [MAP OF COUNTIES IN TEXAS] TEXAS ROYALTY PROPERTIES ARE LOCATED IN 35 TEXAS COUNTIES. WADDELL RANCH PROPERTIES ARE LOCATED IN CRANE COUNTY. 2 THE TRUST The Permian Basin Royalty Trust's (the "Trust") principal assets are comprised of a 75% net overriding royalty interest carved out by Southland Royalty Company ("Southland") from its fee mineral interest in the Waddell Ranch properties in Crane County, Texas ("Waddell Ranch properties"), and a 95% net overriding royalty interest carved out by Southland from its major producing royalty properties in Texas ("Texas Royalty properties"). The interests out of which the Trust's net overriding royalty interests were carved were in all cases less than 100%. The Trust's net overriding royalty interests represent burdens against the properties in favor of the Trust without regard to ownership of the properties from which the overriding royalty interests were carved. The net overriding royalties above are collectively referred to as the "Royalties." The properties and interests form which the Royalties were carved and which the Royalties now burden are collectively referred to as the "Underlying Properties." The Trust has been advised that effective January 1, 1996, Southland was merged with and into Meridian Oil Inc. ("Meridian"), a Delaware corporation, with Meridian being the surviving corporation. Meridian succeeded to the ownership of all the assets, has the rights, powers, and privileges, and assumed all of the liabilities and obligations of Southland. Effective July 11, 1996, Meridian changed its name to Burlington Resources Oil & Gas Company ("BROG"). Any reference to BROG hereafter for periods prior to the occurrence of the aforementioned name change or merger should, as applicable, be construed to be a reference to Meridian or Southland. Further, BROG notified the Trust that, on February 14, 1997, the Texas Royalty properties that are subject to the Net Overriding Royalty Conveyance dated November 1, 1980 ("Texas Royalty Conveyance"), were sold to Riverhill Energy Corporation ("Riverhill Energy") of Midland, Texas. UNITS OF BENEFICIAL INTEREST Units of Beneficial Interest ("Units") of the Trust are traded on the New York Stock Exchange with the symbol PBT. Quarterly high and low sales prices and the aggregate amount of monthly distributions paid each quarter during the Trust's two most recent years were as follows:
SALES PRICE --------------------------- 2000 HIGH LOW DISTRIBUTIONS - ------------ ------------ ------------ ------------- First Quarter .................... $ 5.6250 $ 4.3125 $ .134440 Second Quarter ................... 5.1250 4.2500 .190844 Third Quarter .................... 5.8125 4.7500 .203032 Fourth Quarter ................... 6.6250 5.2500 .234311 ------------ ------------ ------------ Total for 2000 .............. $ .762627 ============ 1999 - ------------ First Quarter .................... $ 4.500 $ 3.875 $ .035064 Second Quarter ................... 4.563 3.938 .082509 Third Quarter .................... 5.938 4.063 .127116 Fourth Quarter ................... 5.875 4.938 .151628 ------------ ------------ ------------ Total for 1999 .............. $ .396317 ============
Approximately 2,473 Unit holders of record held the 46,608,796 Units of the Trust at December 31, 2000. Distribution of ownership of Units is presented in the following table: 1 3 TO UNIT HOLDERS We are pleased to present the twenty-first Annual Report of the Trust. The report includes a copy of the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the year ended December 31, 2000, without exhibits. Both the report and accompanying Form 10-K contain important information concerning the Trust's properties, including the oil and gas reserves attributable to the Royalties owned by the Trust. Production figures, drilling activity and certain other information included in this report have been provided to the Trust by BROG (formerly Meridian and Southland). As more particularly explained in the Notes to the Financial Statements appearing in this report and in Item 1 of the accompanying Form 10-K, Bank of America, N.A., as Trustee, has the primary function under the Trust Indenture of collecting the monthly net proceeds attributable to the Royalties and making monthly distributions to the Unit holders, after deducting Trust administrative expenses and any amounts necessary for cash reserves. Royalty income received by the Trustee for the year ended December 31, 2000, was $35,835,746 and interest income earned for the same period was $85,348. General and administrative expenses amounted to $375,953. A total of $35,545,141, or $.762627 per Unit, was distributed to Unit holders during 2000. A discussion of factors affecting the distributions for 2000 may be found in the Trustee's Discussion and Analysis section of this report and the accompanying Form 10-K. As of December 31, 2000, the Trust's proved reserves were estimated at 10,218,000 Bbls of oil and 36,491 Mcf of gas. The estimated future net revenues from proved reserves at December 31, 2000, amount to $544,340,000 or $11.70 per Unit. The present value of estimated future net revenues discounted at 10% at December 31, 2000, was $279,813,000 or $6.00 per Unit. The computation of future net revenues is made following guidelines prescribed by the Financial Accounting Standards Board (explained in Item 2 of the accompanying Form 10-K) based on year-end prices and costs. As has been previously reported, Southland advised the Trust that it became operator of record of the Waddell Ranch properties on May 1, 1991. Meridian, as successor by merger, became the operator of record effective January 1, 1996. Meridian changed its name to Burlington Resources Oil & Gas Company in 1996. All field, technical and accounting operations, however, have been carried out by Coastal Management Corporation ("CMC") and Riverhill Capital Corporation ("Riverhill Capital"), but remain under the direction of BROG. As was previously reported, in February 1997, BROG sold its interest in the Texas Royalty properties that are subject to the Texas Royalty Conveyance to Riverhill Energy, which at the time was a wholly-owned subsidiary of Riverhill Capital and an affiliate of CMC. Subsequently, the Trustee was advised that Schlumberger Technology Corporation ("STC") acquired all of the shares of Riverhill Capital. The Trustee has been advised that, as part of this transaction, ownership of Riverhill Energy's interests in the Texas Royalty properties referenced above remain in Riverhill Energy, which was owned by the former shareholders of Riverhill Capital. CMC will continue to perform all accounting operations pertaining to the Texas Royalty properties under the direction of Riverhill Energy. The Omnibus Budget Reconciliation Act of 1990 allows percentage depletion on proven properties acquired after October 11, 1990. For Units acquired after such date, Unit holders would normally compute both percentage depletion and cost depletion from each property, and claim the larger amount as a deduction on their income tax returns. However, the Trustee and its accountants have estimated the percentage depletion for January through December 2000, and it appears that cost depletion will exceed percentage depletion for all Unit holders. Royalty income is generally considered portfolio income under the passive loss rules enacted by the Tax Reform Act of 1986. Therefore, in general, it appears that Unit holders should not consider the taxable income from the Trust to be passive income in determining net passive income or loss. Unit holders should consult their tax advisors for further information. 2 4 Unit holders of record will continue to receive an individualized tax information letter for each of the quarters ending March 31, June 30 and September 30, 2001, and for the year ending December 31, 2001. Unit holders owning Units in nominee name may obtain monthly tax information from the Trustee upon request. Bank of America, N.A., Trustee By: /s/ RON E. HOOPER --------------------------------- Ron E. Hooper Senior Vice President 3 5 DESCRIPTION OF THE PROPERTIES The net overriding royalty interests held by the Trust are carved out of high-quality producing oil and gas properties located primarily in West Texas. A production index for oil and gas properties is the number of years derived by dividing remaining reserves by current production. The production index for the Trust properties based on the reserve report prepared by independent petroleum engineers as of December 31, 2000, is approximately 10.3 years. The net overriding royalty interest in the Waddell Ranch properties is the largest asset of the Trust. The mineral interests in the Waddell Ranch, from which such net overriding royalty interest was carved, vary from 37.5% to 50.0% in 78,175 gross (34,205 net) acres, containing 792 gross (328 net) productive oil wells, 175 gross (73 net) productive gas wells and 336 gross (133 net) injection wells. Six major fields on the Waddell Ranch properties account for more than 90% of the total production. In the six fields, there are 12 producing zones ranging in depth from 2,800 to 10,600 feet. Most prolific of these zones are the Grayburg and San Andres, which produce from depths between 2,800 and 3,400 feet. Productive from the San Andres are the Sand Hills (Judkins) gas field and the Sand Hills (McKnight) oil field. The Dune and Waddell oil fields are productive from both the Grayburg and San Andres formations. The Sand Hills (Tubb) oil fields produce from the Tubb formation at depths averaging 4,300 feet, and the University Waddell (Devonian) oil field is productive from the Devonian formation between 8,400 and 9,200 feet. All of the major oil fields on the Waddell Ranch properties are currently being water flooded. Engineering studies and 3-D seismic evaluations on these fields indicate the potential for increased production through infill drilling, modifications of existing water flood techniques, installation of larger capacity pumping equipment and tertiary recovery projects. Capital expenditures for remedial and maintenance activities during 2000 totaled approximately $8.6 million. The Texas Royalty properties, out of which the other net overriding royalty was carved, are located in 33 counties across Texas. The Texas Royalty properties consist of approximately 125 separate royalty interests containing approximately 303,000 gross (51,000 net) producing acres. Approximately 41% of the future net revenues discounted at 10% attributable to Texas Royalty properties are located in the Wasson and Yates fields. BROG has informed the Trustee that the 2001 capital expenditures budget should total approximately $11 million of which $4.7 million is attributable to the drilling program and $5.5 million to workovers and recompletions. COMPUTATION OF ROYALTY INCOME RECEIVED BY THE TRUST The Trust's royalty income is computed as a percentage of the net profit from the operation of the properties in which the Trust owns net overriding royalty interests. The percentages of net profits are 75% and 95% in the cases of the Waddell Ranch properties and the Texas Royalty properties, respectively. Royalty income received by the Trust for the five years ended December 31, 2000, was computed as shown in the table on the next page. 4 6
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ 2000 1999 ---------------------------- ---------------------------- Waddell Texas Waddell Texas Ranch Royalty Ranch Royalty Properties Properties Properties Properties ------------ ------------ ------------ ------------ Gross Proceeds of Sales From the Underlying Properties: Oil Proceeds ................................. $ 31,289,829 $ 9,770,732 $ 18,667,382 $ 5,261,863 Gas Proceeds ................................. 18,342,926 2,701,298 12,794,695 1,760,499 Other Payments(a) ............................ -- -- -- -- ------------ ------------ ------------ ------------ Total .................................... 49,632,755 12,472,030 31,462,077 7,022,362 ------------ ------------ ------------ ------------ Less: Severance Tax Oil ...................................... 1,288,522 373,643 726,944 186,846 Gas ...................................... 1,189,617 146,512 773,689 77,379 Other .................................... 26,991 -- 44,839 16,000 Lease Operating Expense and Property Tax Oil and Gas .............................. 9,318,915 442,523 9,687,476 525,035 Other Payments ........................... -- -- 132,166 180,000 Capital Expenditures ......................... 4,606,227 -- 1,052,769 -- ------------ ------------ ------------ ------------ Total ................................ 16,430,272 962,678 12,417,883 985,260 ------------ ------------ ------------ ------------ Net Profits .................................. 33,202,483 11,509,352 19,044,194 6,037,102 Net Overriding Royalty Interest .............. 75% 95% 75% 95% ------------ ------------ ------------ ------------ Royalty Income ................................... 24,901,862 10,933,884 14,284,146 5,735,247 Negative Revenue (b) ............................. -- -- 1,218,732 -- Litigation Settlement (c) ........................ -- -- -- -- ------------ ------------ ------------ ------------ Total Royalty Income for Distribution ....... 24,901,862 10,933,884 $ 13,064,414 $ 5,735,247 ============ ============ ============ ============ YEAR ENDED DECEMBER 31, ------------------------------ 1998 ----------------------------- Waddell Texas Ranch Royalty Properties Properties ------------ ------------ Gross Proceeds of Sales From the Underlying Properties: Oil Proceeds ................................. $ 18,821,076 $ 5,404,598 Gas Proceeds ................................. 13,769,872 1,880,571 Other Payments(a) ............................ -- 540,543 ------------ ------------ Total .................................... 32,590,948 7,825,712 ------------ ------------ Less: Severance Tax Oil ...................................... 725,100 196,770 Gas ...................................... (1,229,730) 104,759 Other .................................... -- -- Lease Operating Expense and Property Tax Oil and Gas .............................. 14,096,881 790,246 Other Payments ........................... -- -- Capital Expenditures ......................... 15,874,193 -- ------------ ------------ Total ................................ 29,396,444 1,091,775 ------------ ------------ Net Profits .................................. 3,194,504 6,733,937 Net Overriding Royalty Interest .............. 75% 95% ------------ ------------ Royalty Income ................................... 2,395,878 6,397,240 Negative Revenue (b) ............................. 1,218,732 -- Litigation Settlement (c) ........................ 766,051 -- ------------ ------------ Total Royalty Income for Distribution ....... $ 4,380,661 $ 6,397,240 ============ ============
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1997 1996 -------------------------- -------------------------- Waddell Texas Waddell Texas Ranch Royalty Ranch Royalty Properties Properties Properties Properties ----------- ----------- ----------- ----------- Gross Proceeds of Sales From the Underlying Properties: Oil Proceeds ..................................... $27,099,891 $ 8,427,062 $26,720,538 $ 8,249,254 Gas Proceeds ..................................... 17,105,677 2,318,393 14,056,885 1,898,423 Other Payments(a) ................................ -- -- -- -- ----------- ----------- ----------- ----------- Total ........................................ 44,205,568 10,745,455 40,777,423 10,147,677 ----------- ----------- ----------- ----------- Less: Severance Tax Oil .......................................... 1,037,862 320,447 1,103,059 315,491 Gas .......................................... 1,232,298 135,717 1,041,208 114,812 Other ........................................ -- -- 63,954 24,970 Lease Operating Expense and Property Tax Oil and Gas .................................. 12,239,689 597,508 12,209,663 1,637,143 Other Payments ............................... 50,297 Capital Expenditures ............................. 11,789,849 -- 9,989,064 -- ----------- ----------- ----------- ----------- Total .................................... 26,349,995 1,053,672 24,406,948 2,092,416 ----------- ----------- ----------- ----------- Net Profits ..................................... 17,855,573 9,691,783 16,370,475 8,055,261 Net Overriding Royalty Interest ................. 75% 95% 75% 95% ----------- ----------- ----------- ----------- Royalty Income ....................................... 13,391,679 9,207,194 12,277,856 7,652,498 Negative Revenue (b) ................................. -- -- -- -- Litigation Settlement (c) ............................ -- -- -- -- ----------- ----------- ----------- ----------- Total Royalty Income for Distribution ........... $13,391,679 $ 9,207,194 $12,277,856 $ 7,652,498 =========== =========== =========== ===========
- --------------------- (a) The Trust received funds in 1998 from BROG which represented the Trust's portion of amounts that had been previously held in suspense by BROG relating to the Texas Royalty properties. The Trustee was advised that these amounts relate to revenues received by BROG prior to the conveyance of its interest in the Texas Royalty properties to Riverhill Energy in February 1997. 5 7 (b) In calculating Trust royalty income for the months of June through December 1998, costs exceeded revenues for the Waddell Ranch properties underlying the Waddell Ranch Net Overriding Royalty Conveyance dated effective November 1, 1980 ("Waddell Ranch Conveyance"), by $1,218,732. Pursuant to the Waddell Ranch Conveyance, excess costs plus accrued interest must be recovered from future net proceeds relating to the underlying Waddell Ranch properties before the properties can again contribute to Trust royalty income. Cumulative excess amounts were fully recovered in February 1999. (c) In November 1998, the Trust received its portion of settlement proceeds totaling $766,051 from a class-action lawsuit. 6 8 DISCUSSION AND ANALYSIS Trustee's Discussion and Analysis for the Three-Year Period Ended December 31, 2000 Royalty income received by the Trust for the three-year period ended December 31, 2000, is reported in the following table:
Year Ended December 31, ------------------------------------------ ROYALTIES 2000 1999 1998 - --------- ------------ ----------- ----------- Total Revenue ........................ $35,835,746 $18,799,659 $10,777,901 100% 100% 100% Oil Revenue .......................... 24,901,862 12,202,023 5,788,953 70% 65% 54% Gas Revenue .......................... 10,933,884 6,597,626 3,709,381 30% 35% 34% Other Payments ....................... -- -- 513,516 -- -- 5% Litigation Payment ................... -- -- 766,051 -- -- 7% Total Revenue/Unit ................... $ .768862 $ .403350 $ .231242
Royalty income of the Trust for the calendar year is associated with actual oil and gas production for the period November of the prior year through October of the current year. Oil and gas sales for 2000, 1999 and 1998 for the Royalties and the Underlying Properties, excluding portions attributable to the adjustments discussed hereafter, are presented in the following table:
Year Ended December 31, --------------------------------- 2000 1999 1998 --------- --------- --------- ROYALTIES Oil Sales (Bbls) ......................... 919,429 909,352 457,010 Gas Sales (Mcf) .......................... 3,346,445 3,464,208 1,432,949 UNDERLYING PROPERTIES Oil Total Oil Sales (Bbls) ................. 1,486,110 1,674,898 1,909,702 Average Per Day (Bbls) ................. 4,072 4,589 5,232 Average Price/Bbl ...................... $ 27.66 $ 14.29 $ 12.69 Gas Total Gas Sales (Mcf) .................. 5,890,023 6,907,167 7,373,436 Average Per Day (Mcf) .................. 16,137 18,924 20,201 Average Price/Mcf ...................... $ 3.63 $ 2.11 $ 2.12
The average price of oil increased to $27.66 per barrel in 2000, up from $14.29 per barrel in 1999. During this period, oil prices climbed to decade record highs from low levels in 1998. In addition, the average price of gas rose dramatically from $2.11 per Mcf in 1999 to $3.63 per Mcf in 2000. Since the oil and gas sales attributable to the Royalties are based on an allocation formula that is dependent on such factors as price and cost (including capital expenditures), production amounts do not necessarily provide a meaningful comparison. As discussed below, during 1998, there were certain months in which costs exceeded revenues 7 9 on the Waddell Ranch properties. As a result, no royalty income was received for those months. Production attributable to the Trust is calculated based on net royalty income. As there was no royalty income, no production was reported for the Waddell Ranch properties at the Trust level for those months. Production at the Trust level for the Waddell Ranch properties was not recorded again until February 1999 when the cumulative excess amounts had been recovered. Total oil production decreased approximately 11% from 1999 to 2000 primarily due to lower capital expenditures in previous years. Total gas sales decreased approximately 15% from 1999 to 2000 primarily due to a decrease in capital expenditures in previous years and natural production decline. In the calculation of royalty income for the months of June through December 1998, costs exceeded revenues for the Waddell Ranch properties by $1,218,732. This impacted the January 1999 distributions to Unit holders. Pursuant to the Waddell Ranch Conveyance, excess costs plus accrued interest must be recovered from future net proceeds relating to the underlying Waddell Ranch properties before they could again contribute to Trust royalty income. Increased capital expenditures and declining oil and gas prices contributed to this situation. Subsequently, in February 1999, BROG and CMC notified the Trustee that revenues exceeded the cumulative excess costs by $22,506 and that the underlying Waddell Ranch properties were again contributing to Trust royalty income and production. Total capital expenditures in 2000 used in the net overriding royalty calculation were approximately $5.1 million compared to $1.1 million in 1999 and $15.9 million in 1998. During 2000, there were no wells drilled and completed on the Waddell Ranch properties. At December 31, 2000, there were 10 gross (4.88 net) wells in progress on the Waddell Ranch properties. In 2000, lease operating expense and property taxes on the Waddell Ranch properties amounted to approximately $9.3 million, which amount was approximately the same as in 1999. The Trustee has been advised by BROG that for the period August 1, 1993, through June 30, 2001, the oil from the Waddell Ranch was sold under a competitive bid to a third party. During 2000, the monthly royalty receipts were invested by the Trustee in U.S. Treasury securities until the monthly distribution date, and earned interest totaled $85,348. Interest income for 1999 and 1998 was $27,331 and $27,825, respectively. General and administrative expenses in 2000 were $375,953 compared to $355,148 in 1999 and $391,344 in 1998. Distributable income for 2000 was $35,545,141, or $.762627 per Unit. Distributable income for 1999 was $18,471,842, or $.396317 per Unit. Distributable income for 1998 was $10,414,382, or $.223443 per Unit. RESULTS OF THE FOURTH QUARTERS OF 2000 AND 1999 Royalty income received by the Trust for the fourth quarter of 2000 amounted to $10,938,461 or $.234686 per Unit. For the fourth quarter of 1999, the Trust received royalty income of $7,100,864 or $.152350 per Unit. Interest income for the fourth quarter of 2000 amounted to $28,872 compared to $12,509 for the fourth quarter of 1999. The increase in interest income can be attributed primarily to an increase in funds available for investment. General and administrative expenses totaled $46,306 for the fourth quarter of 2000 compared to $46,173 for the fourth quarter of 1999. 8 10 Royalty income for the Trust for the fourth quarter is associated with actual oil and gas production during August through October from the Underlying Properties. Oil and gas sales attributable to the Royalties and the Underlying Properties for the quarter and the comparable period for 1999 are as follows:
FOURTH QUARTER ---------------------------- 2000 1999 ---------- ---------- ROYALTIES Oil Sales (Bbls) 261,030 235,216 Gas Sales (Mcf) 873,994 946,780 UNDERLYING PROPERTIES Total Oil Sales (Bbls) 376,705 379,585 Average Per Day (Bbls) 4,095 4,126 Average Price/Bbls $ 29.18 $ 20.47 Total Gas Sales (Mcf) 1,360,733 1,623,387 Average Per Day (Mcf) 14,791 17,646 Average Price/Mcf $ 4.45 $ 2.79
The posted price of oil increased for the fourth quarter of 2000 compared to the fourth quarter of 1999, resulting in an average price per barrel of $29.18 compared to $20.47 in the same period of 1999. The average price of gas increased for the fourth quarter of 2000 compared to the same period in 1999, resulting in an average price per Mcf of $4.45 compared to $2.79 in the fourth quarter of 1999. The Trustee has been advised that oil sales decreased in 2000 compared to the same period in 1999 primarily due to decreased capital expenditures in prior periods and natural production declines. Gas sales from the Underlying Properties decreased in the fourth quarter of 2000 compared to the same period in 1999 due to the same factors. The Trust has been advised that no wells were drilled and completed during the three months ended December 31, 2000, and there were 10 gross (4.88 net) wells in progress. 9 11 PERMIAN BASIN ROYALTY TRUST FINANCIAL STATEMENTS STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS DECEMBER 31, 2000 AND 1999
ASSETS 2000 1999 ---------- ---------- Cash and Short-term Investments ................................ $3,056,122 $2,415,245 Net Overriding Royalty Interests in Producing Oil and Gas Properties - Net (Notes 2 and 3) ......................... 2,595,254 2,889,978 ---------- ---------- $5,651,376 $5,305,223 ========== ========== LIABILITIES AND TRUST CORPUS Distribution Payable to Unit Holders ........................... $3,056,122 $2,415,245 Trust Corpus - 46,608,796 Units of Beneficial Interest Authorized and Outstanding ................................... 2,595,254 2,889,978 ---------- ---------- $5,651,376 $5,305,223 ========== ==========
STATEMENTS OF DISTRIBUTABLE INCOME FOR THE THREE YEARS ENDED DECEMBER 31, 2000
2000 1999 1998 ----------- ----------- ----------- Royalty Income (Notes 2 and 3) ........................... $35,835,746 $18,799,659 $10,777,901 Interest Income .......................................... 85,348 27,331 27,825 ----------- ----------- ----------- 35,921,094 18,826,990 10,805,726 Expenditures -- General and Administrative ............... 375,953 355,148 391,344 ----------- ----------- ----------- Distributable Income ..................................... $35,545,141 $18,471,842 $10,414,382 =========== =========== =========== Distributable Income per Unit (46,608,796 Units) ......... $ .762627 $ .396317 $ .223443 =========== =========== ===========
STATEMENTS OF CHANGES IN TRUST CORPUS FOR THE THREE YEARS ENDED DECEMBER 31, 2000
2000 1999 1998 ------------ ----------- ------------ Trust Corpus, Beginning of Period ........................ $ 2,889,978 $ 3,336,583 $ 3,496,594 Amortization of Net Overriding Royalty Interests (Notes 2 and 3) ........................................ (294,724) (446,605) (160,011) Distributable Income ..................................... 35,545,141 18,471,842 10,414,382 Distributions Declared ................................... 35,545,141 (18,471,842) (10,414,382) ============ ============ ============ Trust Corpus, End of Period .............................. $ 2,595,254 $ 2,889,978 $ 3,336,583 ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. 10 12 NOTES TO FINANCIAL STATEMENTS 1. TRUST ORGANIZATION AND PROVISIONS The Permian Basin Royalty Trust ("Trust") was established as of November 1, 1980. Bank of America, N.A. ("Trustee") is Trustee for the Trust. Southland Royalty Company ("Southland") conveyed to the Trust (1) a 75% net overriding royalty in Southland's fee mineral interest in the Waddell Ranch in Crane County, Texas ("Waddell Ranch properties") and (2) a 95% net overriding royalty carved out of Southland's major producing royalty properties in Texas ("Texas Royalty properties"). The net overriding royalties above are collectively referred to as the "Royalties." On November 3, 1980, Units of Beneficial Interest ("Units") in the Trust were distributed to the Trustee for the benefit of Southland shareholders of record as of November 3, 1980, who received one Unit in the Trust for each share of Southland common stock held. The Units are traded on the New York Stock Exchange. The terms of the Trust Indenture provide, among other things, that: o the Trust shall not engage in any business or commercial activity of any kind or acquire any assets other than those initially conveyed to the Trust; o the Trustee may not sell all or any part of the Royalties unless approved by holders of 75% of all Units outstanding in which case the sale must be for cash and the proceeds promptly distributed; o the Trustee may establish a cash reserve for the payment of any liability which is contingent or uncertain in amount; o the Trustee is authorized to borrow funds to pay liabilities of the Trust; and o the Trustee will make monthly cash distributions to Unit holders (see Note 2). 2. NET OVERRIDING ROYALTY INTERESTS AND DISTRIBUTION TO UNIT HOLDERS The amounts to be distributed to Unit holders ("Monthly Distribution Amounts") are determined on a monthly basis. The Monthly Distribution Amount is an amount equal to the sum of cash received by the Trustee during a calendar month attributable to the Royalties, any reduction in cash reserves and any other cash receipts of the Trust, including interest, reduced by the sum of liabilities paid and any increase in cash reserves. If the Monthly Distribution Amount for any monthly period is a negative number, then the distribution will be zero for such month. To the extent the distribution amount is a negative number, that amount will be carried forward and deducted from future monthly distributions until the cumulative distribution calculation becomes a positive number, at which time a distribution will be made. Unit holders of record will be entitled to receive the calculated Monthly Distribution Amount for each month on or before ten business days after the monthly record date, which is generally the last business day of each calendar month. The cash received by the Trustee consists of the amounts received by owners of the interest burdened by the Royalties from the sale of production less the sum of applicable taxes, accrued production costs, development and drilling costs, operating charges and other costs and deductions, multiplied by 75% in the case of the Waddell Ranch properties and 95% in the case of the Texas Royalty properties. The initial carrying value of the Royalties ($10,975,216) represented Southland's historical net book value at the date of the transfer to the Trust. Accumulated amortization as of December 31, 2000 and 1999, aggregated $8,379,962 and $8,085,238, respectively. 11 13 3. BASIS OF ACCOUNTING The financial statements of the Trust are prepared on the following basis: o Royalty income recorded is the amount computed and paid by the working interest owner to the Trustee on behalf of the Trust. o Trust expenses recorded are based on liabilities paid and cash reserves established out of cash received or borrowed funds for liabilities and contingencies. o Distributions to Unit holders are recorded when declared by the Trustee. The financial statements of the Trust differ from financial statements prepared in accordance with accounting principles generally accepted in the United States of America because revenues are not accrued in the month of production and certain cash reserves may be established for contingencies which would not be accrued in financial statements prepared in accordance with accounting principles generally accepted in the United States of America. Amortization of the Royalties calculated on a unit-of-production basis is charged directly to trust corpus. The Financial Accounting Standards Board ("FASB") issued, in June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities -- an amendment of FASB Statement No. 133", which establishes accounting and reporting standards for derivative instruments. These standards are effective for the Trust January 1, 2001. The Trustee does not believe the adoption of these standards has had or will have an impact on the financial statements of the Trust. 4. FEDERAL INCOME TAX For Federal income tax purposes, the Trust constitutes a fixed investment trust which is taxed as a grantor trust. A grantor trust is not subject to tax at the trust level. The Unit holders are considered to own the Trust's income and principal as though no trust were in existence. The income of the Trust is deemed to have been received or accrued by each Unit holder at the time such income is received or accrued by the Trust rather than when distributed by the Trust. The Royalties constitute "economic interests" in oil and gas properties for Federal income tax purposes. Unit holders must report their share of the revenues of the Trust as ordinary income from oil and gas royalties and are entitled to claim depletion with respect to such income. The Trust has on file technical advice memoranda confirming the tax treatment described above. The classification of the Trust's income for purposes of the passive loss rules may be important to a Unit holder. As a result of the Tax Reform Act of 1986, royalty income will generally be treated as portfolio income and will not offset passive losses. 5. SIGNIFICANT CUSTOMERS Information as to significant purchasers of oil and gas production attributable to the Trust's economic interests is included in Item 2 of the Trust's Annual Report on Form 10-K which is included in this report. 6. PROVED OIL AND GAS RESERVES (UNAUDITED) Proved oil and gas reserve information is included in Item 2 of the Trust's Annual Report on Form 10-K which is included in this report. 12 14 7. QUARTERLY SCHEDULE OF DISTRIBUTABLE INCOME (UNAUDITED) The following is a summary of the unaudited quarterly schedule of distributable income for the two years ended December 31, 2000 (in thousands, except per Unit amounts):
DISTRIBUTABLE INCOME AND ROYALTY DISTRIBUTABLE DISTRIBUTION 2000 INCOME INCOME PER UNIT - ------------- ------- ------------- ------------- First Quarter .............................. $ 6,373 $ 6,266 $0.134440 Second Quarter ............................. 9,037 8,895 0.190844 Third Quarter .............................. 9,487 9,463 0.203032 Fourth Quarter ............................. 10,939 10,921 0.234311 ------- ------- --------- Total ................................. $35,836 $35,545 $ .762627 ======= ======= =========
DISTRIBUTABLE INCOME AND ROYALTY DISTRIBUTABLE DISTRIBUTION 1999 INCOME INCOME PER UNIT - ------------- ------- ------------- ------------- First Quarter .............................. $ 1,776 $ 1,634 $0.035064 Second Quarter ............................. 3,957 3,846 0.082509 Third Quarter .............................. 5,966 5,925 0.127116 Fourth Quarter ............................. 7,101 7,067 0.151628 ------- ------- --------- Total ................................. $18,800 $18,472 $0.396317 ======= ======= =========
13 15 INDEPENDENT AUDITORS' REPORT Bank of America, N.A., AS TRUSTEE FOR THE PERMIAN BASIN ROYALTY TRUST: We have audited the accompanying statements of assets, liabilities and trust corpus of the Permian Basin Royalty Trust (the "Trust") as of December 31, 2000 and 1999, and the related statements of distributable income and changes in trust corpus for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Trustee. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 3 to the financial statements, these statements were prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. In our opinion, such financial statements present fairly, in all material respects, the assets, liabilities and trust corpus of the Trust at December 31, 2000 and 1999, and the distributable income and changes in trust corpus for each of the three years in the period ended December 31, 2000, on the basis of accounting described in Note 3. /s/ DELOITTE & TOUCHE LLP - -------------------------------------------- Dallas, Texas March 20, 2001 14 16 PERMIAN BASIN ROYALTY TRUST 901 Main Street, Suite 1700 P.O. Box 830650 Dallas, Texas 75202 Bank of America, N.A., Trustee AUDITORS Deloitte & Touche LLP Dallas, Texas LEGAL COUNSEL Thompson & Knight L.L.P. Dallas, Texas TAX COUNSEL Winstead, Sechrist Minick Houston, Texas TRANSFER AGENT Mellon Investor Services LLC Ridgefield Park, New Jersey 15 EX-23 3 d85529ex23.txt CONSENT OF CAWLEY, GILLESPIE & ASSOCIATES, INC. 1 CONSENT OF CAWLEY, GILLESPIE & ASSOCIATES INC. EXHIBIT 23 [LETTERHEAD] March 21, 2001 Permian Basin Royalty Trust Bank of America, N.A., Trustee 901 Main Street Dallas, Texas Gentlemen: Cawley, Gillespie & Associates, Inc. hereby consents to the use of the oil and gas reserve information in the Permian Basin Royalty Trust Securities and Exchange Commission Form 10-K for the year ending December 31, 2000 and in the Permian Basin Royalty Trust Annual Report for the year ending December 31, 2000, based on reserve reports dated March 20, 2001 prepared by Cawley, Gillespie & Associates, Inc. Submitted, /s/ CAWLEY, GILLESPIE & ASSOCIATES -------------------------------------------- CAWLEY, GILLESPIE & ASSOCIATES, INC. -----END PRIVACY-ENHANCED MESSAGE-----