-----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, WRlFt/ZTbw/4AULNgtDSu3pGgc3dp20Q9vL2krCv+h2DSlT2sTj72lsDYRKxlofF nzvscnCRh9urpNan0FnQtA== 0001025970-98-000010.txt : 19981118 0001025970-98-000010.hdr.sgml : 19981118 ACCESSION NUMBER: 0001025970-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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-Q SEC ACT: SEC FILE NUMBER: 001-08033 FILM NUMBER: 98749631 BUSINESS ADDRESS: STREET 1: 1300 SUMMIT AVENUE 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-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 1998 Commission File No. 1-8033 PERMIAN BASIN ROYALTY TRUST Texas I.R.S. No. 75-6280532 NationsBank, N.A., Trust Department P. O. Box 1317 Fort Worth, Texas 76101 Telephone Number 817/390-6905 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Number of Units of beneficial interest outstanding at November 12, 1998: 46,608,796 Page 1 of 17 PERMIAN BASIN ROYALTY TRUST PART I - FINANCIAL STATEMENTS ITEM 1. FINANCIAL STATEMENTS The condensed financial statements included herein have been prepared by NationsBank, N.A. as Trustee for the Permian Basin Royalty Trust, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations, although the Trustee believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Trust's latest annual report on Form 10-K. In the opinion of the Trustee, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the assets, liabilities and trust corpus of the Permian Basin Royalty Trust at September 30, 1998, and the distributable income and changes in trust corpus for the three-month and nine-month periods ended September 30, 1998 and 1997 have been included. The distributable income for such interim periods is not necessarily indicative of the distributable income for the full year. Deloitte & Touche LLP, independent certified public accountants, has made a limited review of the condensed financial statements as of September 30, 1998 and for the three-month and nine-month periods ended September 30, 1998 and 1997 included herein. -2- INDEPENDENT ACCOUNTANTS' REPORT NationsBank, N.A. as Trustee for the Permian Basin Royalty Trust: We have reviewed the accompanying condensed statement of assets, liabilities and trust corpus of the Permian Basin Royalty Trust as of September 30, 1998 and the related condensed statements of distributable income and changes in trust corpus for the three-month and nine-month periods ended September 30, 1998 and 1997. These financial statements are the responsibility of the Trustee. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. The accompanying condensed financial statements are prepared on a modified cash basis as described in Note 1, which is a comprehensive basis of accounting other than generally accepted accounting principles. Based on our reviews, we are not aware of any material modifications that should be made to such condensed financial statements for them to be in conformity with the basis of accounting described in Note 1. We have previously audited, in accordance with generally accepted auditing standards, the statement of assets, liabilities and trust corpus of the Permian Basin Royalty Trust as of December 31, 1997, and the related statements of distributable income and changes in trust corpus for the year then ended (not presented herein); and in our report dated March 20, 1998, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed statement of assets, liabilities and trust corpus as of December 31, 1997 is fairly stated, in all material respects, in relation to the statement of assets, liabilities and trust corpus from which it has been derived. /s/ - ---------------------- DELOITTE & TOUCHE LLP October 23, 1998 -3-
PERMIAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS - --------------------------------------------------------------------------------------------------------------- September 30, December 31, ASSETS 1998 1997 (Unaudited) Cash and short-term investments $ 1,488,594 $ 1,724,192 Net overriding royalty interests in producing oil and gas properties (net of accumulated amortization of $7,599,889 and $7,478,622 at September 30, 1998 and December 31, 1997, respectively) 3,375,327 3,496,594 --------- --------- $ 4,863,921 $ 5,220,786 ========= ========= LIABILITIES AND TRUST CORPUS Distribution payable to Unit holders $ 1,488,594 $ 1,724,192 Commitments and contingencies Trust corpus - 46,608,796 Units of beneficial interest authorized and outstanding 3,375,327 3,496,594 --------- --------- $ 4,863,921 $ 5,220,786 ========= ========= CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) - -------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 Royalty income $ 2,406,272 $ 4,392,956 $ 9,258,812 $17,283,217 Interest income 1,997 8,385 19,910 33,924 --------- --------- --------- --------- 2,408,269 4,401,341 9,278,722 17,317,141 General and administrative expenditures 50,890 58,067 323,892 379,607 --------- --------- --------- --------- Distributable income $ 2,357,379 $ 4,343,274 $ 8,954,830 $16,937,534 ========= ========= ========= ========= Distributable income per Unit (46,608,796 Units) $ .050578 $ .093186 $ .192128 $ .363397 ========= ========= ========= ========= The accompanying notes to condensed financial statements are an integral part of these statements.
-4-
PERMIAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED) - --------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1998 1997 1998 1997 Trust corpus, beginning of period 3,411,371 $ 3,620,815 3,496,594 $ 3,760,939 Amortization of net overriding royalty interests (36,044) (57,746) (121,267) (197,870) Distributable income 2,357,379 4,343,274 8,954,830 16,937,534 Distributions declared (2,357,379) (4,343,274) (8,954,830) (16,937,534) ---------- ---------- ----------- ---------- Trust corpus, end of period 3,375,327 $ 3,563,069 3,375,327 $ 3,563,069 ========== ========== ========== ========== The accompanying notes to condensed financial statements are an integral part of this statement.
-5- PERMIAN BASIN ROYALTY TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - --------------------------------------------------------------------- 1. BASIS OF ACCOUNTING The Permian Basin Royalty Trust ("Trust") was established as of November 1, 1980. The net overriding royalties conveyed to the Trust include: (1) a 75% net overriding royalty carved out of Southland Royalty Company's 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 Southland Royalty Company's 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. The financial statements of the Trust are prepared on the following basis: - Royalty income recorded for a month is the amount computed and paid to NationsBank, N.A. ("Trustee") as Trustee for the Trust by the interest owners: Burlington Resources Oil & Gas Company ("BROG") for the Waddell Ranch properties and Riverhill Energy Corporation ("Riverhill Energy"), formerly a wholly owned subsidiary of Riverhill Capital Corporation ("Riverhill Capital") and formerly an affiliate of Coastal Management Corporation ("CMC"), for the Texas Royalty properties. CMC currently conducts all field, technical and accounting operations on behalf of BROG with regard to the Waddell Ranch properties. CMC also conducts the accounting operations for the Texas Royalty properties on behalf of Riverhill Energy. Royalty income consists of the amounts received by the owners of the interest burdened by the net overriding royalty interests ("Royalties") from the sale of production less accrued production costs, development and drilling costs, applicable taxes, 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. As was previously reported, in February 1997, BROG sold its interest in the Texas Royalty properties that are subject to the Net Overriding Royalty Conveyance to the Trust dated effective November 1, 1980 ("Conveyance") to Riverhill Energy. 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. - Trust expenses recorded are based on liabilities paid and cash reserves established out of cash received or borrowed funds for liabilities and contingencies. - Distributions to Unit holders are recorded when declared by the Trustee. - Royalty income is computed separately for each of the conveyances under which the Royalties were conveyed to the Trust. If monthly costs exceed revenues for any conveyance ("excess costs"), such -6- excess cannot reduce royalty income from other conveyances, but is carried forward with accrued interest to be recovered from future net proceeds of that conveyance (see Note 3). The financial statements of the Trust differ from financial statements prepared in accordance with generally accepted accounting principles ("GAAP") 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 GAAP. Amortization of the Royalties calculated on a unit-of-production basis is charged directly to trust corpus. 2. FEDERAL INCOME TAXES 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 and not 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. 3. EXCESS COSTS In the calculation of royalty income for the months of June through September 1998, costs exceeded revenues for the Waddell Ranch properties underlying the Waddell Ranch Net Overriding Royalty Conveyance by $908,510. Such excess costs plus accrued interest must be recovered from future net proceeds of the underlying Waddell Ranch properties before these properties can again contribute to Trust royalty income. See also Note 5 with respect to the Texas Royalty properties. 4. CONTINGENCIES See Item 1 Legal Proceedings concerning the status of litigation matters. 5. SUBSEQUENT EVENTS. During the month of September 1998, the Trust received and recorded as royalty income $1,041,340 representing amounts that the Trust had been advised had been previously held in suspense by BROG relating to the Texas Royalty properties. The Trustee has been advised that these amounts relate to revenues received by BROG prior to conveyance of its interest in the Texas Royalty properties to Riverhill Energy in February 1998. This amount was included in the October 15, 1998 distribution to Unit Holders of record on September 30, 1998. Subsequently, Riverhill Energy advised the Trustee that an overpayment to the Trust was made in September 1998 with regard to such suspended funds in the amount of $521,183. Pursuant to the provisions of the Texas Royalty Net Overriding Conveyance dated effective November 1, 1980, Riverhill Energy has offset the overpayment against royalty income attributable to the Texas Royalty properties for the month of October 1998 leaving a net amount due as a result of such overpayment of $172,648. Such amount must be recovered from future net proceeds -7- attributable to the underlying Texas Royalty properties before these properties can again contribute to the Trust royalty income. The Trustee has been further advised that interest on such suspended funds will be paid by BROG and/or Riverhill Energy. The exact amount of such interest payment and when such will be made cannot be determined at this time. In calculating Trust royalty income for the month of October 1998, costs exceeded revenues by $755,068 for the Waddell Ranch properties underlying the Waddell Ranch Net Overriding Royalty Conveyance, dated effective November 1, 1980. Excess costs from one conveyance cannot reduce royalty income computed under another conveyance. Therefore, cumulative excess costs of $1,663,578 as of October 1998 plus accrued interest must be recovered from future net proceeds attributable to the underlying Waddell Ranch properties before these properties can again contribute to Trust royalty income. As has been previously reported, 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"), Cause No. 92-026182 styled Caroline Altheide and Langdon Harrison v. 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 is a class member. The judgment approving the settlement of the Class Action has been the subject of an appeal. One of the conditions set forth in the settlement agreement for the distribution of the settlement proceeds relating to the Class Action is that there would be no distribution of settlement proceeds unless and until such judgment was no longer subject to further appeal and, if there was an appeal, not unless and until such judgment was affirmed or such appeal was dismissed and the time for any future proceedings in the appellate court of last resort had expired. The Trustee has been advised that such appeal has been dismissed and it is the understanding of the Trustee that the conditions and restrictions that prevented payment of the settlement proceeds no longer exist. The Trust has now received its portion of the settlement proceeds totaling $766,051. Such settlement proceeds that have been received by the Trust will be distributed with the regular monthly Trust distribution on November 16, 1998 to the Trust's Unit holders of record on October 31, 1998. ****** -8- ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS 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 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," "predict," "anticipate," "goal," "should," "assume," "believe," or other words that convey the uncertainty of future events or outcomes. YEAR 2000 ISSUE Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. The Year 2000 issue affects virtually all companies and organizations. If a company or organization does not successfully address its Year 2000 issues, it may face material adverse consequences. As the Trust does not directly maintain any systems, the Trust will not incur any direct costs related to the Year 2000 issue. However, the Trust is reliant on the performance of third party vendors ("vendors") for the calculation and receipt of Royalty income, payment of expenses, and disbursement of distributable income. The Trust has made formal inquiries to these vendors requesting information on their state of readiness for the Year 2000. Through responses received and reviewed by the Trust with respect to its vendors, all significant vendors are currently addressing the Year 2000 issue and plan to be compliant prior to the Year 2000. However, the Trustee can provide no assurance as to whether the vendors will successfully address the Year 2000 issue. Failure to successfully address the Year 2000 issue by these vendors could have a material adverse impact on the Trust and its Unit holders. At this time, the Trust believes the most adverse impact as a result of the vendors' failure to successfully address the Year 2000 issue is that the Trust would not receive and in turn would not be able to distribute royalty income to the Unit holders. THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 For the quarter ended September 30, 1998, royalty income received by the Trust amounted to $ 2,406,272 compared to royalty income of $4,392,956 during the third quarter of 1997. The decrease in royalty income is primarily due to a decrease in oil and gas prices in the third quarter of 1998, compared to the third quarter of 1997, as well as an increase in allocated capital expenditures in the third quarter of 1998. In the calculation of royalty income for the months of July through September 1998, costs exceeded revenues for the Waddell Ranch properties underlying the Waddell Ranch Net Overriding Royalty Conveyance by $512,498. Such excess costs plus accrued interest must be recovered from future net proceeds relating to the underlying Waddell Ranch properties before these properties can again contribute to Trust royalty income. The decrease in royalty income is offset by the Trust's receipt in September 1998 of $1,041,340 representing its portion of amounts that had been previously held in suspense by BROG relating to the Texas Royalty properties. The Trustee has been advised that these amounts relate to revenues received by BROG prior to conveyance of its interest in the Texas Royalty properties to Riverhill Energy in February 1998. Subsequent to the third quarter of 1998, Riverhill Energy advised the Trustee that an overpayment to the Trust was made in September 1998 with regard to such suspended funds in the amount of $521,183. See Note 5 for further details on this overpayment. Interest income for the quarter ended September 30, 1998, was $1,997 compared to $8,385 during the third quarter of 1997. The decrease in interest income is attributable -9- primarily to a decrease in funds available for investment. General and administrative expenses during the third quarter of 1998 amounted to $50,890 compared to $58,067 during the third quarter of 1997. The decrease in general and administrative expenses can be attributed primarily to timing differences in the receipt and payment of these expenses. These transactions resulted in distributable income for the quarter ended September 30, 1998, of $2,357,379 or $.050578 per Unit of beneficial interest. Distributions of .009560, .009080, and .031938 per Unit were made to Unit holders of record as of July 31, August 31, and September 30, 1998, respectively. For the third quarter of 1997, distributable income was $4,343,274 or $.093186 per Unit of beneficial interest. Royalty income for the Trust for the third quarter of the calendar year is associated with actual oil and gas production for the period May through July 1998 from the properties from which the Trust's net overriding royalty interests ("Royalties") were carved. Oil and gas sales attributable to the Royalties and the properties from which the Royalties were carved are as follows:
Third Quarter ---------------------- 1998 1997 ROYALTIES: Oil sales (Bbls) 97,557 183,871 Gas sales (Mcf) 198,019 622,927 PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED: Oil: Total oil sales (Bbls) 501,903 473,977 Average per day (Bbls) 5,455 5,152 Average price per Bbl $11.26 $17.75 Gas: Total gas sales (Mcf) 1,886,462 1,954,889 Average per day (Mcf) 20,505 21,249 Average price per Mcf $2.03 $ 2.20
The posted price of oil decreased for the third quarter of 1998, compared to the third quarter of 1997, resulting in an average price per barrel of $11.26 compared to $17.75 in the third quarter of 1997. The Trustee has been advised by BROG that for the period August 1, 1993, through June 30, 1999, the oil from the Waddell Ranch properties was being sold under a competitive bid to a third party. The decrease in the average price of gas from $2.20 in the third quarter of 1997 to $2.03 in the third quarter of 1998 is primarily the result of a decrease in the spot prices of natural gas. 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), the production amounts in the Royalties section of the above table do not provide a meaningful comparison. The oil and gas sales from the properties from which the Royalties are carved were relatively unchanged for the applicable period in 1998 compared to 1997. Capital expenditures for drilling, remedial and maintenance activities on the Waddell Ranch properties during the third quarter of 1998 totaled $4.5 million as compared to $3.9 million for the third quarter of 1997. BROG has informed the Trustee that the 1998 capital expenditures budget is $17.6 million for the Waddell Ranch properties, of which $12 million has been expended through the third quarter of 1998. The Trustee has been advised that it is anticipated that the full amount of the capital expenditure -10- budget for the Waddell Ranch properties will be expended by the end of 1998. The total amount of capital expenditures for 1997 was $11.8 million. The Trustee has been advised that there were 9 gross (3.875 net) wells completed on the Waddell Ranch properties during the three months ended September 30, 1998, and there were 11 gross (5.125 net) wells in progress. For the three months ended September 30, 1997, there were 16 gross (7 net) wells completed and there were 11 gross (4.75 net) wells in progress. Lease operating expense and property taxes totaled $3.9 million for the third quarter of 1998, compared to $2.9 million in the third quarter of 1997. This increase is primarily attributable to an increase in lease operating expense on the Waddell Ranch properties and can be attributed to timing differences in the receipt and payment of these expenses. NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 For the nine months ended September 30, 1998, royalty income received by the Trust amounted to $9,258,812 compared to royalty income of $17,283,217 for the nine months ended September 30, 1997. The decrease in royalty income is primarily due to a decrease in oil and gas prices in the first nine months of 1998, compared to the first nine months in 1997, as well as an increase in allocated capital expenditures in the first nine months of 1998. In the calculation of royalty income for the months of June through September 1998, costs exceeded revenues for the Waddell Ranch properties underlying the Waddell Ranch Net Overriding Royalty Conveyance by $908,510. Such excess costs plus accrued interest must be recovered from future net proceeds of the underlying Waddell Ranch properties before these properties can again contribute to Trust royalty income. Included in the distributable income for March 1998 was approximately $1.1 million which represented the Trust's portion of an approximate $1.5 million severance tax refund received from the State of Texas by BROG, operator of record of the Waddell Ranch properties in Crane County, Texas. The decrease in royalty income is offset by the Trust's receipt in September 1998 of $1,041,340 representing its portion of amounts that had been previously held in suspense by BROG relating to the Texas Royalty properties. The Trustee has been advised that these amounts relate to revenues received by BROG prior to conveyance of its interest in the Texas Royalty properties to Riverhill Energy in February 1998. Subsequent to the third quarter of 1998, Riverhill Energy advised the Trustee that an overpayment to the Trust was made in September 1998 with regard to such suspended funds in the amount of $521,183. See Note 5 for further details on this overpayment. Interest income for the nine months ended September 30, 1998 was $19,910 compared to $33,924 during the nine months ended September 30, 1997. The decrease in interest income is attributable primarily to a decrease in funds available for investment. General and administrative expenses for the nine months ended September 30, 1998 were $323,892. During the nine months ended September 30, 1997, general and administrative expenses were $379,607. The decrease in general and administrative expenses is primarily due to timing differences in the receipt and payment of these expenses. Distributable income for the nine months ended September 30, 1998 was $8,954,830 or $.192128 per Unit. For the nine months ended September 30, 1997, distributable income was $16,937,534 or $.363397 per Unit. -11- Royalty income for the Trust for the period ended September 30, 1998 is associated with actual oil and gas production for the period November 1997 through July 1998 from the properties from which the Royalties were carved. Oil and gas sales attributable to the Royalties and the properties from which the Royalties were carved are as follows:
First Nine Months ---------------------- 1998 1997 ROYALTIES: Oil sales (Bbls) 352,147 606,132 Gas sales (Mcf) 1,213,613 1,977,266 PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED: Oil: Total oil sales (Bbls) 1,405,613 1,365,290 Average per day (Bbls) 5,149 5,001 Average price per Bbl $13.23 $20.03 Gas: Total gas sales (Mcf) 5,425,012 5,457,970 Average per day (Mcf) 19,872 19,993 Average price per Mcf $ 2.22 $ 2.69
The average price of oil decreased during the nine months ended September 30, 1998, compared to the same period in 1997, resulting in an average price of $13.23 per barrel as compared to $20.03 per barrel. The decrease in the average price of oil is primarily due to decreases in the posted price for oil. The decrease in the average price of gas from $2.69 per Mcf for the nine months ended September 30, 1997 to $2.22 per Mcf for the nine months ended September 30, 1998 is primarily the result of a decrease in the spot prices of natural gas. 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), the production amounts in the Royalties section of the above table do not provide a meaningful comparison. The oil and gas sales from the properties from which the Royalties are carved were relatively unchanged for the applicable period of 1998 compared to 1997. The Trustee has been advised that 45 gross (17.495 net) productive oil wells on the Waddell Ranch properties were drilled and completed during the nine months ended September 30, 1998, and that 18 gross (7.5 net) productive oil wells on the Waddell Ranch properties were drilled and completed during the nine months ended September 30, 1997. Capital expenditures for the Waddell Ranch properties for the nine months ended September 30, 1998 totaled $12 million compared to $9.0 million for the same period in 1997. BROG has previously advised the Trustee that the 1998 capital expenditures budget for the Waddell Ranch properties is $17.6 million. Lease operating expense and property taxes for the nine months ended September 30, 1998, totaled $10.5 million compared to $9.9 million for the same period in 1997. This increase is primarily attributable to the increase in accruals for the payment of property taxes by BROG. -12- CALCULATION OF ROYALTY INCOME 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. These percentages of net profits are 75% and 95% in the case of the Waddell Ranch properties and the Texas Royalty properties, respectively. Royalty income received by the Trust for the three months ended September 30, 1998 and 1997 respectively, was computed as shown in the table below:
Three Months Ended September 30, ------------------------------------------------------------- 1998 1997 ---------------------------- ----------------------------- Waddell Texas Waddell Texas Ranch Royalty Ranch Royalty Properties Properties Properties Properties Gross proceeds of sales from properties from which the net overriding royalties were carved: Oil proceeds $4,404,427 $1,248,627 $ 6,428,085 $1,982,684 Gas proceeds 3,383,255 455,023 3,677,078 630,868 Other revenues (a) 1,096,157 ---------- --------- --------- --------- Total 7,787,682 2,799,807 10,105,163 2,613,552 ---------- --------- --------- --------- Less: Severance tax: Oil 133,024 45,800 260,743 78,645 Gas 139,310 25,965 275,208 35,883 Lease operating expense and property tax: Oil and gas 3,679,622 195,124 2,735,186 192,030 Capital expenditures 4,519,057 3,898,944 --------- --------- --------- ------- Total 8,471,013 266,889 7,170,081 306,558 --------- --------- --------- ------- Net profits (683,331) 2,532,918 2,935,082 2,306,994 Net overriding royalty interests 75% 95% 75% 95% --------- --------- -------- --------- (512,498) 2,406,272 2,201,312 2,191,644 Less: excess cost over revenues (b) 512,498 --------- --------- --------- ---------- Royalty income $ -0- $ 2,406,272 $ 2,201,312 $2,191,644 ========== ========== ========== ========== (a) The Trustee has been advised that in September 1998, Riverhill Energy received $1,096,157 representing amounts that had been previously held in suspense by BROG relating to the Texas Royalty properties. The Trustee has been further advised that these amounts relate to revenues received by BROG prior to conveyance of its interest in the Texas Royalty properties to Riverhill Energy in February 1998. (b) In calculating Trust royalty income for the months of July through September 1998, costs exceeded revenues by $512,498 for the Waddell Ranch properties underlying the Waddell Ranch Net Overriding Royalty Conveyance, dated November 1, 1980. Excess costs from one conveyance cannot reduce royalty income computed under another conveyance. Therefore, cumulative excess costs plus accrued -13- interest must be recovered from future net proceeds of the underlying Waddell Ranch properties before these properties can again contribute to Trust royalty income.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. -14- PART II - OTHER INFORMATION Item 1. Legal Proceedings As has been previously reported, the Trust 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"), Cause No. 92-026182 styled Caroline Altheide and Langdon Harrison v. 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 is a class member. The judgment approving the settlement of the Class Action has been the subject of an appeal. One of the conditions set forth in the settlement agreement relating to the Class Action relating to the distribution of the settlement proceeds is that there would be no distribution of settlement proceeds unless and until such judgment was no longer subject to further appeal and, if there was an appeal, not unless and until such judgment was affirmed or such appeal was dismissed and the time for any further proceedings in the appellate court of last resort had expired. The Trustee has been advised that such appeal has been dismissed and it is the understanding of the Trustee that the conditions and restrictions that prevented payment of the settlement proceeds no longer exist. The Trust has now received its portion of the settlement proceeds totalling $766,050.89. Such settlement proceeds that have been received by the Trust will be distributed with the regular monthly Trust distribution on November 16, 1998 to the Trust's Unit holders of record on October 31, 1998. Items 2 through 5. Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (4)(a) Permian Basin Royalty Trust Indenture dated November 3, 1980, between Southland Royalty Company (now Burlington Resources Oil & Gas Company) and The First National Bank of Fort Worth (now NationsBank, 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. (4)(b) Net Overriding Royalty Conveyance (Permian Basin Royalty Trust) from Southland Royalty Company (now Burlington Resources Oil & Gas Company) to The First National Bank of Fort Worth (now NationsBank, 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. (4)(c) Net Overriding Royalty Conveyance (Permian Basin Royalty Trust - Waddell Ranch) from Southland Royalty Company (now Burlington Resources Oil & Gas Company) to The First National Bank of Fort Worth (now NationsBank, 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. (27) Financial Data Schedule -15- (b) Reports on Form 8-K During the quarter ended September 30, 1998, no reports on Form 8-K were filed by the Trust. -16- SIGNATURES Pursuant to the requirements 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. NATIONSBANK, N.A. TRUSTEE FOR THE PERMIAN BASIN ROYALTY TRUST By /s/ Eric F. Hyden -------------------------------- Eric F. Hyden Vice President Date: November 13, 1998 (The Trust has no directors or executive officers.) -17- INDEX TO EXHIBITS Sequentially Exhibit Numbered Number Exhibit Page (4)(a) Permian Basin Royalty Trust Indenture dated November 3, 1980, between Southland Royalty Company (now Burlington Resources Oil & Gas Company) and The First National Bank of Fort Worth (now NationsBank, 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 (now Burlington Resources Oil & Gas Company) to The First National Bank of Fort Worth (now NationsBank, 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 (now Burlington Resources Oil & Gas Company) to The First National Bank of Fort Worth (now NationsBank, 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. * (27) Financial Data Schedule ** * A copy of this Exhibit is available to any Unit holder, at the actual cost of reproduction, upon written request to the Trustee, NationsBank, N.A., P.O. Box 1317, Fort Worth, Texas 76101. ** Filed herewith. EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS OF PERMIAN BASIN ROYALTY TRUST AS OF SEPTEMBER 30, 1998, AND THE RELATED CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME AND CHANGES IN TRUST CORPUS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998. 9-MOS DEC-31-1998 SEP-30-1998 $1,488,594 0 0 0 0 $1,488,594 $10,975,216 $7,599,889 $4,863,921 $1,488,594 0 0 0 0 $3,375,327 $4,863,921 0 $9,278,722 0 0 $323,892 0 0 $8,954,830 0 $8,954,830 0 0 0 $8,954,830 0 0
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