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 March 31, 1995
Commission File No. 1-8033
PERMIAN BASIN ROYALTY TRUST
Texas I.R.S. No. 75-6280532
NationsBank of Texas, 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 May 15, 1995:
46,608,796
-1-
PERMIAN BASIN ROYALTY TRUST
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
The condensed financial statements included herein have been prepared by
NationsBank of Texas, 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 March 31, 1995, and the distributable income and changes in
trust corpus for the three-month periods ended March 31, 1995 and 1994 have
been included. The distributable income for such interim periods is not
necessarily indicative of the distributable income for the full year.
Deloitte & Touche L.L.P., independent certified public accountants, has made a
review of the condensed financial statements as of March 31, 1995 and for the
three-month periods ended March 31, 1995 and 1994 included herein.
-2-
INDEPENDENT ACCOUNTANTS' REPORT
NationsBank of Texas, 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 March 31, 1995 and
the related condensed statements of distributable income and changes in trust
corpus for the three-month periods ended March 31, 1995 and 1994. These
financial statements are the responsibility of the Trustee.
We conducted our review 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 review, 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, 1994, 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, 1995 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, 1994 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
- - ------------------------
DELOITTE & TOUCHE LLP
May 2, 1995
-3-
<TABLE>
<CAPTION>
PERMIAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
MARCH 31, DECEMBER 31,
1995 1994
ASSETS ---- ----
- - ------ (UNAUDITED)
<S> <C> <C>
Cash and short-term investments $ 754,847 $ 1,706,227
Net overriding royalty interests in producing
oil and gas properties (net of accumulated
amortization of $6,743,591 and $6,679,160
at March 31, 1995 and December 31, 1994,
respectively) 4,231,625 4,296,056
---------- ----------
$ 4,986,472 $ 6,002,283
========== ==========
LIABILITIES AND TRUST CORPUS
- - ----------------------------
Distribution payable to Unit holders $ 754,847 $ 1,706,227
Trust corpus - 46,608,796 Units of beneficial
interest authorized and outstanding 4,231,625 4,296,056
---------- ----------
$ 4,986,472 $ 6,002,283
========== ==========
<CAPTION>
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Royalty income $ 3,174,416 $ 6,270,504
Interest income 9,311 5,090
---------- ----------
3,183,727 6,275,594
General and administrative expenditures 149,582 193,871
--------- ---------
Distributable income $ 3,034,145 $ 6,081,723
========== ==========
Distributable income per Unit (46,608,796 Units) $ .065097 $ .130484
========== ==========
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of these statements.
-4-
<TABLE>
<CAPTION>
PERMIAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Trust corpus, beginning of period $ 4,296,056 $ 4,843,157
Amortization of net overriding royalty interests (64,431) (132,131)
Distributable income 3,034,145 6,081,723
Distributions declared (3,034,145) (6,081,723)
---------- ----------
Trust corpus, end of period $ 4,231,625 $ 4,711,026
========== ==========
</TABLE>
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 financial statements of the Trust are prepared
on the following basis:
* Royalty income recorded for a month is the amount computed and paid
by the interest owner, Southland Royalty Company ("Southland"), to
NationsBank of Texas, N.A. ("Trustee") as Trustee for the Trust.
Royalty income consists of the amounts received by the owner 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.
* 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.
* The conveyance which transferred the overriding royalty interest to
the Trust provides that any excess of production costs over gross
proceeds must be recovered from future net profits.
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;
certain cash reserves may be established for contingencies which would
not be accrued in financial statements prepared in accordance with
GAAP; and 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 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.
3. OTHER MATTERS
As a result of an issue raised by the Trustee during March 1994
regarding potential underpayments of royalty income by Southland from
the Texas Royalty properties beginning January 1991, the March 1994
royalty income included a payment by Southland of $2.9 million, or
$.062261 per Unit.
-6-
Further net revisions resulted in additional payments to the Trust by
Southland of approximately $221,000 and $133,000 in the quarters ended
June 30, 1994 and September 30, 1994, respectively. The payments by
Southland were estimates of previous underpayments of royalty income
to the Trust and are subject to revision as additional investigation
of such underpayments is performed by Southland and the Trustee.
Therefore, such payments do not represent final resolution of the
issue and there may be further adjustments in the future.
Accordingly, the amount of the underpayment and the resulting amounts
due to the Trust may be more or less than the amounts set forth above.
The Trust has been advised by Southland that approximately $1.3
million in ad valorem taxes related to 1991 through 1994 for the Texas
Royalty properties that Southland did not previously charge to gross
proceeds attributable to the Trust will be charged to the Trust over
twelve months beginning in March 1995. Such amount will be so charged
by deducting such sum from gross proceeds from the Texas Royalty
properties in calculating royalty income from such properties.
Southland has further advised the Trust that it intends to recover
such sums by deducting approximately $87,000 per month from the gross
proceeds attributable to the Texas Royalty properties until the full
amount of the ad valorem taxes is recovered. The Trustee is in the
process of verifying the actual amount of ad valorem taxes involved
and discussing with Southland what amount will actually be deducted on
a monthly basis from gross proceeds. To the extent charges are made
to gross proceeds, the amount of funds available for distribution to
Unit holders in the future will be reduced.
* * * * * *
-7-
Item 2. Trustee's Discussion and Analysis
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
For the quarter ended March 31, 1995 royalty income received by the Trust
amounted to $3,174,416, compared to royalty income of $6,270,504 during the
first quarter of 1994. The distribution in 1994 included $850,000 in regard
to the pricing dispute and $2.9 million in regard to the Texas Royalty
properties underpayment discussed hereafter. Interest income for the quarter
ended March 31, 1995 was $9,311, compared to $5,090 during the first quarter
of 1994. The increase in interest income is primarily attributable to the
increase in interest rates. General and administrative expenses during the
first quarter of 1995 amounted to $149,582, compared to $193,871 during the
first quarter of 1994. The decrease in general and administrative expenses can
be attributed mainly to timing differences in the receipt and payment of these
expenses.
These transactions resulted in distributable income for the quarter ended
March 31, 1995 of $3,034,145 or $.065097 per Unit of beneficial interest.
Distributions of $.032810, $.016092 and $.016195 per Unit were made to Unit
holders of record as of January 31, February 28 and March 31, 1995,
respectively. For the first quarter of 1994, distributable income was
$6,081,723 or $.130484 per Unit.
Royalty income for the Trust for the quarter ended March 31, 1995 is
associated with actual oil and gas production for the period November 1994
through January 1995 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, excluding portions attributable to the adjustments
discussed hereafter, are as follows:
<TABLE>
<CAPTION>
First Quarter
-------------------------
1995 1994
---- ----
<S> <C> <C>
ROYALTIES:
Oil sales (Bbls) 158,127 132,208
Gas sales (Mcf) 513,949 293,974
PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED:
Oil:
Total oil sales (Bbls) 399,487 365,470
Average per day (Bbls) 4,342 3,973
Average price per Bbl $15.94 $12.95
Gas:
Total gas sales (Mcf) 1,833,983 1,927,109
Average per day (Mcf) 19,934 20,947
Average price per Mcf $1.74 $1.85
</TABLE>
The posted price of oil increased for the first quarter of 1995, compared to
the first quarter of 1994, resulting in an average price per barrel of $15.94
compared to $12.95 in the first quarter of 1994. The decrease in the average
price of gas from $1.85 in the first quarter of 1994 to $1.74 in the first
quarter of 1995 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), those production amounts do not provide a
meaningful comparison. The increase in oil sales from the properties from
which the Royalties are carved is primarily a result of the production from
the Texas Royalty properties being understated in the first quarter of 1994
due to the underpayment of royalty income beginning January 1991 discussed
hereafter. The decrease in gas sales from the properties from which the
Royalties were carved for the first quarter of 1995 compared to the first
quarter of 1994 can be attributed primarily to the natural decline in
deliverability from the wells.
In accordance with the terms of the conveyances which conveyed the Royalties
to the Trust, to the extent it has the legal right to do so, Southland has
the obligation for marketing the production from the properties from which
the Trust's Royalties were carved, at the best prices and on the best terms
it deems reasonably obtainable in the circumstances. In accordance with the
conveyances, the Trustee gave notice to Southland
-8-
of the reservation of the Trust's right to question certain lease expenses and
the adequacy of prices obtained by Southland for oil production during the
period commencing May 1, 1991, and any further resulting or ancillary claims
which may exist as a consequence of the foregoing claims as to adequacy of
pricing.
On January 3, 1994, the dispute between the Trustee and Southland, regarding
the adequacy of prices obtained by Southland for oil production during the
period May 1991 through February 1993, was resolved. As a result of the
settlement of such dispute, Southland agreed to pay the Trust $850,000 or
$.0182369 per Unit. Such payment to the Trust was made on January 31, 1994,
and was included in distributions made to Unit holders of record on
January 31, 1994. The Trust has been advised by Southland that for the period
August 1, 1993, through June 30, 1994, the oil from the Waddell Ranch is being
sold under a competitive bid to a third party.
As a result of an issue raised by the Trustee during March 1994 regarding
potential underpayments of royalty income by Southland from the Texas Royalty
properties beginning January 1991, the March 1994 royalty income included a
payment of $2.9 million or $.062261 per Unit by Southland. Further net
revisions resulted in additional payments to the Trust by Southland of
approximately $221,000 and $133,000 in the quarters ended June 30, 1994 and
September 30, 1994, respectively. The payments by Southland were estimates of
previous underpayments of royalty income to the Trust and are subject to
revision as additional investigation of such underpayments is performed by
Southland and the Trustee. Therefore, such payments do not represent final
resolution of the issue and there may be further adjustments in the future.
The amount of the underpayment and the resulting amounts due to the Trust may
be more or less than the amount set forth above.
Capital expenditures for drilling, remedial and maintenance activities on the
Waddell Ranch properties during the first quarter of 1995 totaled $2.4 million
as compared to $5.4 million for the first quarter of 1994, which included $1.6
million in capital expenditures incurred in 1993 but not included in the
royalty calculation until 1994. Southland has informed the Trust that the
1995 capital expenditures budget should total approximately $10.2 million,
being $8.4 million for the development program, which consists primarily of
drilling, and $1.8 million for maintenance activities.
The Trust has been advised that there were 4 gross (1.875 net) wells completed
during the three months ended March 31, 1995 and there were 2 gross (1.0 net)
wells in progress. For the three months ended March 31, 1994, there were 13
gross (6.5 net) wells completed and there were 5 gross (2.38 net) wells in
progress at March 31, 1994.
Lease operating expense and property taxes totaled $2.8 million for the first
quarter of 1995 compared to $2.4 million for the same period in 1994. This
increase is primarily attributable to an increase in lease operating expenses
due to workovers on the Waddell Ranch properties and the ad valorem taxes
underpayment discussed in the next paragraph.
The Trust has been advised by Southland that approximately $1.3 million in ad
valorem taxes related to 1991 through 1994 for the Texas Royalty properties
that Southland did not previously charge to gross proceeds attributable to the
Trust will be charged to the Trust over twelve months beginning in March 1995.
Such amount will be so charged by deducting such sum from gross proceeds from
the Texas Royalty properties in calculating royalty income from such
properties. Southland has further advised the Trust that it intends to
recover such sums by deducting approximately $87,000 per month from the gross
proceeds attributable to the Texas Royalty properties until the full amount of
the ad valorem taxes is recovered. The Trustee is in the process of verifying
the actual amount of ad valorem taxes involved and discussing with Southland
what amount will actually be deducted on a monthly basis from gross proceeds.
To the extent charges are made to gross proceeds, the amount of funds
available for distribution to Unit holders in the future will be reduced.
-9-
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 March 31, 1995
and 1994, respectively, were computed as shown in the table below:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------------
1995 1994
--------------------------- ---------------------------
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:
<S> <C> <C> <C> <C>
Oil proceeds $ 4,728,639 $ 1,638,003 $3,698,870 $ 1,034,078
Gas proceeds 2,891,010 296,703 3,188,459 369,355
Other payments 1,133,334 3,381,031
----------- ---------- ---------- ----------
Total 7,619,649 1,934,706 8,020,663 4,784,464
----------- ---------- ---------- ----------
Less:
Severance tax:
Oil 200,239 72,278 169,853 47,043
Gas 215,164 20,957 238,681 27,702
Other payments 160,953
Lease operating expense and
property tax:
Oil and gas 2,599,527 220,651 2,310,452 127,015
Other payments 165,458
Capital expenditures 2,425,203 5,435,223
Excess costs (3,102,914)
--------- --------- ---------- ---------
Total 5,440,133 313,886 5,051,295 528,171
--------- --------- ---------- ---------
Net profits 2,179,516 1,620,820 2,969,368 4,256,293
Net overriding royalty interests 75% 95% 75% 95%
--------- --------- --------- ---------
Royalty income $ 1,634,637 $ 1,539,779 $ 2,227,026 $ 4,043,478
========= ======== ========== ==========
</TABLE> -10-
PART II - OTHER INFORMATION
Items 1 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 and The First
National Bank of Fort Worth (now NationsBank of Texas,
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 to The First National
Bank of Fort Worth (now NationsBank of Texas, 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 to The
First National Bank of Fort Worth (now NationsBank of Texas,
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
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
March 31, 1995.
-11-
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 OF TEXAS, N.A.
TRUSTEE FOR THE
PERMIAN BASIN ROYALTY TRUST
By /s/ Pamela J. Bradley
-------------------------------------
Pamela J. Bradley
Vice President
Date: May 15, 1995
(The Trust has no directors or executive officers.)
-12-
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
- - ------- ------- -------------
(4)(a) Permian Basin Royalty Trust Indenture dated November 3, 1980,
between Southland Royalty Company and The First National Bank
of Fort Worth (now NationsBank of Texas, 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 NationsBank of Texas, 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 NationsBank of Texas, 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 of
Texas, N.A., P.O. Box 1317, Fort Worth, Texas 76101.
** Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 March 31, 1995, and the related condensed
statements of distributable income and changes in trust corpus for the
three-month period ended March 31, 1995.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 754,847
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 754,847
<PP&E> 10,975,216
<DEPRECIATION> 6,743,591
<TOTAL-ASSETS> 4,986,472
<CURRENT-LIABILITIES> 754,847
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,231,625
<TOTAL-LIABILITY-AND-EQUITY> 4,986,472
<SALES> 0
<TOTAL-REVENUES> 3,183,727
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 149,582
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,034,145
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,034,145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,034,145
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
