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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 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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
Incorporation or Organization) Identification No.)
NATIONSBANK OF TEXAS, N.A.
TRUST DEPARTMENT
P.O. BOX 1317
FORT WORTH, TEXAS 76101
(Address of Principal Executive Offices) (Zip Code)
(817) 390-6905
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
---------------------------- -----------------------------------------
UNITS OF BENEFICIAL INTEREST NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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 27, 1996, there were 46,608,796 Units of Beneficial Interest of
the Trust outstanding with an aggregate market value on that date of
$145,652,487.
DOCUMENTS INCORPORATED BY REFERENCE
"Units of Beneficial Interest" at page 2; "Trustee's Discussion and
Analysis for the Three-Year Period Ended December 31, 1995" at pages 8 and 9;
"Results of the 4th Quarters of 1995 and 1994" at page 10; 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 12 et seq., in registrant's Annual Report
to security holders for fiscal year ended December 31, 1995 are incorporated
herein by reference for Item 5 (Market for Units of the Trust and Related
Security Holder Matters), Item 7 (Management's Discussion and Analysis of
Financial Condition and Results of Operation) and Item 8 (Financial Statements
and Supplementary Data) of Part II of this Report.
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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. NationsBank of Texas, N.A. (formerly known as NCNB Texas
National Bank), 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 500 West Seventh Street, Fort Worth,
Texas (telephone number 817/390-6905).
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 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 were carved out of and now burden those properties and
interests as are more particularly described under "Item 2. PROPERTIES" herein.
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 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, has the rights, powers and
privileges and assumed all of the liabilities and obligations of Southland
Royalty.
The term "net proceeds" as used in the above conveyance means the excess of
"gross proceeds" received by MOI during a particular period over "production
costs" for such period. "Gross proceeds" means the amount received by MOI (or
any subsequent owner of the interests from which the Royalties were carved) from
the sale of the production attributable to the properties and interests from
which the Royalties were carved, subject to certain adjustments. "Production
costs" means, generally, costs incurred on an accrual basis in operating the
properties and interests out of which the Royalties were carved, 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
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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 amount, plus interest, at a rate
specified in the conveyance.
To the extent it has the legal right to do so, MOI 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. MOI
also has the obligation to maintain books and records sufficient to determine
the amounts payable to the Trustee. MOI, however, can sell its interests in the
properties from which the Royalties were carved.
Proceeds from production in the first month are generally received by MOI
in the second month, the net proceeds attributable to the Royalties are paid by
MOI 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.
MOI has advised the Trust that it believes that comparable revenues could
be obtained in the event of a change in purchasers of production.
ITEM 2. PROPERTIES
The net overriding royalties conveyed to the Trust include: (1) a 75% net
overriding royalty carved out of Southland Royalty'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'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. References
below to "net" wells and acres are to the interests of Southland Royalty (from
which the Royalties were carved) in the "gross" wells and acres.
The following information in Item 2 is based upon data and information
furnished to the Trustee by Southland Royalty or MOI.
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,
1995, the
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Waddell Ranch properties contained 880 gross (373 net) productive oil wells, 156
gross (65 net) productive gas wells and 303 gross (124 net) injection wells.
Effective May 1, 1991, Chevron USA, Inc. ("Chevron") resigned as operator
of the Waddell Ranch properties. Southland Royalty was named the operator of
record. All field, technical and accounting operations have been contracted by
an agreement between the working interest owners and Coastal Management
Corporation but remain under the direction of Southland Royalty, now MOI.
The Waddell Ranch properties are mature producing properties, and all of
the major oil fields are currently being waterflooded. Proved reserves and
estimated future net revenues attributable to the properties are included in the
reserve reports summarized below. MOI 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 MOI. 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. During 1995 there were 32
gross (14.075 net) oil wells drilled on the Waddell Ranch properties. At
December 31, 1995 there were 3 gross (.8 net) wells in progress on the Waddell
Ranch properties. During 1994 there were 22 gross (9.875 net) wells drilled on
the Waddell Ranch properties. At December 31, 1994 there were no wells in
progress on the Waddell Ranch properties. During 1993 there were 15 gross (6.75
net) wells drilled on the Waddell Ranch properties. At December 31, 1993 there
were 4 gross (2 net) wells in progress on the Waddell Ranch properties. During
1992 there were 2 gross (1 net) wells drilled on the Waddell Ranch properties.
MOI has advised the Trust that the total amount of capital expenditures for
1995 with regard to the Waddell Ranch properties totalled $10,504,989. Capital
expenditures include the cost of the 1995 drilling program and remedial and
maintenance activities. MOI has advised the Trust that the capital expenditures
budget for 1996 totals $9,630,000, of which $2,740,000 is attributable to the
1996 development program, $5,860,000 to workovers and recompletions, $600,000 to
a seismic program and $430,000 to capital expenditures that were accrued in 1995
but were not included in the royalty calculations until 1996. Accordingly, there
is an estimated 8.3% decrease in capital expenditures for 1996 as compared with
the 1995 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.
Approximately $1.3 million in ad valorem taxes related to 1991 through 1994
for the Texas Royalty properties that Southland Royalty did not previously
charge to gross proceeds attributable to the Trust is being charged to the Trust
over 12 months beginning March 1995. Such amount is being charged by deducting
$87,000 per month from gross proceeds attributable to the Texas Royalty
properties in calculating royalty income from such properties. To the extent
charges are made to gross proceeds, the amount of funds available for
distribution to Unit holders will be reduced.
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OIL AND GAS PRODUCTION
The Trust recognizes production during the month in which the related
distribution is received. Production of oil and gas and related average sales
prices attributable to the Royalties for the three years ended December 31,
1995, excluding portions attributable to the adjustments discussed below, were
as follows:
<TABLE>
<CAPTION>
WADDELL TEXAS
RANCH ROYALTY
PROPERTIES PROPERTIES TOTAL
------------------------------ ---------------------------- -------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
-------- -------- -------- ------- -------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Production
Oil (barrels).............. 262,221 260,536 463,924 330,922 400,573 399,705 593,143 661,109 863,629
Gas (Mcf).................. 1,289,005 1,366,386 2,446,838 616,294 731,832 720,025 1,905,299 2,098,218 3,166,863
Average Price
Oil/barrel................. $16.84 $16.01 $16.84 $15.71 $13.84 $15.63 $16.55 $14.69 $16.28
Gas/Mcf.................... $ 1.59 $ 1.70 $ 2.06 $ 1.55 $ 1.73 $ 2.01 $ 1.58 $ 1.71 $ 2.05
</TABLE>
As a result of an issue raised by the Trustee during March 1994 regarding
potential underpayments of royalty income by Southland Royalty from the Texas
Royalty properties beginning January 1991, the March 1994 royalty income
included a payment by Southland Royalty of $2.9 million, or $.062261 per Unit.
Further net revisions resulted in additional payments to the Trust by Southland
Royalty of approximately $221,000 and $133,000 in the quarters ended June 30,
1994, and September 30, 1994, respectively. The payments made by Southland
Royalty were estimates of previous underpayments of royalty income to the Trust
and were subject to revision as additional investigation of such underpayments
was performed by MOI and the Trustee. The Trustee engaged its independent
accountants and independent petroleum engineers to review certain information
underlying such payments previously received from MOI, and has determined that
the amounts are reasonable.
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
Royalty, and now MOI, 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 Royalty of
the reservation of the Trust's right to question certain lease expenses and the
adequacy of prices obtained by Southland Royalty 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 Royalty,
regarding the adequacy of prices obtained by Southland Royalty for oil
production during the period May 1991 through February 1993, was resolved. As a
result of the settlement of such dispute, Southland Royalty 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 Royalty that
for the period August 1, 1993, through June 30, 1994, and for the period July 1,
1994, through June 30, 1995 and July 1, 1995 through June 30, 1996, the oil from
the Waddell Ranch properties is being sold under a competitive bid to a third
party.
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,
Southland Royalty is not furnished detailed information regarding sales of oil
and gas from the Texas Royalty properties.
Oil. The Trustee has been advised by Southland Royalty that for the periods
August 1, 1993, through June 30, 1994, July 1, 1994 through June 30, 1995 and
July 1, 1995 through June 30, 1996, the oil from the Waddell Ranch properties is
being sold under a competitive bid to a third party.
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 Meridian Oil Hydrocarbons Inc., an
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indirect subsidiary of BRI. The processor of the gas (Warren Petroleum Company)
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. "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 December 31, 1992 through
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
WADDELL RANCH TEXAS ROYALTY
PROPERTIES PROPERTIES TOTAL
---------------- --------------- ----------------
OIL GAS OIL GAS OIL GAS
(BBLS) (MCF) (BBLS) (MCF) (BBLS) (MCF)
------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1992................................................ 7,391 29,499 5,377 5,625 12,768 35,124
Extensions, discoveries and other additions...................... -0- -0- -0- -0- -0- -0-
Revisions of previous estimates.................................. (1,392) (2,414) (37) (116) (1,429) (2,530)
Production....................................................... (464) (2,447) (400) (720) (864) (3,167)
------ ------ ------ ----- ------ ------
December 31, 1993................................................ 5,535 24,638 4,940 4,789 10,475 29,427
Extensions, discoveries and other additions...................... -0- -0- -0- -0- -0- -0-
Revisions of previous estimates.................................. 763 1,808 333 888 1,096 2,696
Production....................................................... (261) (1,366) (570) (852) (831) (2,218)
------ ------ ------ ----- ------ ------
December 31, 1994................................................ 6,037 25,080 4,703 4,825 10,740 29,905
Extensions, discoveries and other additions...................... 49 28 -0- -0- 49 28
Revisions of previous estimates.................................. 128 1,024 205 664 333 1,688
Production....................................................... (262) (1,289) (331) (616) (593) (1,905)
------ ------ ----- ----- ------ ------
December 31, 1995................................................ 5,952 24,843 4,577 4,873 10,529 29,716
====== ====== ====== ===== ====== ======
</TABLE>
The production volumes for 1994 for the Texas Royalty properties include
volumes associated with the Other Payments received during 1994. See discussion
of Other Payments in Note 8 in the Notes to Financial Statements of the Trust's
Annual Report to security holders for the year ended December 31, 1995.
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Estimated quantities of proved developed reserves of crude oil and natural
gas as of December 31, 1995, 1994 and 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
CRUDE NATURAL
OIL GAS
(BBLS) (MCF)
------ -------
<S> <C> <C>
1995........................................................ 9,061 23,467
1994........................................................ 9,465 24,172
1993........................................................ 9,463 24,886
</TABLE>
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.
The 1995, 1994 and 1993 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):
<TABLE>
<CAPTION>
WADDELL RANCH PROPERTIES TEXAS ROYALTY PROPERTIES TOTAL
---------------------------- --------------------------- ------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
------- ------- -------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1......................... $64,730 $55,544 $ 84,740 $33,660 $27,842 $40,448 $ 98,390 $ 83,386 $125,188
Extensions, discoveries and other
additions....................... 457 -0- -0- -0- -0- -0- 457 -0- -0-
Accretion of discount............. 6,473 5,554 8,474 3,366 2,784 4,045 9,839 8,338 12,519
Revisions of prior year
estimates, changes in price
and other....................... 8,548 10,612 (25,563) 5,175 12,701 (9,351) 13,723 23,313 (34,914)
Royalty income.................... (6,138) (6,980) (12,107) (5,877) (9,667) (7,300) (12,015) (16,647) (19,407)
------- ------- -------- ------- ------- ------- -------- -------- --------
December 31....................... $74,070 $64,730 $ 55,544 $36,324 $33,660 $27,842 $110,394 $ 98,390 $ 83,386
======= ======= ======== ======= ======= ======= ======== ======== ========
</TABLE>
Oil and gas prices of $18.02 and $16.19 per barrel and $1.94 and $1.75 per
Mcf were used to determine the estimated future net revenues from the Waddell
Ranch properties and the Texas Royalty properties at December 31, 1995. The
extension, discoveries and other additions for the Waddell Ranch properties are
proved undeveloped reserves related to field extension development for the
Waddell Field. The upward revisions of both reserves and discounted future net
cash flows for the Waddell Ranch properties are due to the increases in oil
prices as well as production response from drilling and remedial activities on
the Dune Field, Sand Hills (Judkins) Field, Sand Hills (Tubb) Field and the
Waddell Field. The upward revisions of reserves and discounted future net cash
flows for the Texas Royalty properties are due to the increase in oil prices at
December 31, 1995.
Oil and gas prices of $15.60 and $14.50 per barrel and $1.87 and $1.75 per
Mcf were used to determine the estimated future net revenues from the Waddell
Ranch properties and the Texas Royalty properties at December 31, 1994. The
upward revision of the estimated oil reserves and the related increase in the
discounted future net cash flow for the Waddell Ranch properties was primarily
due to the increase in oil prices from 1993 to 1994. The upward revision of the
estimated gas reserves for the Waddell Ranch properties was primarily due to the
production response resulting from remedial work performed during 1994. The
adjustment in the oil and gas reserves and the related discounted cash flow for
the Texas Royalty properties are due to a revision in the forecast based on
revised net production data received from Southland Royalty.
Oil and gas prices of $12.30 and $11.50 per barrel and $2.20 and $1.75 per
Mcf were used to determine the estimated future net revenues from the Waddell
Ranch properties and the Texas Royalty properties at
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December 31, 1993. During 1993 the downward revision of estimated reserves and
estimated future net revenues is primarily due to the decrease in the price of
oil in 1993 as compared to 1992.
The following presents estimated future net revenue and present value of
estimated future net revenue, for each of the years ended December 31, 1995,
1994 and 1993 (in thousands except amounts per Unit):
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ---------------------- ----------------------
ESTIMATED ESTIMATED ESTIMATED
FUTURE PRESENT FUTURE PRESENT FUTURE PRESENT
NET VALUE NET VALUE NET VALUE
REVENUE AT 10% REVENUE AT 10% REVENUE AT 10%
--------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Proved
Waddell Ranch properties.................. $147,068 $ 74,070 $133,373 $ 64,730 $115,091 $ 55,544
Texas Royalty properties.................. 78,586 36,324 72,870 33,660 61,955 27,842
-------- --------- -------- -------- --------- --------
Total............................... $225,654 $ 110,394 $206,243 $ 98,390 $177,046 $ 83,386
======== ======== ======== ======== ======== ========
Total Proved Per Unit....................... $ 4.84 $ 2.37 $ 4.42 $ 2.11 $ 3.80 $ 1.79
======== ======== ======== ======== ======== ========
Proved Developed
Waddell Ranch properties.................. $110,611 $ 60,600 $104,470 $ 53,260 $ 93,961 $ 49,308
Texas Royalty properties.................. 78,586 36,324 72,870 33,660 61,955 27,842
-------- --------- -------- -------- --------- --------
Total............................... $189,197 $ 96,924 $177,340 $ 86,920 $155,916 $ 77,150
======== ======== ======== ======== ======== ========
</TABLE>
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.
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. The Federal Energy
Regulatory Commission ("FERC") is primarily responsible for federal regulation
of natural gas.
Natural Gas Regulation
The interstate transportation and sale for resale of natural gas is subject
to federal governmental regulation, including regulation of tariffs charged and
various other matters, by FERC. The Natural Gas Wellhead Decontrol Act of 1989
terminated federal price controls on wellhead sales of domestic natural gas on
January 1, 1993.
In 1992, FERC issued Orders Nos. 636 and 636-A, which generally opened
access to interstate gas pipelines by requiring such pipelines to "unbundle"
their transportation services and allow shippers to choose and pay for only the
services they require, regardless of whether the shipper purchases gas from such
pipelines or from other suppliers. These orders also require upstream pipelines
to permit downstream pipelines to assign upstream capacity to their shippers and
place analogous, unbundled access requirements on the downstream pipelines.
Although these orders should generally have the effect of facilitating the
transportation of gas produced from the properties from which the Royalties were
carved, as well as to facilitate the direct access to
7
<PAGE> 9
end-user markets, the impact of these orders on marketing production from the
properties from which the Royalties were carved cannot be predicted at this
time.
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 Trust does not believe that compliance with these
laws by the operating parties will have any material adverse effect upon the
Unit holders.
ITEM 3. LEGAL PROCEEDINGS
At December 31, 1995, there were no material pending legal proceedings,
other than ordinary routine litigation, to which the Trust is a party or, based
on information provided by Southland Royalty, to which any of the Trust's
properties are 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, 1995.
8
<PAGE> 10
PART II
ITEM 5. MARKET FOR UNITS OF THE TRUST AND RELATED SECURITY HOLDER MATTERS
The information under "Units of Beneficial Interest" at page 2 of the
Trust's Annual Report to security holders for the year ended December 31, 1995,
is herein incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Royalty income................................ $12,014,623 $16,646,903 $19,407,568 $21,491,861 $24,035,443
Distributable income.......................... 11,632,463 16,174,570 18,759,882 21,029,750 23,554,647
Distributable income per Unit................. 0.249574 0.347027 0.402496 0.451198 0.505368
Distributions per Unit........................ 0.249574 0.347027 0.402496 0.451198 0.505368
Total assets, December 31..................... 5,252,922 6,002,283 6,284,735 6,868,543 7,482,093
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The "Trustee's Discussion and Analysis for the Three-Year Period Ended
December 31, 1995" and "Results of the 4th Quarters of 1995 and 1994" at pages
8, 9 and 10 of the Trust's Annual Report to security holders for the year ended
December 31, 1995 is herein incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Trust and the notes thereto at page 12 et
seq. of the Trust's Annual Report to security holders for the year ended
December 31, 1995, 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, 1995.
9
<PAGE> 11
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 year ended December 31, 1995, the Trustee received total
remuneration as follows:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL CAPACITIES
OR NUMBER OF IN WHICH CASH
PERSONS IN GROUP SERVED COMPENSATION
- -------------------------- --------- ------------
<S> <C> <C>
NationsBank of Texas, N.A...................... Trustee $60,575(1)
</TABLE>
- ---------------
(1) Under the Trust Indenture, the Trustee is entitled to an administrative fee
for its administrative services, preparation of quarterly and annual
statements with attention to tax and legal matters of: (i) 1/20 of 1% of the
first $100 million of annual gross revenue of the Trust and 1/30 of 1% in
excess of $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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners. The following table
sets forth as of December 31, 1995, information with respect to each person
known to own beneficially more than 5% of the outstanding Units of the Trust:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) OF CLASS
- ---------------------------------- ----------------------- --------
<S> <C> <C>
Meridian Oil Inc.(1) 27,577,741 Units 59.17%
5051 Westheimer
Suite 1400
Houston, Texas 77056-2124
</TABLE>
- ---------------
(1) This information was provided to the Securities and Exchange Commission and
to the Trust in a Form 4 dated January 6, 1994, filed with the Securities
and Exchange Commission by Southland Royalty, a wholly-owned subsidiary of
BRI, and in Amendment 5 to Schedule 13D and Schedule 13E-3 dated December
28, 1993, filed with the Securities and Exchange Commission by Southland
Royalty and BRI. Such Units were reported to be owned directly by Southland
Royalty, now MOI.
The Form 4 filed by Southland Royalty and the Schedule 13D and Schedule
13E-3 filed by Southland Royalty and BRI 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, NationsBank of Texas,
N.A. owned as of March 7, 1996 an aggregate of 100,000 Units with no right to
vote any of these Units. Such Bank disclaims any beneficial interests in these
Units. The number of Units reflected in this paragraph includes Units held by
all branches of NationsBank of Texas, N.A.
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 year ended December 31, 1995 and
Item 12(b) for information concerning Units owned by NationsBank of Texas, N.A.
in various fiduciary capacities.
10
<PAGE> 12
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:
FINANCIAL STATEMENTS
Included in Part II of this Report by reference to the Annual Report of the
Trust for the year ended December 31, 1995:
Independent Auditors' Report
Statements of Assets, Liabilities and Trust Corpus
Statements of Distributable Income
Statements of Changes in Trust Corpus
Notes to Financial Statements
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.
EXHIBITS
<TABLE>
<S> <C>
(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.*
(13) -- Registrant's Annual Report to security holders for fiscal year ended
December 31, 1995.**
(23) -- Consent of Cawley, Gillespie & Associates, Inc., reservoir engineer.**
(27) -- Financial Data Schedule.**
</TABLE>
- ---------------
* 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.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Trust with the Securities and
Exchange Commission during the last quarter of the Trust's fiscal year ended
December 31, 1995.
11
<PAGE> 13
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.
NATIONSBANK OF TEXAS, N.A.
TRUSTEE OF THE PERMIAN BASIN
ROYALTY TRUST
By /s/ PAMELA J. BRADLEY
----------------------------------
(Pamela J. Bradley)
Vice President
Date: March 30, 1996
(The Trust has no directors or executive officers.)
12
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ----------------------------------------------------------------------------------- ------------
<S> <C> <C>
(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.*
(13) -- Registrant's Annual Report to security holders for fiscal
year ended December 31, 1995.**
(23) -- Consent of Cawley, Gillespie & Associates, Inc., reservoir
engineer.**
(27) -- Financial Data Schedule.**
</TABLE>
- ---------------
* 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.
<PAGE> 1
EXHIBIT 13
PERMIAN BASIN ROYALTY TRUST
1995 ANNUAL REPORT & FORM 10-K
<PAGE> 2
WHEN WE CAME TO THE PERMIAN BASIN IN THE 1930S TO CATCH UP WITH MY FATHER, WHO
HAD GONE AHEAD, WE FOUND HIS LICENSE PLATE SANDBLASTED SO CLEAN YOU COULDN'T
READ IT. CONDITIONS WERE TOUGH, AND DRILLERS AND ROUGHNECKS NEEDED TOUGH
EQUIPMENT. THERE'S SOME OF IT, AND OLD LEASE MAPS, IN THIS ANNUAL REPORT.
AN OIL PATCH KID
<PAGE> 3
[MAP OF THE STATE OF TEXAS BY COUNTY SHOWING TRUST ACREAGE]
PERMIAN BASIN ROYALTY TRUST ACREAGE IS LOCATED IN 33 TEXAS COUNTIES. TEXAS
ROYALTY PROPERTIES ARE CONCENTRATED MAINLY IN A WEST TEXAS REGION.
<PAGE> 4
THE TRUST
The Permian Basin Royalty Trust's 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, and a 95% net overriding royalty interest carved out by
Southland from its major producing royalty properties in Texas. 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
"Royalties."
The Permian Basin Royalty Trust (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.
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Distributions
1995 High Low Paid
- ---- ---- --- ----
<S> <C> <C> <C>
First Quarter . . . . . . . . . . . . . . . . . . . . . $4.375 $4.125 $.065097
Second Quarter . . . . . . . . . . . . . . . . . . . . 4.625 3.875 .045571
Third Quarter . . . . . . . . . . . . . . . . . . . . . 4.125 3.375 .054621
Fourth Quarter . . . . . . . . . . . . . . . . . . . . 3.750 3.000 .084285
--------
Total for 1995 . . . . . . . . . . . . . . . $.249574
========
1994
- ----
First Quarter . . . . . . . . . . . . . . . . . . . . . $6.500 $4.625 $.130484
Second Quarter . . . . . . . . . . . . . . . . . . . . 5.125 4.000 .029255
Third Quarter . . . . . . . . . . . . . . . . . . . . . 5.000 4.125 .089769
Fourth Quarter . . . . . . . . . . . . . . . . . . . . 4.875 3.750 .097519
--------
Total for 1994 . . . . . . . . . . . . . . . $.347027
========
- --------------------------------------------------------------------------------------------------------
</TABLE>
Approximately 2,962 Unit holders of record held the 46,608,796 Units of the
Trust at December 31, 1995. Distribution of ownership of Units is presented in
the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Number of
TYPE OF UNIT HOLDERS Unit Holders Units Held
- -------------------- ------------ ----------
<S> <C> <C>
Nominee . . . . . . . . . . . . . . . . . . . . . . . . . 4 14,380,794
Individuals . . . . . . . . . . . . . . . . . . . . . . . . . 2,402 3,540,941
Institutions . . . . . . . . . . . . . . . . . . . . . . . . 74 27,960,890
Fiduciaries . . . . . . . . . . . . . . . . . . . . . . . . . 482 726,171
----- ----------
Total . . . . . . . . . . . . . . . . . . . . . . 2,962 46,608,796
===== ==========
- ---------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 5
[PICTURE OF HARD HAT]
THERE'S NOTHING IS MUCH HARDER THAN THE HARDWARE THAT'S HANDLED ON AN OIL RIG
DRILLING FLOOR. HARD HATS LIKE THIS ONE QUICKLY REPLACED CAPS.
<PAGE> 6
TO UNIT HOLDERS
We are pleased to present the sixteenth 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, 1995,
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 Southland or Meridian.
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,
NationsBank of Texas, 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,
1995, was $12,014,623 and interest income earned for the same period was
$25,243. General and administrative expenses amounted to $407,403. A total of
$11,632,463 or $.249574 per Unit, was distributed to Unit holders during 1995.
A discussion of factors affecting the distributions for 1995 may be found in
the Trustee's Discussion and Analysis section of this report.
As of December 31, 1995, the Trust's proved reserves were estimated at
10,528,882 Bbls of oil and 29,716,019 Mcf of gas. The estimated future net
revenues from proved reserves at December 31, 1995, amount to $225,654,000 or
$4.84 per Unit. The present value of estimated future net revenues discounted
at 10% at December 31, 1995, was $110,394,000 or $2.37 per Unit. The
computation of future net revenues is made following guidelines prescribed by
the Financial Accounting Standard Board (explained in Item 2 of the
accompanying Form 10-K) based on year-end prices and costs.
As has been previously reported, Southland has advised the Trust that it
became operator of record of the Waddell Ranch properties on May 1, 1991.
Meridian, as successor by merger, is now the operator of record. All field,
technical and accounting operations, however, have been carried out by Coastal
Management Corporation ("Coastal"), but are under the direction of Meridian.
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 tax
counsel have estimated the percentage depletion for January through December
1995, and it appears that cost depletion will exceed percentage depletion for
all Unit holders. Therefore, the Trust will not provide percentage depletion
factors for 1995.
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.
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, 1996, and for the year ending December 31, 1996. Unit holders
owning Units in nominee name may obtain monthly tax information from the
Trustee upon request.
NationsBank of Texas, N.A.
By: /S/ PAMELA J. BRADLEY
Pamela J. Bradley
Vice President
4
<PAGE> 7
[PICTURE OF HIGHTOP LACE-UP BOOTS]
HIGHTOP, LACE-UP BOOTS LIKE THESE WERE WORN INTO AT LEAST THE LATE 1940S.
ROUGH-NECKS LIKED THE STABILITY THAT THESE BOOTS PROVIDED.
<PAGE> 8
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, 1995, is approximately 14
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 880 gross (373 net)
productive oil wells, 156 gross (65 net) productive gas wells and 303 gross
(124 net) injection wells. 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.
Forty- one percent of the future net revenues discounted at 10% attributable to
Texas Royalty properties are located in the Wasson and Yates fields.
WADDELL RANCH
Six major fields account for more than 90% of production from 12 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. The most productive zones in 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 major oil fields are currently being water flooded. Engineering
studies on these fields indicate the potential for increased production through
infill drilling, modifications of existing waterflood techniques, installation
of larger capacity pumping equipment and tertiary recovery projects. Capital
expenditures for drilling, remedial and maintenance activities during 1995
totaled approximately $10.5 million. A substantial portion of the capital
expenditures was related to the drilling of productive oil wells, which were
drilled in the Sand Hills (Tubb) oil field as part of an infill drilling
program.
Meridian has informed the Trust that the 1996 capital expenditures
budget is $9,630,000, of which $2,740,000 is attributable to the 1996
development program, $5,860,000 to workovers and recompletions, $600,000 to a
seismic program, and $430,000 to capital expenditures that were accrued in 1995
but not included in the royalty calculations until 1996.
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,
1995, was computed as shown in the table on the next page.
6
<PAGE> 9
[PICTURE OF GAUGE]
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1995 1994 1993
----------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross Proceeds of Sales Waddell Texas Waddell Texas Waddell Texas
From Properties From Ranch Royalty Ranch Royalty Ranch Royalty
Which the Net Overriding Properties Properties Properties Properties Properties Properties
----------- ----------- ----------- ----------- ------------ ----------
Royalties Were Carved:
Oil Proceeds . . . . . $20,714,309 $6,924,595 $17,573,518 $6,197,125 $19,648,107 $7,019,561
Gas Proceeds . . . . . 10,707,104 1,284,464 12,073,447 1,426,979 12,972,379 1,643,334
Other Payments . . . . 1,133,334 3,687,064 -
----------- ----------- ----------- ----------- ------------ ----------
Total . . . . . . . . 31,421,413 8,209,059 30,780,299 11,311,168 32,620,486 8,662,895
----------- ----------- ----------- ----------- ------------ ----------
Less:
Severance Tax
Oil . . . . . . . . . 874,011 277,759 786,101 282,966 905,785 320,710
Gas . . . . . . . . . 761,787 88,206 906,543 104,697 1,001,106 122,296
Other Payments . . . 153,909
Lease Operating Expense
and Property Tax
Oil and Gas . . . . . 11,096,563 1,657,225 10,633,720 487,728 10,502,602 535,158
Other Payments . . . . 105,881
Capital Expenditures . 10,504,989 - 9,147,647 - 4,068,228 -
----------- ----------- ----------- ----------- ------------ ----------
Total . . . . . . . . 23,237,350 2,023,190 21,474,011 1,135,181 16,477,721 978,164
----------- ----------- ----------- ----------- ------------ ----------
Net Profits . . . . . . . 8,184,063 6,185,869 9,306,288 10,175,987 16,142,765 7,684,731
Net Overriding
Royalty Interest . . 75% 95% 75% 95% 75% 95%
----------- ----------- ----------- ----------- ------------ ----------
Royalty Income . . . . . $ 6,138,047 $ 5,876,576 $ 6,979,716 $ 9,667,188 $ 12,107,074 $7,300,494
=========== =========== =========== =========== ============ ==========
<CAPTION>
Year Ended December 31,
------------------------------------------------
1992 1991
----------------------- -----------------------
<S> <C> <C> <C> <C>
Gross Proceeds of Sales Waddell Texas Waddell Texas
From Properties From Ranch Royalty Ranch Royalty
Which the Net Overriding Properties Properties Properties Properties
----------- ---------- ----------- -----------
Royalties Were Carved:
Oil Proceeds . . . . . . $21,454,976 $8,365,966 $21,954,582 $10,428,689
Gas Proceeds . . . . . . 10,761,132 1,392,144 10,942,650 1,525,776
Other Payments . . . . .
----------- ---------- ----------- -----------
Total . . . . . . . . . 32,216,108 9,758,110 32,897,232 11,954,465
----------- ---------- ----------- -----------
Less:
Severance Tax
Oil . . . . . . . . . . 1,011,980 387,354 1,012,606 469,284
Gas . . . . . . . . . . 807,633 101,272 820,346 112,623
Other Payments . . . .
Lease Operating Expense
and Property Tax
Oil and Gas . . . . . . 10,802,255 362,523 11,794,463 556,334
Other Payments . . . .
Capital Expenditures . . 2,220,576 - 923,111 -
----------- ---------- ----------- -----------
Total . . . . . . . . . 14,842,444 851,149 14,550,526 1,138,241
----------- ---------- ----------- -----------
Net Profits . . . . . . . . 17,373,664 8,906,961 18,346,706 10,816,224
----------- ---------- ----------- -----------
Net Overriding
Royalty Interest . . . 75% 95% 75% 95%
----------- ---------- ----------- -----------
Royalty Income . . . . . . $13,030,248 $8,461,613 $13,760,030 $10,275,413
=========== ========== =========== ===========
</TABLE>
7
<PAGE> 10
DISCUSSION AND ANALYSIS
Trustee's Discussion and Analysis for the Three-Year Period Ended December 31,
1995
Royalty income received by the Trust for the three-year period ended December
31, 1995, is reported in the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------
ROYALTIES 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . $12,014,623 $16,646,903 $19,407,568
100% 100% 100%
Oil Revenue . . . . . . . . . . . . . . . . . . . . . . . . . 9,209,821 9,230,706 13,412,826
77% 55% 69%
Gas Revenue . . . . . . . . . . . . . . . . . . . . . . . . . 2,804,802 3,310,287 5,994,742
23% 20% 31%
Other Payments . . . . . . . . . . . . . . . . . . . . . . . - 4,105,910 -
- 25% -
Total Revenue/Unit . . . . . . . . . . . . . . . . . . . . . $.257776 $.357161 $.416392
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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 1995, 1994 and 1993 for the Royalties
and the properties from which the Royalties were carved, excluding portions
attributable to the adjustments discussed hereafter, are presented in the
following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------
ROYALTIES 1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Oil Sales (Bbls) . . . . . . . . . . . . . . . . . . . . . . 593,143 661,109 863,629
Gas Sales (Mcf) . . . . . . . . . . . . . . . . . . . . . . . 1,905,299 2,098,218 3,166,863
Properties From Which the Royalties Were Carved
- -----------------------------------------------
OIL:
Total Oil Sales (Bbls) . . . . . . . . . . . . . . . . . . . 1,670,471 1,621,078 1,610,470
Average Per Day (Bbls) . . . . . . . . . . . . . . . . . . . 4,577 4,441 4,412
Average Price/Bbl . . . . . . . . . . . . . . . . . . . . . . $16.55 $14.69 $16.28
GAS:
Total Gas Sales (Mcf) . . . . . . . . . . . . . . . . . . . . 7,571,614 7,966,015 7,145,118
Average Per Day (Mcf) . . . . . . . . . . . . . . . . . . . . 20,744 21,825 19,576
Average Price/Mcf . . . . . . . . . . . . . . . . . . . . . . $1.58 $1.71 $2.05
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The average price of oil decreased from 1993 to 1994 and increased from
1994 to 1995 as the posted price fluctuated. The average price of gas decreased
from 1993 to 1995 primarily due to decreases 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, the
production amounts do not provide a meaningful comparison. Oil production was
relatively unchanged from 1993 to 1994. Oil production increased slightly from
1994 to 1995 due to the development and remedial programs on the Waddell Ranch
properties. Total gas sales increased from 1993 to 1994 primarily due to an
increase in production on the Waddell Ranch proper-
8
<PAGE> 11
ties due to production efficiency. Total gas sales were relatively unchanged
from 1994 to 1995.
Total capital expenditures in 1995 used in the net overriding royalty
calculation were approximately $10.5 million compared to $9.1 million in 1994
and $4.1 million in 1993. Lease operating expense and property tax were
relatively unchanged from 1993 to 1994, and from 1994 to 1995 on the Waddell
Ranch properties. The Trust was previously 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 would be charged to the Trust over 12 months
beginning in March 1995. This charge is being made by a deduction of $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.
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. 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 made by Southland were estimates
of previous underpayments of royalty income to the Trust and were subject to
revision as additional investigation of such underpayments was performed. The
Trustee engaged its independent accountants and independent petroleum engineers
to review certain information underlying such payments previously received from
Southland and determined that the amounts are reasonable.
In accordance with the terms of the conveyances which conveyed the
Royalties to the Trust, Southland and now Meridian, 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 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 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, 1996, the oil from the Waddell Ranch
is being sold under a competitive bid to a third party.
During 1995 the monthly royalty receipts were invested by the Trustee in
U.S. Treasury securities until the monthly distribution date, and earned
interest totaled $25,243. Interest income for 1994 and 1993 was $21,830 and
$21,379, respectively. The increase in interest income from 1994 to 1995 can be
attributed primarily to an increase in interest rates partially offset by funds
available for investment. Interest income remained relatively unchanged from
1993 to 1994, which can be attributed to a combination of higher interest rates
and decreased royalty income.
General and administrative expenses in 1995 were $407,403, compared to
$494,163 in 1994 and $669,065 in 1993. The decrease in general and
administrative expenses from 1993 to 1994 is primarily due to administrative
and legal fees with respect to the issue of adequacy of prices obtained by
Southland for oil production during the period commencing with May 1991 and as
a result of the tender offer made by Meridian during the third quarter of 1993.
These expenses decreased from 1994 to 1995 due to timing differences.
Distributable income for 1995 was $11,632,463 or $.249574 per Unit.
Distributable income for 1994 was $16,174,570 or $.347027 per Unit.
Distributable income for 1993 was $18,759,882 or $.402496 per Unit.
9
<PAGE> 12
[PICTURE OF LEASE MAPS]
EVERY COUNTY AND COMMUNITY WAS PROUD TO BE A PART OF THE OIL BOOM. MANY PUT OUT
LEASE MAPS TO MARK AND BRAG ON LOCAL DEVELOPMENT.
<PAGE> 13
PERMIAN BASIN ROYALTY TRUST
<TABLE>
<CAPTION>
Statements of Assets, Liabilities and Trust Corpus
December 31, 1995 and 1994
- --------------------------------------------------------------------------------------------------------------
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash and Short-term Investments . . . . . . . . . . . . . . . . . . . . . . $ 1,195,294 $ 1,706,227
Net Overriding Royalty Interests in Producing Oil and
Gas Properties - Net (Notes 2 and 3) . . . . . . . . . . . . . . . . . 4,057,628 4,296,056
----------- -----------
$ 5,252,922 $ 6,002,283
----------- -----------
LIABILITIES AND TRUST CORPUS
Distribution Payable to Unit Holders . . . . . . . . . . . . . . . . . . . $ 1,195,294 $ 1,706,227
Trust Corpus - 46,608,796 Units of Beneficial Interest
Authorized and Outstanding . . . . . . . . . . . . . . . . . . . . . . . . 4,057,628 4,296,056
----------- -----------
$ 5,252,922 $ 6,002,283
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Statements of Distributable Income
for the Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Royalty Income (Notes 2, 3 and 8) . . . . . . . . . . . . . $12,014,623 $16,646,903 $19,407,568
Interest Income . . . . . . . . . . . . . . . . . . . . . . 25,243 21,830 21,379
----------- ----------- -----------
12,039,866 16,668,733 19,428,947
Expenditures - General and Administrative . . . . . . . . . 407,403 494,163 669,065
----------- ----------- -----------
Distributable Income . . . . . . . . . . . . . . . . . . . $11,632,463 $16,174,570 $18,759,882
=========== =========== ===========
Distributable Income per Unit (46,608,796 Units) . . . . . $ .249574 $ .347027 $ .402496
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Statements of Changes in Trust Corpus
for the Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Trust Corpus, Beginning of Period . . . . . . . . . . . . $ 4,296,056 $ 4,843,157 $ 5,192,446
Amortization of Net Overriding Royalty Interests
(Notes 2 and 3) . . . . . . . . . . . . . . . . . . . (238,428) (547,101) (349,289)
Distributable Income . . . . . . . . . . . . . . . . . . 11,632,463 16,174,570 18,759,882
Distributions Declared . . . . . . . . . . . . . . . . . (11,632,463) (16,174,570) (18,759,882)
------------ ----------- -----------
Trust Corpus, End of Period . . . . . . . . . . . . . . . $ 4,057,628 $ 4,296,056 $ 4,843,157
============ =========== ===========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of this
statement.
12
<PAGE> 14
[PICTURE OF PRESSURE GAUGE]
THE TREMENDOUS FORCE OF OIL AND GAS RISING TO THE SURFACE AT THE WELLHEAD MADE
THE PRESSURE GAUGE AN ESSENTIAL SAFETY TOOL.
<PAGE> 15
PERMIAN BASIN ROYALTY TRUST
Notes to Financial Statements
1. TRUST ORGANIZATION AND PROVISIONS
THE PERMIAN BASIN ROYALTY TRUST ("TRUST") WAS ESTABLISHED AS OF NOVEMBER
1, 1980. NATIONSBANK OF TEXAS, 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 "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:
* 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;
* 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;
* the Trustee may establish a cash reserve for the payment of any
liability which is contingent or uncertain in amount;
* the Trustee is authorized to borrow funds to pay liabilities of the
Trust; and
* 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, 1995 AND 1994 AGGREGATED $6,917,588
AND $6,679,160, RESPECTIVELY.
3. BASIS OF ACCOUNTING
THE FINANCIAL STATEMENTS OF THE TRUST ARE PREPARED ON THE FOLLOWING BASIS:
* Royalty income recorded is the amount computed and paid by the working
interest owner to the Trustee on behalf of the Trust.
* 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.
14
<PAGE> 16
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.
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.
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, 1995 (in thousands, except per Unit
amounts):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Distributable
Income and
Royalty Distributable Distribution
Income Income Per Unit
-------- -------- ----------
<S> <C> <C> <C>
1995
- ----
First Quarter . . . $ 3,175 $ 3,034 $ .065097
Second Quarter . . 2,252 2,124 .045571
Third Quarter . . . 2,610 2,546 .054621
Fourth Quarter . . 3,978 3,928 .084285
Total . . . . $12,015 $ 11,632 $ .249574
1994
- ----
First Quarter . . . $ 6,270 $ 6,082 $ .130484
Second Quarter . . 1,525 1,364 .029255
Third Quarter . . . 4,243 4,184 .089769
Fourth Quarter . . 4,609 4,545 .097519
Total . . . . $16,647 $ 16,175 $ .347027
- ---------------------------------------------------------------------------
</TABLE>
8. OTHER PAYMENTS
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. 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 were subject to revision as
additional investigation of such underpayments was performed. The Trustee
engaged its independent accountants and independent petroleum engineers to
review certain information underlying such payments previously received from
Southland and determined that the amounts are reasonable.
15
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
NationsBank of Texas, 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 as of December 31, 1995 and 1994, and
the related statements of distributable income and changes in trust corpus for
each of the three years in the period ended December 31, 1995. 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 generally accepted auditing
standards. 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 the Trustee, 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 financial
statements were prepared on a modified cash basis, which is a comprehensive
basis of accounting other than generally accepted accounting principles.
In our opinion, such financial statements present fairly, in all material
respects, the assets, liabilities and trust corpus of the Permian Basin Royalty
Trust as of December 31, 1995 and 1994 and the distributable income and changes
in trust corpus for each of the three years in the period ended December 31,
1995 on the basis of accounting described in Note 3.
/s/ Deloitte & Touche LLP
Fort Worth, Texas
March 22, 1996
- --------------------------------------------------------------------------------
PERMIAN BASIN ROYALTY TRUST
500 West Seventh Street, Suite 1300 TAX COUNSEL
Post Office Box 1317 Butler & Binion, L.L.P.
Fort Worth, Texas 76101 Houston, Texas
NationsBank of Texas, N.A., Trustee
TRANSFER AGENT
AUDITORS Chemical Mellon Shareholder
Deloitte & Touche LLP Services, L.L.C.
Fort Worth, Texas c/o Chemical Bank
New York, New York
LEGAL COUNSEL
Shannon, Gracey, Ratliff &
Miller, L.L.P.
Fort Worth, Texas
Design: Witherspoon & Associates
Photography: Studio 44
Oil field supplies courtesy of East Texas Oil Museum,
Kilgore College, Kilgore, Texas
Printed on recycled paper
16
<PAGE> 18
================================================================================
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 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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
Incorporation or Organization) Identification No.)
NATIONSBANK OF TEXAS, N.A.
TRUST DEPARTMENT
P.O. BOX 1317
FORT WORTH, TEXAS 76101
(Address of Principal Executive Offices) (Zip Code)
(817) 390-6905
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
---------------------------- -----------------------------------------
UNITS OF BENEFICIAL INTEREST NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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 27, 1996, there were 46,608,796 Units of Beneficial Interest of
the Trust outstanding with an aggregate market value on that date of
$145,652,487.
DOCUMENTS INCORPORATED BY REFERENCE
"Units of Beneficial Interest" at page 2; "Trustee's Discussion and
Analysis for the Three-Year Period Ended December 31, 1995" at pages 8 and 9;
"Results of the 4th Quarters of 1995 and 1994" at page 10; 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 12 et seq., in registrant's Annual Report
to security holders for fiscal year ended December 31, 1995 are incorporated
herein by reference for Item 5 (Market for Units of the Trust and Related
Security Holder Matters), Item 7 (Management's Discussion and Analysis of
Financial Condition and Results of Operation) and Item 8 (Financial Statements
and Supplementary Data) of Part II of this Report.
================================================================================
<PAGE> 19
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. NationsBank of Texas, N.A. (formerly known as NCNB Texas
National Bank), 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 500 West Seventh Street, Fort Worth,
Texas (telephone number 817/390-6905).
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 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 were carved out of and now burden those properties and
interests as are more particularly described under "Item 2. PROPERTIES" herein.
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 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, has the rights, powers and
privileges and assumed all of the liabilities and obligations of Southland
Royalty.
The term "net proceeds" as used in the above conveyance means the excess of
"gross proceeds" received by MOI during a particular period over "production
costs" for such period. "Gross proceeds" means the amount received by MOI (or
any subsequent owner of the interests from which the Royalties were carved) from
the sale of the production attributable to the properties and interests from
which the Royalties were carved, subject to certain adjustments. "Production
costs" means, generally, costs incurred on an accrual basis in operating the
properties and interests out of which the Royalties were carved, 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
1
<PAGE> 20
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 amount, plus interest, at a rate
specified in the conveyance.
To the extent it has the legal right to do so, MOI 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. MOI
also has the obligation to maintain books and records sufficient to determine
the amounts payable to the Trustee. MOI, however, can sell its interests in the
properties from which the Royalties were carved.
Proceeds from production in the first month are generally received by MOI
in the second month, the net proceeds attributable to the Royalties are paid by
MOI 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.
MOI has advised the Trust that it believes that comparable revenues could
be obtained in the event of a change in purchasers of production.
ITEM 2. PROPERTIES
The net overriding royalties conveyed to the Trust include: (1) a 75% net
overriding royalty carved out of Southland Royalty'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'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. References
below to "net" wells and acres are to the interests of Southland Royalty (from
which the Royalties were carved) in the "gross" wells and acres.
The following information in Item 2 is based upon data and information
furnished to the Trustee by Southland Royalty or MOI.
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,
1995, the
2
<PAGE> 21
Waddell Ranch properties contained 880 gross (373 net) productive oil wells, 156
gross (65 net) productive gas wells and 303 gross (124 net) injection wells.
Effective May 1, 1991, Chevron USA, Inc. ("Chevron") resigned as operator
of the Waddell Ranch properties. Southland Royalty was named the operator of
record. All field, technical and accounting operations have been contracted by
an agreement between the working interest owners and Coastal Management
Corporation but remain under the direction of Southland Royalty, now MOI.
The Waddell Ranch properties are mature producing properties, and all of
the major oil fields are currently being waterflooded. Proved reserves and
estimated future net revenues attributable to the properties are included in the
reserve reports summarized below. MOI 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 MOI. 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. During 1995 there were 32
gross (14.075 net) oil wells drilled on the Waddell Ranch properties. At
December 31, 1995 there were 3 gross (.8 net) wells in progress on the Waddell
Ranch properties. During 1994 there were 22 gross (9.875 net) wells drilled on
the Waddell Ranch properties. At December 31, 1994 there were no wells in
progress on the Waddell Ranch properties. During 1993 there were 15 gross (6.75
net) wells drilled on the Waddell Ranch properties. At December 31, 1993 there
were 4 gross (2 net) wells in progress on the Waddell Ranch properties. During
1992 there were 2 gross (1 net) wells drilled on the Waddell Ranch properties.
MOI has advised the Trust that the total amount of capital expenditures for
1995 with regard to the Waddell Ranch properties totalled $10,504,989. Capital
expenditures include the cost of the 1995 drilling program and remedial and
maintenance activities. MOI has advised the Trust that the capital expenditures
budget for 1996 totals $9,630,000, of which $2,740,000 is attributable to the
1996 development program, $5,860,000 to workovers and recompletions, $600,000 to
a seismic program and $430,000 to capital expenditures that were accrued in 1995
but were not included in the royalty calculations until 1996. Accordingly, there
is an estimated 8.3% decrease in capital expenditures for 1996 as compared with
the 1995 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.
Approximately $1.3 million in ad valorem taxes related to 1991 through 1994
for the Texas Royalty properties that Southland Royalty did not previously
charge to gross proceeds attributable to the Trust is being charged to the Trust
over 12 months beginning March 1995. Such amount is being charged by deducting
$87,000 per month from gross proceeds attributable to the Texas Royalty
properties in calculating royalty income from such properties. To the extent
charges are made to gross proceeds, the amount of funds available for
distribution to Unit holders will be reduced.
3
<PAGE> 22
OIL AND GAS PRODUCTION
The Trust recognizes production during the month in which the related
distribution is received. Production of oil and gas and related average sales
prices attributable to the Royalties for the three years ended December 31,
1995, excluding portions attributable to the adjustments discussed below, were
as follows:
<TABLE>
<CAPTION>
WADDELL TEXAS
RANCH ROYALTY
PROPERTIES PROPERTIES TOTAL
------------------------------ ---------------------------- -------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
-------- -------- -------- ------- -------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Production
Oil (barrels).............. 262,221 260,536 463,924 330,922 400,573 399,705 593,143 661,109 863,629
Gas (Mcf).................. 1,289,005 1,366,386 2,446,838 616,294 731,832 720,025 1,905,299 2,098,218 3,166,863
Average Price
Oil/barrel................. $16.84 $16.01 $16.84 $15.71 $13.84 $15.63 $16.55 $14.69 $16.28
Gas/Mcf.................... $ 1.59 $ 1.70 $ 2.06 $ 1.55 $ 1.73 $ 2.01 $ 1.58 $ 1.71 $ 2.05
</TABLE>
As a result of an issue raised by the Trustee during March 1994 regarding
potential underpayments of royalty income by Southland Royalty from the Texas
Royalty properties beginning January 1991, the March 1994 royalty income
included a payment by Southland Royalty of $2.9 million, or $.062261 per Unit.
Further net revisions resulted in additional payments to the Trust by Southland
Royalty of approximately $221,000 and $133,000 in the quarters ended June 30,
1994, and September 30, 1994, respectively. The payments made by Southland
Royalty were estimates of previous underpayments of royalty income to the Trust
and were subject to revision as additional investigation of such underpayments
was performed by MOI and the Trustee. The Trustee engaged its independent
accountants and independent petroleum engineers to review certain information
underlying such payments previously received from MOI, and has determined that
the amounts are reasonable.
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
Royalty, and now MOI, 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 Royalty of
the reservation of the Trust's right to question certain lease expenses and the
adequacy of prices obtained by Southland Royalty 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 Royalty,
regarding the adequacy of prices obtained by Southland Royalty for oil
production during the period May 1991 through February 1993, was resolved. As a
result of the settlement of such dispute, Southland Royalty 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 Royalty that
for the period August 1, 1993, through June 30, 1994, and for the period July 1,
1994, through June 30, 1995 and July 1, 1995 through June 30, 1996, the oil from
the Waddell Ranch properties is being sold under a competitive bid to a third
party.
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,
Southland Royalty is not furnished detailed information regarding sales of oil
and gas from the Texas Royalty properties.
Oil. The Trustee has been advised by Southland Royalty that for the periods
August 1, 1993, through June 30, 1994, July 1, 1994 through June 30, 1995 and
July 1, 1995 through June 30, 1996, the oil from the Waddell Ranch properties is
being sold under a competitive bid to a third party.
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 Meridian Oil Hydrocarbons Inc., an
4
<PAGE> 23
indirect subsidiary of BRI. The processor of the gas (Warren Petroleum Company)
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. "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 December 31, 1992 through
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
WADDELL RANCH TEXAS ROYALTY
PROPERTIES PROPERTIES TOTAL
---------------- --------------- ----------------
OIL GAS OIL GAS OIL GAS
(BBLS) (MCF) (BBLS) (MCF) (BBLS) (MCF)
------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1992................................................ 7,391 29,499 5,377 5,625 12,768 35,124
Extensions, discoveries and other additions...................... -0- -0- -0- -0- -0- -0-
Revisions of previous estimates.................................. (1,392) (2,414) (37) (116) (1,429) (2,530)
Production....................................................... (464) (2,447) (400) (720) (864) (3,167)
------ ------ ------ ----- ------ ------
December 31, 1993................................................ 5,535 24,638 4,940 4,789 10,475 29,427
Extensions, discoveries and other additions...................... -0- -0- -0- -0- -0- -0-
Revisions of previous estimates.................................. 763 1,808 333 888 1,096 2,696
Production....................................................... (261) (1,366) (570) (852) (831) (2,218)
------ ------ ------ ----- ------ ------
December 31, 1994................................................ 6,037 25,080 4,703 4,825 10,740 29,905
Extensions, discoveries and other additions...................... 49 28 -0- -0- 49 28
Revisions of previous estimates.................................. 128 1,024 205 664 333 1,688
Production....................................................... (262) (1,289) (331) (616) (593) (1,905)
------ ------ ----- ----- ------ ------
December 31, 1995................................................ 5,952 24,843 4,577 4,873 10,529 29,716
====== ====== ====== ===== ====== ======
</TABLE>
The production volumes for 1994 for the Texas Royalty properties include
volumes associated with the Other Payments received during 1994. See discussion
of Other Payments in Note 8 in the Notes to Financial Statements of the Trust's
Annual Report to security holders for the year ended December 31, 1995.
5
<PAGE> 24
Estimated quantities of proved developed reserves of crude oil and natural
gas as of December 31, 1995, 1994 and 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
CRUDE NATURAL
OIL GAS
(BBLS) (MCF)
------ -------
<S> <C> <C>
1995........................................................ 9,061 23,467
1994........................................................ 9,465 24,172
1993........................................................ 9,463 24,886
</TABLE>
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.
The 1995, 1994 and 1993 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):
<TABLE>
<CAPTION>
WADDELL RANCH PROPERTIES TEXAS ROYALTY PROPERTIES TOTAL
---------------------------- --------------------------- ------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
------- ------- -------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1......................... $64,730 $55,544 $ 84,740 $33,660 $27,842 $40,448 $ 98,390 $ 83,386 $125,188
Extensions, discoveries and other
additions....................... 457 -0- -0- -0- -0- -0- 457 -0- -0-
Accretion of discount............. 6,473 5,554 8,474 3,366 2,784 4,045 9,839 8,338 12,519
Revisions of prior year
estimates, changes in price
and other....................... 8,548 10,612 (25,563) 5,175 12,701 (9,351) 13,723 23,313 (34,914)
Royalty income.................... (6,138) (6,980) (12,107) (5,877) (9,667) (7,300) (12,015) (16,647) (19,407)
------- ------- -------- ------- ------- ------- -------- -------- --------
December 31....................... $74,070 $64,730 $ 55,544 $36,324 $33,660 $27,842 $110,394 $ 98,390 $ 83,386
======= ======= ======== ======= ======= ======= ======== ======== ========
</TABLE>
Oil and gas prices of $18.02 and $16.19 per barrel and $1.94 and $1.75 per
Mcf were used to determine the estimated future net revenues from the Waddell
Ranch properties and the Texas Royalty properties at December 31, 1995. The
extension, discoveries and other additions for the Waddell Ranch properties are
proved undeveloped reserves related to field extension development for the
Waddell Field. The upward revisions of both reserves and discounted future net
cash flows for the Waddell Ranch properties are due to the increases in oil
prices as well as production response from drilling and remedial activities on
the Dune Field, Sand Hills (Judkins) Field, Sand Hills (Tubb) Field and the
Waddell Field. The upward revisions of reserves and discounted future net cash
flows for the Texas Royalty properties are due to the increase in oil prices at
December 31, 1995.
Oil and gas prices of $15.60 and $14.50 per barrel and $1.87 and $1.75 per
Mcf were used to determine the estimated future net revenues from the Waddell
Ranch properties and the Texas Royalty properties at December 31, 1994. The
upward revision of the estimated oil reserves and the related increase in the
discounted future net cash flow for the Waddell Ranch properties was primarily
due to the increase in oil prices from 1993 to 1994. The upward revision of the
estimated gas reserves for the Waddell Ranch properties was primarily due to the
production response resulting from remedial work performed during 1994. The
adjustment in the oil and gas reserves and the related discounted cash flow for
the Texas Royalty properties are due to a revision in the forecast based on
revised net production data received from Southland Royalty.
Oil and gas prices of $12.30 and $11.50 per barrel and $2.20 and $1.75 per
Mcf were used to determine the estimated future net revenues from the Waddell
Ranch properties and the Texas Royalty properties at
6
<PAGE> 25
December 31, 1993. During 1993 the downward revision of estimated reserves and
estimated future net revenues is primarily due to the decrease in the price of
oil in 1993 as compared to 1992.
The following presents estimated future net revenue and present value of
estimated future net revenue, for each of the years ended December 31, 1995,
1994 and 1993 (in thousands except amounts per Unit):
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ---------------------- ----------------------
ESTIMATED ESTIMATED ESTIMATED
FUTURE PRESENT FUTURE PRESENT FUTURE PRESENT
NET VALUE NET VALUE NET VALUE
REVENUE AT 10% REVENUE AT 10% REVENUE AT 10%
--------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Proved
Waddell Ranch properties.................. $147,068 $ 74,070 $133,373 $ 64,730 $115,091 $ 55,544
Texas Royalty properties.................. 78,586 36,324 72,870 33,660 61,955 27,842
-------- --------- -------- -------- --------- --------
Total............................... $225,654 $ 110,394 $206,243 $ 98,390 $177,046 $ 83,386
======== ======== ======== ======== ======== ========
Total Proved Per Unit....................... $ 4.84 $ 2.37 $ 4.42 $ 2.11 $ 3.80 $ 1.79
======== ======== ======== ======== ======== ========
Proved Developed
Waddell Ranch properties.................. $110,611 $ 60,600 $104,470 $ 53,260 $ 93,961 $ 49,308
Texas Royalty properties.................. 78,586 36,324 72,870 33,660 61,955 27,842
-------- --------- -------- -------- --------- --------
Total............................... $189,197 $ 96,924 $177,340 $ 86,920 $155,916 $ 77,150
======== ======== ======== ======== ======== ========
</TABLE>
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.
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. The Federal Energy
Regulatory Commission ("FERC") is primarily responsible for federal regulation
of natural gas.
Natural Gas Regulation
The interstate transportation and sale for resale of natural gas is subject
to federal governmental regulation, including regulation of tariffs charged and
various other matters, by FERC. The Natural Gas Wellhead Decontrol Act of 1989
terminated federal price controls on wellhead sales of domestic natural gas on
January 1, 1993.
In 1992, FERC issued Orders Nos. 636 and 636-A, which generally opened
access to interstate gas pipelines by requiring such pipelines to "unbundle"
their transportation services and allow shippers to choose and pay for only the
services they require, regardless of whether the shipper purchases gas from such
pipelines or from other suppliers. These orders also require upstream pipelines
to permit downstream pipelines to assign upstream capacity to their shippers and
place analogous, unbundled access requirements on the downstream pipelines.
Although these orders should generally have the effect of facilitating the
transportation of gas produced from the properties from which the Royalties were
carved, as well as to facilitate the direct access to
7
<PAGE> 26
end-user markets, the impact of these orders on marketing production from the
properties from which the Royalties were carved cannot be predicted at this
time.
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 Trust does not believe that compliance with these
laws by the operating parties will have any material adverse effect upon the
Unit holders.
ITEM 3. LEGAL PROCEEDINGS
At December 31, 1995, there were no material pending legal proceedings,
other than ordinary routine litigation, to which the Trust is a party or, based
on information provided by Southland Royalty, to which any of the Trust's
properties are 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, 1995.
8
<PAGE> 27
PART II
ITEM 5. MARKET FOR UNITS OF THE TRUST AND RELATED SECURITY HOLDER MATTERS
The information under "Units of Beneficial Interest" at page 2 of the
Trust's Annual Report to security holders for the year ended December 31, 1995,
is herein incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Royalty income................................ $12,014,623 $16,646,903 $19,407,568 $21,491,861 $24,035,443
Distributable income.......................... 11,632,463 16,174,570 18,759,882 21,029,750 23,554,647
Distributable income per Unit................. 0.249574 0.347027 0.402496 0.451198 0.505368
Distributions per Unit........................ 0.249574 0.347027 0.402496 0.451198 0.505368
Total assets, December 31..................... 5,252,922 6,002,283 6,284,735 6,868,543 7,482,093
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The "Trustee's Discussion and Analysis for the Three-Year Period Ended
December 31, 1995" and "Results of the 4th Quarters of 1995 and 1994" at pages
8, 9 and 10 of the Trust's Annual Report to security holders for the year ended
December 31, 1995 is herein incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Trust and the notes thereto at page 12 et
seq. of the Trust's Annual Report to security holders for the year ended
December 31, 1995, 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, 1995.
9
<PAGE> 28
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 year ended December 31, 1995, the Trustee received total
remuneration as follows:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL CAPACITIES
OR NUMBER OF IN WHICH CASH
PERSONS IN GROUP SERVED COMPENSATION
- -------------------------- --------- ------------
<S> <C> <C>
NationsBank of Texas, N.A...................... Trustee $60,575(1)
</TABLE>
- ---------------
(1) Under the Trust Indenture, the Trustee is entitled to an administrative fee
for its administrative services, preparation of quarterly and annual
statements with attention to tax and legal matters of: (i) 1/20 of 1% of the
first $100 million of annual gross revenue of the Trust and 1/30 of 1% in
excess of $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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners. The following table
sets forth as of December 31, 1995, information with respect to each person
known to own beneficially more than 5% of the outstanding Units of the Trust:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) OF CLASS
- ---------------------------------- ----------------------- --------
<S> <C> <C>
Meridian Oil Inc.(1) 27,577,741 Units 59.17%
5051 Westheimer
Suite 1400
Houston, Texas 77056-2124
</TABLE>
- ---------------
(1) This information was provided to the Securities and Exchange Commission and
to the Trust in a Form 4 dated January 6, 1994, filed with the Securities
and Exchange Commission by Southland Royalty, a wholly-owned subsidiary of
BRI, and in Amendment 5 to Schedule 13D and Schedule 13E-3 dated December
28, 1993, filed with the Securities and Exchange Commission by Southland
Royalty and BRI. Such Units were reported to be owned directly by Southland
Royalty, now MOI.
The Form 4 filed by Southland Royalty and the Schedule 13D and Schedule
13E-3 filed by Southland Royalty and BRI 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, NationsBank of Texas,
N.A. owned as of March 7, 1996 an aggregate of 100,000 Units with no right to
vote any of these Units. Such Bank disclaims any beneficial interests in these
Units. The number of Units reflected in this paragraph includes Units held by
all branches of NationsBank of Texas, N.A.
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 year ended December 31, 1995 and
Item 12(b) for information concerning Units owned by NationsBank of Texas, N.A.
in various fiduciary capacities.
10
<PAGE> 29
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:
FINANCIAL STATEMENTS
Included in Part II of this Report by reference to the Annual Report of the
Trust for the year ended December 31, 1995:
Independent Auditors' Report
Statements of Assets, Liabilities and Trust Corpus
Statements of Distributable Income
Statements of Changes in Trust Corpus
Notes to Financial Statements
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.
EXHIBITS
<TABLE>
<S> <C>
(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.*
(13) -- Registrant's Annual Report to security holders for fiscal year ended
December 31, 1995.**
(23) -- Consent of Cawley, Gillespie & Associates, Inc., reservoir engineer.**
(27) -- Financial Data Schedule.**
</TABLE>
- ---------------
* 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.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Trust with the Securities and
Exchange Commission during the last quarter of the Trust's fiscal year ended
December 31, 1995.
11
<PAGE> 30
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.
NATIONSBANK OF TEXAS, N.A.
TRUSTEE OF THE PERMIAN BASIN
ROYALTY TRUST
By /s/ PAMELA J. BRADLEY
----------------------------------
(Pamela J. Bradley)
Vice President
Date: March 30, 1996
(The Trust has no directors or executive officers.)
12
<PAGE> 1
[CAWLEY, GILLESPIE & ASSOCIATES, INC. LETTERHEAD]
March 29, 1996
Permian Basin Royalty Trust
500 West 7th Street, Suite 1300
P.O. Box 1317
Fort Worth, Texas 76101
Gentlemen:
Cawley, Gillespie & Associates, Inc. hereby consents to the use of the
oil and gas reserve information in the Permian Basin Royalty Trust Securities &
Exchange Commission Form 10-K for the year ended December 31, 1995 and in the
Permian Basin Royalty Trust Annual Report for the year ended December 31, 1995,
based on reserve reports date March 29, 1996 prepared by Cawley, Gillespie &
Associates, Inc.
Sincerely,
/s/ CAWLEY, GILLESPIE & ASSOCIATES, INC.
<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 DECEMBER 31, 1995, AND THE RELATED CONDENSED
STATEMENTS OF DISTRIBUTABLE INCOME AND CHANGES IN TRUST CORPUS FOR THE
TWELVE-MONTH PERIOD ENDED DECEMBER 31, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,195,294
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,195,294
<PP&E> 10,975,216
<DEPRECIATION> 6,917,588
<TOTAL-ASSETS> 5,252,922
<CURRENT-LIABILITIES> 1,195,294
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,057,628
<TOTAL-LIABILITY-AND-EQUITY> 5,252,922
<SALES> 0
<TOTAL-REVENUES> 12,039,866
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 407,403
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,632,463
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,632,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,632,463
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
