SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1996
Commission File No. 1-8033
PERMIAN BASIN ROYALTY TRUST
Texas I.R.S. No. 75-6280532
NationsBank of Texas, N.A., Trust Department
P. O. Box 1317
Fort Worth, Texas 76101
Telephone Number 817/390-6905
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Number of Units of beneficial interest of the Trust outstanding at
August 14, 1996: 46,608,796
Page 1 of 12
PERMIAN BASIN ROYALTY TRUST
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
The condensed financial statements included herein have been prepared by
NationsBank of Texas, N.A. as Trustee for the Permian Basin Royalty Trust,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements have been condensed or omitted
pursuant to such rules and regulations, although the Trustee believes that
the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Trust's latest annual report on Form 10-K. In the opinion
of the Trustee, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the assets, liabilities and trust
corpus of the Permian Basin Royalty Trust at June 30, 1996, and the
distributable income and changes in trust corpus for the three-month and
six-month periods ended June 30, 1996 and 1995 have been included. The
distributable income for such interim periods is not necessarily indicative
of the distributable income for the full year.
Deloitte & Touche LLP, independent certified public accountants, has made a
limited review of the condensed financial statements as of June 30, 1996 and
for the three-month and six-month periods ended June 30, 1996 and 1995
included herein.
-2-
INDEPENDENT ACCOUNTANTS' REPORT
NationsBank of Texas, N.A. as Trustee
for the Permian Basin Royalty Trust:
We have reviewed the accompanying condensed statement of assets, liabilities
and trust corpus of the Permian Basin Royalty Trust as of June 30, 1996 and
the related condensed statements of distributable income and changes in trust
corpus for the three-month and six-month periods ended June 30, 1996 and
1995. These financial statements are the responsibility of the Trustee.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
The accompanying condensed financial statements are prepared on a modified
cash basis as described in Note 1, which is a comprehensive basis of
accounting other than generally accepted accounting principles.
Based on our reviews, we are not aware of any material modifications that
should be made to such condensed financial statements for them to be in
conformity with the basis of accounting described in Note 1.
We have previously audited, in accordance with generally accepted auditing
standards, the statement of assets, liabilities and trust corpus of the Permian
Basin Royalty Trust as of December 31, 1995, and the related statements of
distributable income and changes in trust corpus for the year then ended (not
presented herein); and in our report dated March 22, 1996, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed statement of assets,
liabilities and trust corpus as of December 31, 1995 is fairly stated, in all
material respects, in relation to the statement of assets, liabilities and
trust corpus from which it has been derived.
DELOITTE & TOUCHE LLP
August 1, 1996
-3-
PERMIAN BASIN ROYALTY TRUST
Condensed Statements of Assets, Liabilities and Trust Corpus
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
(Unaudited)
<C> <C>
Cash and short-term investments $ 1,854,456 $ 1,195,294
Net overriding royalty interests in
producing oil and gas properties
(net of accumulated amortization
of $7,025,201 and $6,917,588 at
June 30, 1996 and December 31, 1995) 3,950,015 4,057,628
------------ ----------
$ 5,804,471 $ 5,252,922
============ ===========
LIABILITIES AND TRUST CORPUS
Distribution payable to Unit holders $ 1,854,456 $ 1,195,294
Trust corpus - 46,608,796 Units of
beneficial interest authorized
and outstanding 3,950,015 4,057,628
------------ -----------
$ 5,804,471 $ 5,252,922
============ ===========
Condensed Statements of Distributable Income (unaudited)
------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Royalty income $3,839,220 $2,251,940 $6,409,261 $5,426,356
Interest income 3,996 4,541 11,728 13,852
------------ --------- ---------- ---------
3,843,216 2,256,481 6,420,989 5,440,208
General and administrative
expenditures 143,348 132,460 267,756 282,042
----------- ---------- ---------- ----------
Distributable income $3,699,868 $2,124,021 $6,153,233 $5,158,166
=========== ========== ========== ==========
Distributable income per
Unit (46,608,796 Units) $ .079382 $ .045571 $ .132019 $ .110668
========== ========== ========== ==========
The accompanying notes to condensed financial statements are an integral part of this statement.
-4-
PERMIAN BASIN ROYALTY TRUST
Condensed Statements of Changes in Trust Corpus (unaudited)
---------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Trust corpus, beginning
of period $4,009,018 $4,231,625 $4,057,628 $ 4,296,056
Amortization of net
overriding royalty
interests (59,003) (46,390) (107,613) (110,821)
Distributable income 3,699,868 2,124,021 6,153,233 5,158,166
Distributions declared (3,699,868) (2,124,021) (6,153,233) (5,158,166)
---------- ---------- ---------- ----------
Trust corpus,
end of period $3,950,015 $4,185,235 $3,950,015 $4,185,235
========== ========== ========== ==========
The accompanying notes to condensed financial statements are an integral part of this statement.
</TABLE>
-5-
PERMIAN BASIN ROYALTY TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------------------------------
1. BASIS OF ACCOUNTING
The Permian Basin Royalty Trust ("Trust") was established as of November 1,
1980. The financial statements of the Trust are prepared on the following
basis:
* Royalty income recorded for a month is the amount computed and paid by the
interest owner, Burlington Resources Oil & Gas Company ("Burlington"), to
NationsBank of Texas, N.A. ("Trustee") as Trustee for the Trust. Royalty
income consists of the amounts received by the owner of the interest
burdened by the net overriding royalty interests ("Royalties") from the
sale of production less accrued production costs, development and drilling
costs, applicable taxes, operating charges, and other costs and deductions
multiplied by 75% in the case of the Waddell Ranch Properties and 95% in
the case of the Texas Royalty Properties.
* Trust expenses recorded are based on liabilities paid and cash reserves
established out of cash received or borrowed funds for liabilities and
contingencies.
* Distributions to Unit holders are recorded when declared by the Trustee.
* The conveyance which transferred the overriding royalty interest to the
Trust provides that any excess of production costs over gross proceeds
must be recovered from future net profits.
The financial statements of the Trust differ from financial statements prepared
in accordance with generally accepted accounting principles ("GAAP") because
revenues are not accrued in the month of production and certain cash reserves
may be established for contingencies which would not be accrued in financial
statements prepared in accordance with GAAP. Amortization of the Royalties
calculated on a unit-of-production basis is charged directly to trust corpus.
2. FEDERAL INCOME TAXES
For Federal income tax purposes, the Trust constitutes a fixed investment trust
which is taxed as a grantor trust. A grantor trust is not subject to tax at
the trust level. The Unit holders are considered to own the Trust's income and
principal as though no trust were in existence. The income of the Trust is
deemed to have been received or accrued by each Unit holder at the time such
income is received or accrued by the Trust and not when distributed by the
Trust.
The Royalties constitute "economic interests" in oil and gas properties for
Federal income tax purposes. Unit holders must report their share of the
revenues of the Trust as ordinary income from oil and gas royalties and are
entitled to claim depletion with respect to such income.
The Trust has on file technical advice memoranda confirming the tax treatment
described above.
The classification of the Trust's income for purposes of the passive loss rules
may be important to a Unit holder. As a result of the Tax Reform Act of 1986,
royalty income will generally be treated as portfolio income and will not
offset passive losses.
* * * * * *
-6-
Item 2. Trustee's Discussion and Analysis
Three Months Ended June 30, 1996 and 1995
In the quarter ended June 30, 1996, royalty income received by the Trust
amounted to $3,839,220 compared to $2,251,940 during the second quarter of
1995. Interest income for the quarter ended June 30, 1996 was $3,996 compared
to $4,541 during the second quarter of 1995. General and administrative
expenses during the second quarter of 1996 amounted to $143,348 compared to
$132,460 during the second quarter of 1995. The increase in general and
administrative expenses can be attributed primarily to timing differences in
the receipt and payment of these expenses.
These transactions resulted in distributable income for the quarter ended
June 30, 1996 of $3,699,868 or $.079382 per Unit of beneficial interest.
Distributions of $.024986, $.014608 and $.039788 per Unit were made to Unit
holders of record as of April 30, May 31 and June 28, 1996, respectively. For
the second quarter of 1995, distributable income was $2,124,021 or $.045571 per
Unit of beneficial interest.
The Trust has been advised that effective January 1, 1996, Southland Royalty
Company was merged with and into Meridian Oil Inc. ("Meridian"), a Delaware
corporation, with Meridian being the surviving corporation. Meridian succeeded
to the ownership of all the assets, has the rights, powers and privileges and
assumed all of the liabilities and obligations of Southland. Effective
July 11, 1996 Meridian changed its name to Burlington Resources Oil & Gas
Company ("Burlington").
Royalty income for the Trust for the second quarter of the calendar year is
associated with actual oil and gas production for the period February through
April from the properties from which the Trust's net overriding royalty
interests ("Royalties") were carved. Oil and gas sales attributable to the
Royalties and the properties from which the Royalties were carved are as
follows:
Second Quarter
------------------------
1996 1995
ROYALTIES:
Oil Sales (Bbls) 153,105 115,981
Gas sales (Mcf) 511,774 313,252
PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED:
Oil:
Total oil sales (Bbls) 438,225 394,643
Average per day (Bbls) 4,870 4,434
Average price per Bbl $19.57 $17.13
Gas:
Total gas sales (Mcf) 1,815,559 1,905,662
Average per day (Mcf) 20,173 21,412
Average price per Mcf $2.15 $1.45
The posted price of oil increased for the second quarter of 1996 compared to
the second quarter of 1995, resulting in an average price per barrel of $19.57
compared to $17.13 in the second quarter of 1995. The Trust has been advised
by Burlington that for the period August1, 1993 through June 30, 1997, the oil
from the Waddell Ranch is being sold under a competitive bid to a third party.
The increase in the average price of gas from $1.45 in the second quarter of
1995 to $2.15 in the second quarter of 1996 is primarily the result of an
increase in the spot prices of natural gas.
-7-
Since the oil and gas sales attributable to the Royalties are based on an
allocation formula that is dependent on such factors as price and cost
(including capital expenditures), those production amounts do not provide a
meaningful comparison. The increase in oil sales from the properties from
which the Royalties were carved is primarily a result of a 20% increase in
production from the Waddell Ranch properties due to successful drilling,
remedial and maintenance programs offset by the natural decline in production
from the Texas Royalty properties. The gas sales from the properties from
which the Royalties were carved were relatively unchanged for the second
quarter of 1996 compared to the second quarter of 1995.
Capital expenditures for drilling, remedial and maintenance activities on the
Waddell Ranch properties during the second quarter of 1996 totaled $4 million
as compared to $3.6 million for the second quarter of 1995. Burlington has
informed the Trust that the 1996 capital expenditures budget is $9.6 million,
of which $8.4 million has been expended through the second quarter of 1996.
The total amount of capital expenditures for 1995 was $10.5 million.
The Trust has been advised by Burlington that there were 16 gross (6.4 net)
wells drilled and completed during the three months ended June 30, 1996 and
there were 2 gross (1.0 net) wells in progress. During the three months
ended June 30, 1995, there were 9 gross (3.625 net) wells completed and there
were 7 gross (3.5 net) wells in progress.
Lease operating expense and property taxes totaled $3.1 million for the second
quarter of 1996 compared to $2.8 million in the second quarter of 1995. This
increase is primarily attributable to an increase in lease operating expense on
the Waddell Ranch properties due to an increased number of wells operated.
Six Months Ended June 30, 1996 and 1995
For the six months ended June 30, 1996, royalty income received by the Trust
amounted to $6,409,261 compared to royalty income of $5,426,356 for the six
months ended June 30, 1995. Interest income for the six months ended June 30,
1996 was $11,728 compared to $13,852 during the six months ended June 30, 1995.
General and administrative expenses for the six months ended June 30, 1996 were
$267,756. During the six months ended June 30, 1995, general and
administrative expenses were $282,042. The decrease in general and
administrative expenses is primarily due to timing differences in the receipt
and payment of these expenses.
These transactions resulted in distributable income for the six months ended
June 30, 1996 of $6,153,233 or $.132019 per Unit. For the six months ended
June 30, 1995, distributable income was $5,158,166 or $.110668 per Unit.
-8-
Royalty income for the Trust for the period ended June 30, 1996 is associated
with actual oil and gas production for the period November 1995 through April
1996 from the properties from which the Royalties were carved. Oil and gas
production attributable to the Royalties and the properties from which the
Royalties were carved are as follows:
First Six Months
------------------------
1996 1995
ROYALTIES:
Oil Sales (Bbls) 281,205 274,108
Gas sales (Mcf) 854,812 827,201
PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED:
Oil:
Total oil sales (Bbls) 889,258 794,130
Average per day (Bbls) 4,886 4,387
Average price per Bbl $18.34 $16.53
Gas:
Total gas sales (Mcf) 3,606,650 3,739,645
Average per day (Mcf) 19,817 20,661
Average price per Mcf $2.0 $1.60
The average price of oil increased during the six months ended June 30, 1996,
compared to the same period in 1995, $18.34 per barrel as compared to $16.53
per barrel. The increase in the average price of oil is primarily due to
increases in the posted price for oil. The increase in the average price of
gas from $1.60 per Mcf for the six months ended June 30, 1995 to $2.04 per Mcf
for the six months ended June 30, 1996 is primarily the result of an increase
in the spot prices of natural gas.
Since the oil and gas sales attributable to the Royalties are based on an
allocation formula that is dependent on such factors as price and cost
(including capital expenditures), the production amounts do not provide a
meaningful comparison. The increase in oil sales from the properties from
which the Royalties were carved is primarily a result of an 18% increase in
production from the Waddell Ranch properties due to successful drilling,
remedial and maintenance programs. The gas sales from the properties from
which the Royalties are carved were relatively unchanged for the applicable
period of 1996 compared to 1995.
The Trust has been advised by Burlington that 20 gross (8.3 net) productive
oil wells on the Waddell Ranch properties were drilled and completed during
the six months ended June 30, 1996, and that 13 gross (5.5 net) productive
oil wells on the Waddell Ranch properties were drilled and completed during
the six months ended June 30, 1995. Capital expenditures in 1996 totalled
$8,373,000 compared to $6,064,000 in 1995. Burlington has previously
advised the Trust that the 1996 capital expenditures budget should total
approximately $9.6 million.
Lease operating expense and property tax on the Waddell Ranch properties
increased from $4,935,000 in 1995 to $5,462,000 in 1996. The increase in lease
operating expense was primarily due to an increase in the number of wells
operated. Property tax on the Texas Royalty properties increased from
$681,000 in 1995 to $958,000 in 1996. This increase was primarily due to
general increases in ad valorem tax rates.
The Trust was advised by Burlington 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 was being made by Burlington deducting approximately
$87,000 per month from the gross proceeds
-9-
attributable to the Texas Royalty properties until the full amount of the
ad valorem was recovered in February 1996.
CALCULATION OF ROYALTY INCOME
The Trust's royalty income is computed as a percentage of the net profit from
the operation of the properties in which the Trust owns net overriding royalty
interests. These percentages of net profits are 75% and 95% in the case of the
Waddell Ranch Properties and the Texas Royalty Properties, respectively.
Royalty income received by the Trust for the three months ended June 30, 1996
and 1995 respectively, were computed as shown in the table below:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------
1996 1995
--------------------------- -------------------------
Waddell Texas Waddell Texas
Ranch Royalty Ranch Royalty
Properties Properties Properties Properties
<S> <C> <C> <C> <C>
Gross proceeds of sales from
properties from which the net
overriding royalties were carved:
Gas proceeds $ 6,799,341 $ 1,778,813 $ 4,955,839 $1,802,505
Oil proceeds 3,446,552 456,843 2,456,989 306,720
------------ ----------- ----------- ---------
Total 10,245,893 2,235,656 7,412,828 2,109,225
------------ ----------- ----------- ---------
Less:
Severance tax:
Oil 274,739 71,389 208,499 83,595
Gas 252,806 28,682 182,908 21,522
Lease operating expense and
property tax:
Oil and gas 2,657,089 482,511 2,335,324 460,261
Capital expenditures 4,036,192 3,639,049
------------ --------- ---------- --------
Total 7,220,826 582,582 6,365,780 565,378
------------ --------- ---------- ---------
Net profits 3,025,067 1,653,074 1,047,048 1,543,847
Net overriding royalty interest 75% 95% 75% 95%
------------ --------- --------- ----------
Royalty income $ 2,268,800 $ 1,570,420 $ 785,286 $ 1,466,654
============ =========== ========= ===========
</TABLE>
-10-
PART II - OTHER INFORMATION
Items 1 through 5.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4)(a) Permian Basin Royalty Trust Indenture dated November 3,
1980, between Southland Royalty Company (now Burlington
Resources Oil & Gas Company) and The First National Bank of
Fort Worth (now NationsBank of Texas, N.A.), as Trustee,
heretofore filed as Exhibit (4)(a) to the Trust's Annual
Report on Form 10-K to the Securities and Exchange
Commission for the fiscal year ended December 31, 1980 is
incorporated herein by reference.
(4)(b) Net Overriding Royalty Conveyance (Permian Basin Royalty
Trust) from Southland Royalty Company (now Burlington
Resources Oil & Gas Company) to The First National Bank of
Fort Worth (now NationsBank of Texas, N.A.), as Trustee,
dated November 3, 1980 (without Schedules), heretofore
filed as Exhibit (4)(b) to the Trust's Annual Report on
Form 10-K to the Securities and Exchange Commission for the
fiscal year ended December 31, 1980 is incorporated herein
by reference.
(4)(c) Net Overriding Royalty Conveyance (Permian Basin Royalty
Trust - Waddell Ranch) from Southland Royalty Company (now
Burlington Resources Oil & Gas Company) to The First
National Bank of Fort Worth (now NationsBank of Texas,
N.A.), as Trustee, dated November 3, 1980 (without
Schedules), heretofore filed as Exhibit (4)(c) to the
Trust's Annual Report on Form 10-K to the Securities and
Exchange Commission for the fiscal year ended December 31,
1980 is incorporated herein by reference.
(27) Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
June 30, 1996.
-11-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONSBANK OF TEXAS, N.A.
TRUSTEE FOR THE
PERMIAN BASIN ROYALTY TRUST
By /s/ PAMELA J. BRADLEY
------------------------
Pamela J. Bradley
Vice President
Date: August 14, 1996
(The Trust has no directors or executive officers.)
-12-
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
(4)(a) Permian Basin Royalty Trust Indenture dated
November 3, 1980, between Southland Royalty
Company (now Burlington Resources Oil & Gas
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 (now Burlington Resources Oil & Gas
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 (now Burlington
Resources Oil & Gas Company) to The First National
Bank of Fort Worth (now NationsBank of Texas,
N.A.), as Trustee, dated November 3, 1980
(without Schedules), heretofore filed as
Exhibit (4)(c) to the Trust's Annual Report
on Form 10-K to the Securities and Exchange
Commission for the fiscal year ended December 31,
1980 is incorporated herein by reference. *
(27) Financial Data Schedule **
* A copy of this Exhibit is available to any Unit holder, at the actual cost
of reproduction, upon written request to the Trustee, NationsBank of
Texas, N.A., P. O. Box 1317, Fort Worth, Texas 76101.
** Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS OF
PERMIAN BASIN ROYALTY TRUST AS OF JUNE 30, 1996, AND THE RELATED CONDENSED
STATEMENTS OF DISTRIBUTABLE INCOME AND CHANGES IN TRUST CORPUS FOR THE
THREE-MONTH PERIOD ENDED JUNE 30, 1996.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,854,456
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,854,456
<PP&E> 10,975,216
<DEPRECIATION> 7,025,201
<TOTAL-ASSETS> 5,804,471
<CURRENT-LIABILITIES> 1,854,456
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,950,015
<TOTAL-LIABILITY-AND-EQUITY> 5,804,471
<SALES> 0
<TOTAL-REVENUES> 3,843,216
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 143,348
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,699,868
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,699,868
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,699,868
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
