SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 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 outstanding at May 14, 1996:
46,608,796
- ----------
Page 1 of 11
PERMIAN BASIN ROYALTY TRUST
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements
The condensed financial statements included herein have been prepared by
NationsBank of Texas, N.A. as Trustee for the Permian Basin Royalty Trust,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements have been condensed or omitted
pursuant to such rules and regulations, although the Trustee believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be read
in conjunction with the financial statements and the notes thereto included
in the Trust's latest annual report on Form 10-K. In the opinion of the
Trustee, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the assets, liabilities and trust corpus of the
Permian Basin Royalty Trust at March 31, 1996, and the distributable income
and changes in trust corpus for the three-month periods ended March 31, 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, L.L.P. independent certified public
accountants, has made a review of the condensed financial statements
as of March 31, 1996 and for the three-month periods ended March 31, 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
March 31, 1996 and the related condensed statements of distributable
income and changes in trust corpus for the three-month periods ended
March 31, 1996 and 1995. These financial statements are the
responsibility of the Trustee.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
The accompanying condensed financial statements are prepared on a
modified cash basis as described in Note 1, which is a comprehensive
basis of accounting other than generally accepted accounting
principles.
Based on our review, we are not aware of any material modifications
that should be made to such condensed financial statements for them to
be in conformity with the basis of accounting described in Note 1.
We have previously audited, in accordance with generally accepted
auditing standards, the statement of assets, liabilities and trust
corpus of the Permian Basin Royalty Trust as of December 31, 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
May 10,1996
-3-
PERMIAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
Cash and short-term investments $ 507,321 $1,195,294
Net overriding royalty interests in producing
oil and gas properties (net of accumulated
amortization of $6,966,198 and $6,917,588
at March 31, 1996 and December 31, 1995,
respectively) 4,009,018 4,057,628
---------- ----------
$4,516,339 $5,252,922
========== ==========
LIABILITIES AND TRUST CORPUS
Distribution payable to Unit holders $ 507,321 $1,195,294
Trust corpus - 46,608,796 Units of beneficial
interest authorized and outstanding 4,009,018 4,057,628
---------- ----------
$4,516,339 $5,252,922
========== ==========
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1996 1995
<S> <C> <C>
Royalty income $2,570,041 $3,174,416
Interest income 7,732 9,311
---------- ----------
2,577,773 3,183,727
General and administrative expenditures 124,408 149,582
---------- ----------
Distributable income $2,453,365 $3,034,145
========== ==========
Distributable income per Unit (46,608,796 Units) $ .052637 $ .065097
========== ==========
</TABLE>
The accompanying notes to condensed financial statements are an integral
part of these statements.
-4-
PERMIAN BASIN ROYALTY TRUST
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1996 1995
<S> <C> <C>
Trust corpus, beginning of period $4,057,628 $4,296,056
Amortization of net overriding royalty interests (48,610) (64,431)
Distributable income 2,453,365 3,034,145
Distributions declared (2,453,365) (3,034,145)
---------- ----------
Trust corpus, end of period $4,009,018 $4,231,625
========== ==========
</TABLE>
The accompanying notes to condensed financial statements are an
integral part of this statement.
-5-
PERMIAN BASIN ROYALTY TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF ACCOUNTING
The Permian Basin Royalty Trust ("Trust") was established as of
November 1, 1980. The financial statements of the Trust are
prepared on the following basis:
* Royalty income recorded for a month is the amount computed
and paid by the working interest owner, Meridian Oil
Inc.("MOI"), to NationsBank of Texas, N.A. ("Trustee") as
Trustee for the Trust. Royalty income consists of the
amounts received by the owner of the interest burdened by
the net overriding royalty interests ("Royalties") from the
sale of production less accrued production costs,
development and drilling costs, applicable taxes, operating
charges, and other costs and deductions, multiplied by 75%
in the case of the Waddell Ranch Properties and 95% in the
case of the Texas Royalty Properties.
* Trust expenses recorded are based on liabilities paid and
cash reserves established out of cash received or borrowed
funds for liabilities and contingencies.
* Distributions to Unit holders are recorded when declared by
the Trustee.
* The conveyance which transferred the overriding royalty
interest to the Trust provides that any excess of production
costs over gross proceeds must be recovered from future net
profits.
The financial statements of the Trust differ from financial statements
prepared in accordance with generally accepted accounting principles
("GAAP") because revenues are not accrued in the month of production;
certain cash reserves may be established for contingencies which would
not be accrued in financial statements prepared in accordance with
GAAP; and amortization of the Royalties calculated on a unit-of-
production basis is charged directly to trust corpus.
2. FEDERAL INCOME TAXES
For Federal income tax purposes, the Trust constitutes a fixed
investment trust which is taxed as a grantor trust. A grantor trust
is not subject to tax at the trust level. The Unit holders are
considered to own the Trust's income and principal as though no trust
were in existence. The income of the Trust is deemed to have been
received or accrued by each Unit holder at the time such income is
received or accrued by the Trust rather than when distributed by the
Trust.
The Royalties constitute "economic interests" in oil and gas
properties for Federal income tax purposes. Unit holders must report
their share of the revenues of the Trust as ordinary income from oil
and gas royalties and are entitled to claim depletion with respect to
such income.
The Trust has on file technical advice memoranda confirming the tax
treatment described above.
The classification of the Trust's income for purposes of the passive
loss rules may be important to a Unit holder. As a result of the Tax
Reform Act of 1986, royalty income will generally be treated as
portfolio income and will not offset passive losses.
* * * * *
-6-
ITEM 2. Trustee's Discussion and Analysis
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
For the quarter ended March 31, 1996 royalty income received by the
Trust amounted to $2,570,041, compared to royalty income of $3,174,416
during the first quarter of 1995. Interest income for the quarter
ended March 31, 1996 was $7,732, compared to $9,311 during the first
quarter of 1995. The decrease in interest income is primarily
attributable to a decrease in funds available for investment. General
and administrative expenses during the first quarter of 1996 amounted
to $124,408, compared to $149,582 during the first quarter of 1995.
The decrease in general and administrative expenses can be attributed
primarily to timing differences in the receipt and payment of these
expenses.
These transactions resulted in distributable income for the quarter
ended March 31, 1996 of $2,453,365 or $.052637 per Unit of beneficial
interest. Distributions of $.030777, $.010975 and $.010885 per Unit
were made to Unit holders of record as of January 31, February 29 and
March 31, 1996, respectively. For the first quarter of 1995,
distributable income was $3,034,145 or $.065097 per Unit.
The Trust has been advised that effective January 1, 1996, Southland
Royalty Company ("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.
Royalty income for the Trust for the quarter ended March 31, 1996 is
associated with actual oil and gas production for the period November
1995 through January 1996 from the properties from which the Royalties
were carved. Oil and gas sales attributable to the Royalties and the
properties from which the Royalties were carved, excluding portions
attributable to the adjustments discussed hereafter, are as follows:
<TABLE>
<CAPTION>
First Quarter
--------------------------------------
1996 1995
<S> <C> <C>
ROYALTIES:
Oil sales (Bbls) 128,100 158,127
Gas sales (Mcf) 343,038 513,949
PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED:
Oil:
Total oil sales (Bbls) 451,033 399,487
Average per day (Bbls) 4,903 4,342
Average price per Bbl $17.14 $15.94
Gas:
Total gas sales (Mcf) 1,791,091 1,833,983
Average per day (Mcf) 19,468 19,934
Average price per Mcf $1.93 $1.74
</TABLE>
The posted price of oil increased for the first quarter of 1996,
compared to the first quarter of 1995, resulting in an average price
per barrel of $17.14 compared to $15.94 in the first quarter of 1995.
The Trust has been advised by Meridian 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. The increase in the
average price of gas from $1.74 in the first quarter of 1995 to $1.93
in the first quarter of 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), those production amounts do not
provide a meaningful comparison. The increase in oil sales from the
properties from which the Royalties are carved is
-7-
primarily a result of an increase in production from the Waddell Ranch
properties due to a successful drilling and recompletion program. The
gas sales from the properties from which the Royalties were carved
were relatively unchanged for the first quarter of 1996 compared to
the first quarter of 1995.
Capital expenditures for drilling, remedial and maintenance activities
on the Waddell Ranch properties during the first quarter of 1996
totaled $4.3 million as compared to $2.4 million for the first quarter
of 1995. Meridian has informed the Trust that the 1996 capital
expenditures budget is $9.6 million.
The Trust has been advised that there were 4 gross (1.875 net) wells
completed during the three months ended March 31, 1996 and there were
18 gross (8.25 net) wells in progress. For the three months ended
March 31, 1995, there were 4 gross (1.875 net) wells completed and
there were 2 gross (1.0 net) wells in progress at March 31, 1995.
Lease operating expense and property taxes totaled $3.3 million for
the first quarter of 1996 compared to $2.8 million for the same period
in 1995. This increase is primarily attributable to an increase in
lease operating expense on the Waddell Ranch properties and in ad
valorem tax on the Texas Royalties 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
twelve months beginning March 1995. Such amount has been charged by
deducting $87,000 per month from gross proceeds attributable to the
Texas Royalties properties until the full amount of the ad valorem
taxes is recovered.
-8-
CALCULATION OF ROYALTY INCOME
The Trust's royalty income is computed as a percentage of the net
profit from the operation of the properties in which the Trust owns
net overriding royalty interests. These percentages of net profits
are 75% and 95% in the case of the Waddell Ranch Properties and the
Texas Royalty Properties, respectively. Royalty income received by
the Trust for the three months ended March 31, 1996 and 1995,
respectively, were computed as shown in the table below:
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------
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:
Oil Proceeds $5,957,109 $1,774,005 $4,728,639 $1,638,003
Gas proceeds 3,067,370 389,795 2,891,010 296,703
---------- ---------- ---------- ----------
Total 9,024,795 2,163,800 7,619,649 1,934,706
---------- ---------- ---------- ----------
Less:
Severance tax:
Oil 251,044 67,572 200,239 72,278
Gas 228,657 23,056 215,164 20,957
Lease operating expense and
property tax:
Oil and gas 2,805,366 475,104 2,599,517 220,651
Capital expenditures 4,336,910 2,425,203
---------- --------- ---------- ----------
Total 7,621,977 565,732 5,440,133 313,886
---------- --------- ---------- ----------
Net profits 1,402,502 1,598,068 2,179,516 1,620,820
Net overriding royalty interests 75% 95% 75% 95%
---------- --------- ---------- ----------
Royalty income $1,051,876 $1,518,165 $1,634,637 $1,539,779
========== ========== ========== ==========
</TABLE>
-9-
PART II - OTHER INFORMATION
Items 1 through 5.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4)(a) Permian Basin Royalty Trust Indenture dated
November 3, 1980, between Southland Royalty
Company and The First National Bank of Fort
Worth (now NationsBank of Texas, N.A.), as
Trustee, heretofore filed as Exhibit (4)(a)
to the Trust's Annual Report on Form 10-K
to the Securities and Exchange Commission
for the fiscal year ended December 31, 1980
is incorporated herein by reference.
(4)(b) Net Overriding Royalty Conveyance (Permian
Basin Royalty Trust) from Southland Royalty
Company to The First National Bank of Fort
Worth (now NationsBank of Texas, N.A.), as
Trustee, dated November 3, 1980 (without
Schedules), heretofore filed as Exhibit
(4)(b) to the Trust's Annual Report on Form
10-K to the Securities and Exchange
Commission for the fiscal year ended
December 31, 1980 is incorporated herein by
reference.
(4)(c) Net Overriding Royalty Conveyance (Permian
Basin Royalty Trust - Waddell Ranch) from
Southland Royalty Company to The First
National Bank of Fort Worth (now
NationsBank of Texas, N.A.), as Trustee,
dated November 3, 1980 (without Schedules),
heretofore filed as Exhibit (4)(c) to the
Trust's Annual Report on Form 10-K to the
Securities and Exchange Commission for the
fiscal year ended December 31, 1980 is
incorporated herein by reference.
(27) Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended March 31, 1996.
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
NATIONSBANK OF TEXAS, N.A.
TRUSTEE FOR THE
PERMIAN BASIN ROYALTY TRUST
By /s/ PAMELA J. BRADLEY
--------------------------
Pamela J. Bradley
Vice President
Date: May 14, 1996
(The Trust has no directors or executive officers.)
-11-
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
(4)(a) Permian Basin Royalty Trust Indenture
dated November 3, 1980, between Southland
Royalty Company and The First National
Bank of Fort Worth (now NationsBank of
Texas, N.A.), as Trustee, heretofore
filed as Exhibit (4)(a) to the Trust's
Annual Report on Form 10-K to the Securities
and Exchange Commission for the fiscal year
ended December 31, 1980 is incorporated
herein by reference.*[FN]
(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. *[FN]
(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. *[FN]
(27) Financial Data Schedule **[FN]
<FOOTNOTE>
* 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.
</FOOTNOTE>
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS OF
PERMIAN BASIN ROYALTY TRUST AS OF MARCH 31, 1996, AND THE RELATED CONDENSED
STATEMENTS OF DISTRIBUTABLE INCOME AND CHANGES IN TRUST CORPUS FOR THE
THREE-MONTH PERIOD ENDED MARCH 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> $507,321
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> $507,321
<PP&E> $10,975,216
<DEPRECIATION> $6,966,198
<TOTAL-ASSETS> $4,516,339
<CURRENT-LIABILITIES> $507,321
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> $4,009,018
<TOTAL-LIABILITY-AND-EQUITY> $4,516,339
<SALES> 0
<TOTAL-REVENUES> $2,577,773
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> $124,408
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> $2,453,365
<INCOME-TAX> 0
<INCOME-CONTINUING> $2,453,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $2,453,365
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
