# Permian Basin Royalty Trust: Form 10-Q for the period ended Sep 30, 2024

- Company: [Permian Basin Royalty Trust](/companies/pbt.md) (CIK 319654)
- Form: 10-Q
- Filed: 2024-11-12
- Accepted by EDGAR: Nov 12, 2024, 19:05 ET
- Period: 2024-09-30
- Accession: 0000950170-24-125103
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/319654/000095017024125103/pbt_10-q_2024-09-30.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/319654/000095017024125103/

## Management's discussion and analysis

As filed, 29,876 characters.

### Forward Looking Information

Certain information included in this report contains, and other materials filed or to be filed by the Trust with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Trust) may contain or include, forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such forward looking statements may be or may concern, among other things, capital expenditures, drilling activity, development activities, production efforts and volumes, hydrocarbon prices and the results thereof, litigation, information to be received by operators of the Waddell Ranch properties or Texas Royalty properties, and regulatory matters. Although the Trustee believes that the expectations reflected in such forward-looking statements are reasonable, such expectations are subject to numerous risks and uncertainties and the Trustee can give no assurance that they will prove correct. There are many factors, none of which are within the Trustee’s control, that may cause such expectations not to be realized, including, among other things, factors such as actual oil and gas prices and the recoverability of reserves, capital expenditures, general economic conditions, actions and policies of petroleum-producing nations and other changes in the domestic and international energy markets. Such forward looking statements generally are accompanied by words such as “estimate,” “expect,” “predict,” “anticipate,” “goal,” “should,” “assume,” “believe,” or other words that convey the uncertainty of future events or outcomes.

### Commodity Prices

The Trust’s income and monthly distributions are heavily influenced by commodity prices. Commodity prices may fluctuate widely in response to (i) relatively minor changes in the supply of and demand for oil and natural gas, (ii) market uncertainty and (iii) a variety of additional factors that are beyond the Trustee’s control. Recently, there has been volatility in oil and natural gas prices due in part to geopolitical conditions in Eastern Europe and the Middle East. The price of oil and gas remained soft from the first quarter through the beginning of the third quarter of 2023 due to continued lower demand resulting from higher than normal inflation and an oversupply of the commodities. In the first half of 2024, the price of oil and gas began to increase, due to tensions in the Middle East and OPEC cutting oil production; however the price began to decrease in the third quarter of 2024 due to lower demand. As of October 28, 2024, the price of oil was $67.65 per barrel. Factors that may impact future commodity prices, including the price of oil and natural gas, include but are not limited to:

- political conditions in major oil producing regions, especially in the Middle East and Eastern Europe, including the conflicts between Russia and Ukraine, Israel and Hamas, and Israel and Iran;
- worldwide economic and geopolitical conditions;
- weather conditions;
- trade barriers;
- public health concerns;
- the supply and price of domestic and foreign crude oil or natural gas;
- the level of consumer demand;
- the price and availability of alternative fuels;
- the proximity to, and capacity of, transportation facilities;
- the effect of worldwide energy conservation measures and governmental policies and regulatory incentives for investment in non-fossil fuel energy sources; and
- the nature and extent of governmental regulation and taxation.

Although the Trustee cannot predict the occurrence of events that may affect future commodity prices or the degree to which these prices will be affected, gas royalty income for a given period generally relates to production three months prior to the period and crude oil royalty income for a given period generally relates to production two months prior to the period and will generally approximate current market prices in the geographic region of the production at the time of production. When crude oil and natural gas prices decline, the Trust is affected in two ways. First, distributable income from the Royalty Properties is reduced. Second, exploration and development activity by operators on the Royalty Properties may decline as some projects may become uneconomic and are either delayed or eliminated. It is impossible to predict future crude oil and natural gas price movements, and this reduces the predictability of future cash distributions to Unit holders.

### Results of Operations

### Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

For the quarter ended September 30, 2024, royalty income received by the Trust amounted to $8,366,375 compared to royalty income of $3,317,431 during the third quarter of 2023. Due to Blackbeard refusing to provide the Trustee information necessary to calculate the net proceeds as of the NYSE notification date beginning May 2024, pricing information for the Waddell Ranch properties is for June, July, and August 2024 (reflecting the period for which proceeds were distributed to Unitholders in the third quarter of 2024). For the Waddell Ranch properties, the average realized oil and gas prices were $79.91 per barrel (Bbl) and $1.19 per thousand cubic feet (Mcf), respectively for the three months ended August 31, 2024 compared to $70.78 and $2.03 for the three months ended September 30, 2023. For the Texas Royalty properties, the average realized oil and gas prices were $79.06 per Bbl and $10.54 per Mcf, respectively for the quarter ended September 30, 2024 compared to $71.45 per Bbl and $4.18 per Mcf, respectively for the quarter ended September 30, 2023. The Trustee believes that the higher royalty income reported in the three months ended September 30, 2024 compared to the same time period in 2023 is attributable to a deficit position in the third quarter of 2023, resulting in no royalty income being received from the Waddell Ranch properties due to an excess in working interest costs during the third quarter of 2023. No deficit position existed during the third quarter of 2024, and royalty income was received from the Waddell Ranch properties during such period. The increase in royalty income was also attributable to $2,177,289 of net proceeds from June 2024 being held for distribution until the third quarter of 2024, partially offset by $267,781 of net proceeds from September 2024 being delayed until distribution declared in the fourth quarter of 2024, in each case, due to Blackbeard's refusal to provide information regarding monthly net proceeds in time for the monthly distribution announcement.

Interest income for the quarter ended September 30, 2024 was $54,534 compared to $24,119 during the third quarter of 2023. The increase in interest income is primarily attributable to increased amounts of funds available for investment and the length of time of such investment due mainly to the fact that funds received from Blackbeard during the third quarter of 2024 were included in the following month's distribution calculation and held for investment for a longer period of time than was held during the third quarter of 2023. Total expenses during the third quarter of 2024 amounted to $367,625 compared to $139,520 during the third quarter of 2023. The increase in total expenses can be primarily attributed to increased expense for professional services, and the timing of payment of expenses.

These transactions resulted in distributable income for the quarter ended September 30, 2024 of $8,053,284 or $0.17 per Unit of beneficial interest. Distributions of $0.070169, $0.051902 and $0.050711 per Unit were made to Unit holders of record as of July 31, 2024, August 30, 2024, and September 30, 2024, respectively. For the third quarter of 2023, distributable income was $3,202,030 or $0.07 per Unit of beneficial interest.

Notwithstanding requests from the Trustee to Blackbeard, the operator of the Waddell Ranch properties, Blackbeard has refused to provide the Trustee information necessary to calculate the net proceeds as of the NYSE notification date beginning May 2024 such that royalty income for the Trust for the third quarter of the calendar year is associated with actual oil and gas production for April, May, and June 2024 for the Waddell Ranch properties from which "Royalties" were carved. Royalty income for the Trust for the third quarter of the calendar year for the Texas Royalty properties is associated with actual oil and gas production from May through July 2024.

Beginning in May 2024, Blackbeard has also refused to provide production, product sales, capital expenditure, and development information for the Waddell Ranch properties from which the Trust's Royalties are carved for each distribution month, information Blackbeard has previously provided on a monthly basis since Argent Trust Company has become Trustee of the Trust. Blackbeard has opted to provide this information quarterly, approximately 30 days after the end of each fiscal quarter. On October 29, 2024, Blackbeard provided the Trustee a quarterly statement showing the production volumes and computation of net proceeds to the Trust for each month of the quarter ended September 30, 2024. Oil and gas sales attributable to the Royalties and the properties from which the Royalties were carved are as follows:

| Royalties | Three Months Ended September 30, 2024 WADDELL RANCH PROPERTIES (1) |  | TEXAS ROYALTY PROPERTIES(2) | 2023 WADDELL RANCH PROPERTIES(2) | TEXAS ROYALTY PROPERTIES(2) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Oil sales (Bbls) | 533,073 |  | 47,389 | 542,628 | 45,842 |
| Gas sales (Mcf) | 3,387,875 |  | 17,343 | 3,170,184 | 48,723 |
| **Properties From Which The Royalties Were Carved:** |  |  |  |  |  |
| Oil: |  |  |  |  |  |
| Total oil sales (Bbls) | 710,764 |  | 52,892 | 723,503 | 51,541 |
| Average per day (Bbls) | 7,726 |  | 575 | 7,864 | 560 |
| Average price per Bbl | 79.91 | (3) | $79.06 | $70.78 | $71.45 |
| Gas: |  |  |  |  |  |
| Total gas sales (Mcf) | 4,517,167 |  | 19,360 | 4,226,914 | 54,665 |
| Average per day (Mcf) | 49,100 |  | 210 | 45,945 | 594 |
| Average price per Mcf | 1.19 | (4) | $10.54 | $2.03 | $4.18 |

(1) Due to the timing of information received from Blackbeard, information reflects Royalty income received by the Trust in the months of June through August, 2024. See Note 2 to the Condensed Financial Statements.

(2) Information reflects Royalty income received in July through September of the applicable year.

(3) For the months of June and July 2024, pricing information was not provided by Blackbeard and was calculated by the Trustee by dividing oil sales for the month by oil volumes for the month.

(4) For the months of June and July 2024, pricing information was not provided by Blackbeard and was calculated by the Trustee by dividing gas and plant product sales for the month by gas and plant product volumes (converted to an Mcf equivalent) for the month. For the months June through August 2024, the average realized price for gas was $(0.35) per Mcf, while the average realized price for plant products was $3.20 per Mcf equivalent. No information was provided by Blackbeard as to the reasons why the average realized gas price was negative for such period.

### Pricing and Production Discussion

Production and pricing information for the Waddell Ranch properties is shown for the months of June, July, and August, since the cash received in June was not disclosed to the Trustee by the NYSE notification deadline and therefore not distributed until subsequent to the end of the second quarter. Pricing information was not provided by Blackbeard for the months of June and July 2024 such that pricing information for oil for the period was calculated by the Trustee by dividing oil sales for the period by oil volumes for the period. The average realized price of oil increased to $79.91 per Bbl for the period June through August 2024 compared to $70.78 per Bbl for the period July through September of 2023 due to worldwide market variables. The average realized price of gas was calculated by dividing the total gas and plant product sales by the total gas and plant product volumes (converted to an Mcf equivalent) for June through August 2024 (see footnote (4) in the table above). The average realized price of gas decreased to $1.19 per Mcf for the period June through August 31, 2024 from $2.03 per Mcf for the period July through September 30, 2023. For the months June through August, 2024, the average realized price for gas was $(0.35) per Mcf, while the average realized price for plant products was $3.20. No information was provided by Blackbeard as to the reasons why the average realized gas price was negative for such period.

For the Texas Royalty properties, the average realized price of oil increased to $79.06 per Bbl in the third quarter of 2024, compared to $71.45 per Bbl in the third quarter of 2023 due to worldwide market variables. The average realized price of gas (including natural gas liquids) for the Texas Royalty properties increased from $4.18 per Mcf in the third quarter of 2023 to $10.54 per Mcf in the third quarter of 2024 in part due to change in overall market variables.

Since the oil and gas sales attributable to the Royalties are based on an allocation formula that is dependent on such factors as price and cost (including capital expenditures), the production amounts in the Royalties section of the above table do not always provide a meaningful comparison. However, for the Texas Royalty properties, oil volumes slightly increased and gas volumes decreased from the Underlying Properties (as defined in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2023) for the applicable period in 2024 compared to 2023, while for the Waddell Ranch properties, oil volumes decreased and natural gas volumes (including plant products) increased for the applicable period in 2024 compared to 2023.

### Blackbeard Capital Expense Discussion

Blackbeard advised the Trustee that capital expenditures for drilling, remedial and maintenance activities on the Waddell Ranch properties during the third quarter of 2024 totaled $24.0 million (gross) as compared to $31.8 million (gross) for the third quarter of

2023\. The three months ended September 30, 2024, for the Waddell Ranch properties includes June through August expenditures only, since the cash received in June and September was not disclosed to the Trustee by the NYSE notification deadline and therefore not distributed until subsequent to the end of the second and third quarters, respectively. Blackbeard has not provided updated 2024 capital expenditures budget information and has revoked its consent with respect to previously provided 2024 budget information. The total amount of capital expenditures for 2023 with regard to the Waddell Ranch Properties totaled $135.3 million (net).

Development information for the Waddell Ranch properties such as well completions, workovers, remedial activities, and plugging and abandonment, was not provided by Blackbeard. This information has previously been provided monthly since Argent Trust Company has become Trustee of the Trust until May 2024.

Blackbeard advised the Trustee that lease operating expenses and property taxes totaled $22.6 million (gross) for the third quarter of 2024, compared to $20.2 million (gross) for the same period in 2023 on the Waddell Ranch properties. The quarter ended September 30, 2024, for the Waddell Ranch properties includes June through August expenses only, since the cash received in June and September was not disclosed to the Trustee by the NYSE notification deadline and therefore not distributed until subsequent to the end of the second and third quarters, respectively.

### Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

For the nine months ended September 30, 2024, royalty income received by the Trust amounted to $23,175,406 compared to royalty income of $14,598,202 for the nine months ended September 30, 2023. Due to Blackbeard refusing to provide the Trustee information necessary to calculate the net proceeds as of the NYSE notification date beginning May 2024, pricing information for the Waddell Ranch properties is for the eight month period of January through August 2024 (reflecting the period for which proceeds were distributed to Unitholders in the first nine months of 2024). The average realized oil and gas prices for the Waddell Ranch properties were $76.62 per Bbl and $1.61 per Mcf, respectively for the eight months ended August 31, 2024 compared to $73.82 per Bbl and $2.40 per Mcf for the nine months ended September 30, 2023. For the Texas Royalty properties, the average realized oil and gas prices were $77.40 per Bbl and $9.69 per Mcf, respectively for the nine months ended September 30, 2024 compared to $74.97 per Bbl and $4.77 per Mcf, respectively for the nine months ended September 30, 2023. The Trustee believes that the higher royalty income reported in the nine months ended September 30, 2024 compared to the nine month period ended September 30, 2023 is attributable to the deficit position of the Waddell Ranch properties during a portion of the first six months of 2023 and all of the third quarter of 2023. No deficit position existed during the first eight months of 2024 and royalty income was received from the Waddell Ranch properties for the months of January through August of 2024. The increase in royalty income was partially offset by $267,781 of net proceeds from September 2024 being delayed until distribution declared in the fourth quarter of 2024 due to Blackbeard's refusal to provide information regarding monthly net proceeds in time for the monthly distribution announcement.

Interest income for the nine months ended September 30, 2024, was $122,688 compared to $61,191 during the nine months ended September 30, 2023. The increase in interest income is primarily attributable to a substantial increase in the amounts of funds available for investment and the length of time of such investment due mainly to the fact that beginning in May 2024, funds received from Blackbeard were included in the following month's distribution calculation and held for investment for a longer period of time than was held during the nine months ended September 30, 2023. Total expenses during the nine months ended September 30, 2024, amounted to $1,315,916 compared to $955,607 during the nine months ended September 30, 2023. The increase in total expenses can be primarily attributed to increased expenses for professional services, printing costs and the timing of payment of expenses.

These transactions resulted in distributable income for the nine months ended September 30, 2024 of $21,982,178, or $0.47 per Unit. For the nine months ended September 30, 2023, distributable income was $13,703,786 or $0.29 per Unit.

Notwithstanding requests from the Trustee to Blackbeard, the operator of the Waddell Ranch properties, Blackbeard has refused to provide the Trustee information necessary to calculate the net proceeds as of the NYSE notification date beginning May 2024 such that royalty income for the Trust for the first nine months of the calendar year is associated with actual oil and gas production for November 2023 through June 2024 for the Waddell Ranch properties from which "Royalties" were carved. Royalty income for the Trust for the first nine months of the calendar year for the Texas Royalty properties is associated with actual oil and gas production from November 2023 through July 2024.

Beginning in May 2024, Blackbeard has also refused to provide production, product sales, capital expenditure, and development information for the Waddell Ranch properties from which the Trust's Royalties are carved for each distribution month, information Blackbeard has previously provided on a monthly basis since Argent Trust Company has become Trustee of the Trust. Blackbeard has opted to provide this information quarterly, approximately 30 days after the end of each fiscal quarter. On October 29, 2024, Blackbeard provided the Trustee a quarterly statement showing the production volumes and computation of net proceeds to the Trust for each month of the quarter ended September 30, 2024. Oil and gas sales attributable to the Royalties and the properties from which the Royalties were carved are as follows:

| Royalties | Nine Months Ended September 30, 2024 WADDELL RANCH PROPERTIES (1) |  | TEXAS ROYALTY PROPERTIES(2) | 2023 WADDELL RANCH PROPERTIES(2) | TEXAS ROYALTY PROPERTIES(2) |
| --- | ---: | ---: | ---: | ---: | ---: |
| Oil sales (Bbls) | 1,468,441 |  | 136,427 | 1,515,796 | 144,588 |
| Gas sales (Mcf) | 8,761,191 |  | 60,943 | 8,682,039 | 185,169 |
| **Properties From Which The Royalties Were Carved:** |  |  |  |  |  |
| Oil: |  |  |  |  |  |
| Total oil sales (Bbls) | 1,957,921 |  | 152,790 | 2,016,312 | 161,556 |
| Average per day (Bbls) | 7,172 | (3) | 560 | 7,386 | 592 |
| Average realized price per Bbl | 76.62 |  | $77.40 | $73.82 | $74.97 |
| Gas: |  |  |  |  |  |
| Total gas sales (Mcf) | 11,681,587 |  | 68,239 | 11,596,407 | 185,169 |
| Average per day (Mcf) | 42,790 |  | 250 | 42,478 | 678 |
| Average realized price per Mcf | 1.61 | (4) | $9.69 | $2.40 | $4.77 |

(1) Due to the timing of information received from Blackbeard, information reflects Royalty income received by the Trust during the eight-month period of January through August, 2024. See Note 2 to the Condensed Financial Statements.

(2) Information reflects Royalty income received in January through September of the applicable year.

(3) For the months of May through July 2024, pricing information was not provided by Blackbeard and was calculated by the Trustee by dividing oil sales for the month by oil volumes for the month.

(3) For the months of May through July 2024, pricing information was not provided by Blackbeard and was calculated by the Trustee by dividing gas and plant product sales for the month by gas and plant product volumes (converted to an Mcf equivalent) for the month.

### Pricing and Production Discussion

Production and pricing information for the Waddell Ranch properties is shown for the months of January through August 2024, since the cash received in September was not disclosed to the Trustee by the NYSE notification deadline and therefore not distributed until subsequent to the end of the third quarter. Pricing information was not provided by Blackbeard for the months of June and July 2024 such that pricing information for oil for the period was calculated by dividing oil sales for the period by oil volumes for the period. The average realized price of oil increased to $76.62 per Bbl for January through August 2024 compared to $73.82 per Bbl for the nine month period ended September of 2023 due to worldwide market variables. The average realized price of gas was calculated by dividing the total gas and plant product sales by the total gas and plant product volumes (converted to an Mcf equivalent) for January through August 2024 (See footnote (4) in the table above). The average realized price of gas decreased to $1.61 per Mcf for the eight months ended August 31, 2024 from $2.40 per Mcf for the nine month period ended September 30, 2023. For the months January through August, 2024, the average realized price for gas was $0.64 per Mcf, while the average realized price for plant products was $2.96 per Mcf equivalent.

For the Texas Royalty properties, the average realized price of oil increased to $77.40 per Bbl in the nine months ended September 30, 2024, compared to $74.97 per Bbl in the same period of 2023 due to worldwide market variables. The average realized price of gas (including natural gas liquids) for the Texas Royalty properties increased from $4.77 per Mcf in the nine months ended September 30, 2023 to $9.69 per Mcf in the same period of 2024 due to change in overall market variables.

Since the oil and gas sales attributable to the Royalties are based on an allocation formula that is dependent on such factors as price and cost (including capital expenditures), the production amounts in the Royalties section of the above table do not provide a meaningful comparison. However, for the Texas Royalty properties, both oil and gas sales volumes from the properties from which the Royalties are carved have decreased for the applicable period of 2024 compared to 2023, while for the Waddell Ranch properties, oil volumes decreased and natural gas volumes (including plant products) increased for the applicable period in 2024 compared to 2023.

### Blackbeard Capital Expense Discussion

Capital expenditures for drilling, remedial and maintenance activities on the Waddell Ranch properties for the nine months ended September 30, 2024 totaled $67.9 million (gross). For the nine months ended September 30, 2023, capital expenditures were 96.7 million (gross) to the Trust. The nine months ended September 30, 2024, for the Waddell Ranch properties includes January through August expenditures only, since the cash received in September was not disclosed to the Trustee by the NYSE notification deadline and therefore not distributed until subsequent to the end of the nine-month period. Blackbeard has not provided updated

2024 capital expenditures budget information and has revoked its consent with respect to previously provided 2024 budget information.

Development information for the Waddell Ranch properties, such as well activity, completions, workovers, remedial activities, and plugging and abandonment, was not provided by Blackbeard. This information has previously been provided on a monthly basis since Argent Trust Company has become Trustee of the Trust until May 2024.

Lease operating expenses and property taxes totaled $60.1 million (gross) for the nine months ended September 30, 2024, compared to $53.0 million (gross) for the same period in 2023. The nine months ended September 30, 2024, for the Waddell Ranch properties only includes January through August expenses and taxes, since the cash received in September was not disclosed to the Trustee by the NYSE notification deadline and therefore not distributed until subsequent to the end of the nine-month period.

### 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. The royalty income received and recorded by the Trust was determined by the operator as noted below. 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 and available for distribution by the Trust for the three months ended September 30, 2024 and 2023, respectively, was computed as shown in the table below:

| Gross proceeds of sales from the Underlying Properties | Three Months Ended September 30, 2024 WADDELL RANCH PROPERTIES (1) | TEXAS ROYALTY PROPERTIES | 2023 WADDELL RANCH PROPERTIES |  | TEXAS ROYALTY PROPERTIES |
| --- | ---: | ---: | ---: | ---: | ---: |
| Oil proceeds | $56,795,882 | $4,181,717 | $51,209,934 |  | $3,682,551 |
| Gas proceeds | 5,375,448 | 204,061 | 8,576,111 |  | 228,468 |
| Other (adjustment) | — | — | 284,301 | (2) | — |
| Total | 62,171,330 | 4,385,778 | 60,070,346 |  | 3,911,019 |
| Less: |  |  |  |  |  |
| Severance tax: |  |  |  |  |  |
| Oil | 2,588,394 | 169,810 | 2,562,014 |  | 146,285 |
| Gas | 20,816 |  |  |  |  |
| Gathering and Transportation Costs | 6,731,048 | 33,061 | 5,699,654 |  | 32,701 |
| Lease operating expense and property tax: |  |  |  |  |  |
| Oil and gas | 22,637,650 | 240,000 | 19,967,274 |  | 240,000 |
| Capital expenditures | 24,032,607 | — | 31,841,404 |  | — |
| Total | 56,010,515 | 442,871 | 60,070,346 |  | 418,986 |
| Net profits | 6,160,815 | 3,942,907 | — |  | 3,492,033 |
| Net overriding royalty interests | 75% | 95% | 75% |  | 95% |
| Royalty income | $4,620,611 | 3,745,762 | $— |  | 3,317,431 |

(1) Royalty income for the Waddell Ranch properties in third quarter 2024 includes the months of July and August and the June proceeds distributed subsequent to the quarter ended June 30, 2024. Funds for September 2024 were received after the deadline to report to the NYSE for the September 2024 distribution and therefore not distributed until subsequent to the end of the third quarter.

(2) Due to an NPI deficit, the Waddell Ranch properties did not contribute to Royalty income from July 2023 through September 2023.

### Critical Accounting Policies and Estimates

A disclosure of critical accounting policies and the more significant judgments and estimates used in the preparation of the Trust’s financial statements is included in Item 7 of the Trust’s Annual Report on Form 10-K for the year ended December 31, 2023. There have been no significant changes to the critical accounting policies during the nine months ended September 30, 2024.

### Distributable Income Per Unit

Basic distributable income per Unit is computed by dividing distributable income by the weighted average of Units outstanding. Distributable income per Unit assuming dilution is computed by dividing distributable income by the weighted average number of Units and equivalent Units outstanding. The Trust had no equivalent Units outstanding for any period presented. Therefore, basic distributable income per Unit and distributable income per Unit assuming dilution are the same.

### New Accounting Pronouncements

There are no new accounting pronouncements that are expected to have significant impact on the Trust’s financial statements.

## Market risk

As filed, 1,079 characters.

The Trust is a passive entity and other than the Trust’s ability to periodically borrow money as necessary to pay expenses, liabilities and obligations of the Trust that cannot be paid out of cash held by the Trust, the Trust is prohibited from engaging in borrowing transactions. The amount of any such borrowings is unlikely to be material to the Trust. The Trust periodically holds short-term investments acquired with funds held by the Trust pending distribution to Unit holders and funds held in reserve for the payment of Trust expenses and liabilities. Because of the short-term nature of these borrowings and investments and certain limitations upon the types of such investments which may be held by the Trust, the Trustee believes that the Trust is not subject to any material interest rate risk. The Trust does not engage in transactions in foreign currencies which could expose the Trust or Unit holders to any foreign currency related market risk. The Trust invests in no derivative financial instruments and has no foreign operations or long- term debt instruments.

## Controls and procedures

As filed, 1,748 characters.

On May 14, 2013, the Committee of Sponsoring Organizations of the Treadway Commission issued an updated version of its Internal Control – Integrated Framework (the “2013 Framework”) which helps organizations design, implement and evaluate the effectiveness of internal control concepts and simplify their use and application. As of the end of the period covered by this report, the Trustee carried out an evaluation of the effectiveness of the design and operation of the Trust’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15 based on the criteria established in the 2013 Framework. Based upon that evaluation, the Trustee concluded that the Trust’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934 and are effective in ensuring that information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Trustee to allow timely decisions regarding required disclosure. In its evaluation of disclosure controls and procedures, the Trustee has relied, to the extent considered reasonable, on information provided by Blackbeard, the owner of the Waddell Ranch properties, and Riverhill Energy Corporation, the owner of the Texas Royalty properties.

There has not been any change in the Trust’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.

## Risk factors

As filed, 2,177 characters.

***Changes in the information historically made available to the Trustee by Blackbeard has delayed and may continue to delay Trust distributions and may cause a significant reduction in the proved reserves the Trust is able to disclose.***

Since May 2024, Blackbeard has refused to provide the Trustee information necessary to calculate the monthly net proceeds from the Waddell Ranch properties by the NYSE notification date for each monthly distribution, notwithstanding Blackbeard’s historical practice of providing such information and requests from the Trustee to Blackbeard for such information. As a result, distribution of net proceeds from the Waddell Ranch properties each month has been delayed by a month from the time such proceeds have historically been distributed to unitholders. In response to the Trust’s lawsuit against Blackbeard in the District Court of Tarrant County Texas, Blackbeard has filed a counterclaim asking the court to limit the information it provides to the Trust to quarterly statements of the net proceeds computation and inspection of books and record during normal business hours. If Blackbeard continues to limit the information provided to the Trustee, distributions to unitholders of net proceeds from the Waddell Ranch properties will likely continue to be delayed. Additionally, Blackbeard has revoked its consent for previously provided development plans. If Blackbeard does not provide the Trustee with a development plan for 2025 or future years, the Trust will be unable to disclose proved undeveloped reserves (“PUDs”) in its reserve report under SEC rules, which, subject to limited exceptions, permit PUDs to be disclosed only if they relate to wells scheduled to be drilled within five years after the date of disclosure. Without a development plan reflecting development of wells, the Trust will not be able to disclose PUDs from the Waddell Ranch properties, which would result in a significant reduction to the Trust’s proved reserves. As of December 31, 2023, approximately 38% of the Trust’s proved oil reserves and approximately 27% of the Trust’s proved gas reserves were PUDs.

### Items 2 through 4.

Not applicable.

Filed Nov 12, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-125103. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.