# VOC Energy Trust: Form 10-Q for the period ended Jun 30, 2022

- Company: [VOC Energy Trust](/companies/voc.md) (CIK 1505413)
- Form: 10-Q
- Filed: 2022-08-09
- Accepted by EDGAR: Aug 9, 2022, 20:15 ET
- Period: 2022-06-30
- Accession: 0001104659-22-087910
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/1505413/000110465922087910/tm2216367d1_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1505413/000110465922087910/

## Management's discussion and analysis

As filed, 15,954 characters.

The following discussion of the Trust’s financial condition and results of operations should be read in conjunction with the financial statements and notes thereto. The Trust’s purpose is, in general, to hold the net profits interest, to distribute to the Trust unitholders cash that the Trust receives in respect of the net profits interest and to perform certain administrative functions in respect of the net profits interest and the Trust Units. The Trust derives substantially all of its income and cash flows from the net profits interest. All information regarding operations has been provided to the Trustee by VOC Brazos.

### Results of Operations

#### Results of Operations for the Quarters Ended June 30, 2022 and 2021

The following is a summary of income from net profits interest received by the Trust for the three months ended June 30, 2022 and 2021 consisting of the April distribution for each respective year:

| Sales volumes: | Three months ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| Oil (Bbl) | 124,939 | 121,019 |
| Natural gas (Mcf) | 80,423 | 89,151 |
| Total (BOE) | 138,343 | 135,878 |
| Average sales prices: |  |  |
| Oil (per Bbl) | $78.89 | $48.53 |
| Natural gas (per Mcf) | $6.44 | $2.81 |
| Gross proceeds: |  |  |
| Oil sales | $9,856,344 | $5,872,798 |
| Natural gas sales | 518,215 | 250,209 |
| Total gross proceeds | 10,374,559 | 6,123,007 |
| Costs: |  |  |
| Production and development costs: |  |  |
| Lease operating expenses | 3,246,529 | 2,803,042 |
| Production and property taxes | 318,419 | 120,097 |
| Development expenses | 330,635 | 283,643 |
| Total costs | 3,895,583 | 3,206,782 |
| Excess of revenues over direct operating expenses and lease equipment and development costs | 6,478,976 | 2,916,225 |
| Times net profits interest over the term of the Trust | 80% | 80% |
| Income from net profits interest before reserve adjustments | 5,183,181 | 2,332,980 |
| VOC Brazos reserve for future development, maintenance or operating expenditures | 0 | 0 |
| Income from net profits interest | $5,183,181 | $2,332,980 |

The cash received by the Trust from VOC Brazos during the quarter ended June 30, 2022 substantially represents the production by VOC Brazos from December 2021 through February 2022. The cash received by the Trust from VOC Brazos during the quarter ended June 30, 2021 substantially represents the production by VOC Brazos from December 2020 through February 2021. The revenues from oil production are typically received by VOC Brazos one month after production.

*Gross proceeds*. Oil and natural gas sales were $10,374,559 for the three months ended June 30, 2022, an increase of $4,251,552 or 69.4% from $6,123,007 for the three months ended June 30, 2021. Revenues are a function of oil and natural gas sales prices and volumes sold. The increase in gross proceeds was due to increases in market prices for oil and natural gas and an increase in oil sales volumes, partially offset by a decrease in natural gas sales volumes during the second quarter of 2022. During the three months ended June 30, 2022, the average price for oil increased 62.6% to $78.89 per Bbl and the average price for natural gas increased 129.2% to $6.44 per Mcf. Oil sales volumes were 124,939 Bbls for the three months ended June 30, 2022, an increase of 3,920 Bbls or 3.2% from 121,019 Bbls for the three months ended June 30, 2021, while natural gas sales volumes were 80,423 Mcf, a decrease of 8,728 Mcf or 9.8% from 89,151 Mcf for the same period in 2021.

*Costs*. Lease operating expenses were $3,246,529 for the three months ended June 30, 2022, an increase of $443,487 or 15.8% from $2,803,042 for the three months ended June 30, 2021. Production and property taxes were $318,419 for the three months ended June 30, 2022, an increase of $198,322 or 165.1% from $120,097 for the same period in 2021. Such increase is the result of an increase of $185,579 in production taxes primarily due to higher sales prices and a $12,743 increase in property taxes. Development expenses were $330,635 for the three months ended June 30, 2022, an increase of $46,992 or 16.6% from $283,643 for the same period in 2021. Such increase was primarily due to increased development expenses during the three months ended June 30, 2022, compared to the three months ended June 30, 2021.

*Excess of revenues over direct operating expenses and lease equipment and development costs*. The excess of revenues over direct operating expenses and lease equipment and development costs from the underlying properties was $6,478,976 for the three months ended June 30, 2022, an increase of $3,562,751 or 122.2% from $2,916,225 for the three months ended June 30, 2021. The Trust’s 80% net profits interest of these totals was $5,183,181 and $2,332,980, respectively. During the three months ended June 30, 2022 and 2021, VOC Brazos did not withhold or release any dollar amounts due to the Trust from the previously established cash reserve for future development, maintenance or operating expenditures, which resulted in income from the net profits interest of $5,183,181 and $2,332,980 for such periods, respectively. These amounts were reduced by a Trust holdback for current estimated expenses of $240,264 and $292,980 for the three months ended June 30, 2022 and 2021, respectively, and a Trust holdback for future estimated expenses of $182,917 for the three months ended June 30, 2022. The Trustee paid general and administrative expenses of $237,199 for the three months ended June 30, 2022, an increase of $71,753 from $165,446 for the three months ended June 30, 2021. This increase was primarily due to the differences in timing of receipt and payment of recurring general and administrative expenses. These factors resulted in distributable income for the three months ended June 30, 2022 of $4,760,000, an increase of $2,720,000 from $2,040,000 for the three months ended June 30, 2021.

#### Results of Operations for the Six Months Ended June 30, 2022 and 2021

The following is a summary of income from net profits interest received by the Trust for the six months ended June 30, 2022 and 2021 consisting of the January and April distributions for each respective year:

| Sales volumes: | Six months ended June 30, 2022 | 2021 |
| --- | ---: | ---: |
| Oil (Bbl) | 260,701 | 257,602 |
| Natural gas (Mcf) | 165,055 | 185,137 |
| Total (BOE) | 288,210 | 288,458 |
| Average sales prices: |  |  |
| Oil (per Bbl) | $76.23 | $42.02 |
| Natural gas (per Mcf) | $6.10 | $2.43 |
| Gross proceeds: |  |  |
| Oil sales | $19,874,159 | $10,825,483 |
| Natural gas sales | 1,007,466 | 449,345 |
| Total gross proceeds | 20,881,625 | 11,274,828 |
| Costs: |  |  |
| Production and development costs: |  |  |
| Lease operating expenses | 6,705,423 | 5,494,529 |
| Production and property taxes | 984,210 | 871,654 |
| Development expenses | 822,783 | 1,297,804 |
| Total costs | 8,512,416 | 7,663,987 |
| Excess of revenues over direct operating expenses and lease equipment and development costs | 12,369,209 | 3,610,841 |
| Times net profits interest over the term of the Trust | 80% | 80% |
| Income from net profits interest before reserve adjustments | 9,895,367 | 2,888,673 |
| VOC Brazos reserve for future development, maintenance or operating expenditures | 0 | 0 |
| Income from net profits interest | $9,895,367 | $2,888,673 |

8

The cash received by the Trust from VOC Brazos during the six months ended June 30, 2022 substantially represents the production by VOC Brazos from September 2021 through February 2022. The cash received by the Trust from VOC Brazos during the six months ended June 30, 2021 substantially represents the production by VOC Brazos from September 2020 through February 2021. The revenues from oil production are typically received by VOC Brazos one month after production.

*Gross proceeds.* Oil and natural gas sales were $20,881,625 for the six months ended June 30, 2022, an increase of $9,606,797 or 85.2% from $11,274,828 for the six months ended June 30, 2021. Revenues are a function of oil and natural gas sales prices and volumes sold. The increase in gross proceeds was due to increases in market prices for oil and natural gas and an increase in oil sales volumes, partially offset by a decrease in natural gas sales volumes during the six months ended June 30, 2022. During the six months ended June 30, 2022, the average price for oil increased 81.4% to $76.23 per Bbl and the average price for natural gas increased 151.0% to $6.10 per Mcf. Oil sales volumes were 260,701 Bbls for the six months ended June 30, 2022, an increase of 3,099 Bbls or 1.2% from 257,602 Bbls for the six months ended June 30, 2021, while natural gas sales volumes were 165,055 Mcf, a decrease of 20,082 Mcf or 10.8% from 185,137 Mcf for the same period in 2021.

*Costs.* Lease operating expenses were $6,705,423 for the six months ended June 30, 2022, an increase of $1,210,894 or 22.0% from $5,494,529 for the six months ended June 30, 2021. Production and property taxes were $984,210 for the six months ended June 30, 2022, an increase of $112,556 or 12.9% from $871,654 for the six months ended June 30, 2021. Such increase is the result of an increase of $342,854 in production taxes primarily due to higher sales prices offset by a $230,298 decrease in property taxes. Development expenses were $822,783 for the six months ended June 30, 2022, a decrease of $475,021 or 11.1% from $1,297,804 for the same period in 2021. Such decrease was primarily due to decreased development expenses during the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

*Excess of revenues over direct operating expenses and lease equipment and development costs.* The excess of revenues over direct operating expenses and lease equipment and development costs from the underlying properties was $12,369,209 for the six months ended June 30, 2022, an increase of $8,758,368 or 242.6% from $3,610,841 for the six months ended June 30, 2021. The Trust’s 80% net profits interest of these totals was $9,895,367 and $2,888,673, respectively. During the six months ended June 30, 2022 and 2021, VOC Brazos did not withhold or release any dollar amounts due to the Trust from the previously established cash reserve for future development, maintenance or operating expenditures, which resulted in income from the net profits interest of $9,895,367 and $2,888,673 for such periods, respectively. These amounts were reduced by a Trust holdback for current estimated expenses of $519,533 and $338,673 for the six months ended June 30, 2022 and 2021, respectively, and a Trust holdback for future estimated expenses of $365,834 for the six months ended June 30, 2022. The Trustee paid general and administrative expenses of $610,964 for the six months ended June 30, 2022, an increase of $49,119 from $561,845 for the six months ended June 30, 2021. This increase was primarily due to the differences in timing of receipt and payment of recurring general and administrative expenses. These factors resulted in distributable income of $9,010,000 for the six months ended June 30, 2022 and $2,550,000 for the six months ended June 30, 2021.

### Liquidity and Capital Resources

Other than Trust administrative expenses, including any reserves established by the Trustee for future liabilities, the Trust’s only use of cash is for distributions to Trust unitholders. Administrative expenses include payments to the Trustee as well as a quarterly administrative fee to VOC Brazos pursuant to an administrative services agreement. Each quarter, the Trustee determines the amount of funds available for distribution. Available funds are the excess cash, if any, received by the Trust from the net profits interest and other sources (such as interest earned on any amounts reserved by the Trustee) in that quarter, over the Trust’s expenses paid for that quarter. Available funds are reduced by any cash that the Trustee decides to reserve for future development, maintenance or operating expenses. As of June 30, 2022, $561,607 was held by the Trustee as such a reserve.

The Trustee may cause the Trust to borrow funds required to pay expenses if the Trustee determines that the cash on hand and the cash to be received are insufficient to cover the Trust’s expenses. If the Trust borrows funds, the Trust unitholders will not receive distributions until the borrowed funds are repaid. During the three and six months ended June 30, 2022 and 2021, there were no such borrowings. VOC Brazos has provided a letter of credit in the amount of $1,700,000 to the Trustee to protect the Trust against the risk that it does not have sufficient cash to pay future expenses.

In November 2021, the Trustee notified VOC Brazos that the Trustee intends to build a reserve for the payment of future known, anticipated or contingent expenses or liabilities, commencing with the distribution payable in the first quarter of 2022. The Trustee intends to withhold a portion of the proceeds otherwise available for distribution each quarter to gradually build a cash reserve to approximately $1.175 million. This amount is in addition to the $1.7 million letter of credit described above. The Trustee may increase or decrease the targeted amount at any time, and may increase or decrease the rate at which it is withholding funds to build the cash reserve at any time, without advance notice to the unitholders. Cash held in reserve will be invested as required by the Trust Agreement. Any cash reserved in excess of the amount necessary to pay or provide for the payment of future known, anticipated or contingent expenses or liabilities eventually will be distributed to unitholders, together with interest earned on the funds. The Trustee elected to withhold $365,834 from the proceeds otherwise available for distribution through June 30, 2022 towards the building of the cash reserve described above.

Income to the Trust from the net profits interest is based on the calculation and definitions of “gross proceeds” and “net proceeds” contained in the conveyance.

As substantially all of the underlying properties are located in mature fields, VOC Brazos does not expect future costs for the underlying properties to change significantly compared to recent historical costs other than changes due to fluctuations in the general cost of oilfield services. VOC Brazos may establish a cash reserve of up to $1.0 million in the aggregate at any given time from the dollar amount otherwise distributable to the Trust to reduce the impact on distributions of uneven capital expenditure timing. The cash reserve balance was $1,000,000 at June 30, 2022 and 2021.

### Note Regarding Forward-Looking Statements

This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact included in this Form 10-Q, including without limitation the statements under “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations”, are forward-looking statements. Although VOC Brazos advised the Trust that it believes that the expectations reflected in the forward-looking statements contained herein are reasonable, no assurance can be given that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from expectations (“Cautionary Statements”) are disclosed in this Form 10-Q and in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”), including under the section “Item 1A. Risk Factors”. All subsequent written and oral forward-looking statements attributable to the Trust or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements.

## Market risk

As filed, 149 characters.

The Trust is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this Item.

## Controls and procedures

As filed, 2,133 characters.

*Evaluation of Disclosure Controls and Procedures.* The Trustee maintains disclosure controls and procedures designed to ensure that information required to be disclosed by the Trust in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and regulations promulgated by the SEC. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Trust is accumulated and communicated by VOC Brazos to the Trustee, as trustee of the Trust, and its employees who participate in the preparation of the Trust’s periodic reports as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, the Trustee carried out an evaluation of the Trust’s disclosure controls and procedures. A Trust Officer of the Trustee has concluded that the disclosure controls and procedures of the Trust are effective.

Due to the contractual arrangements of (i) the Trust Agreement and (ii) the conveyance of the net profits interest, the Trustee relies on (A) information provided by VOC Brazos, including historical operating data, plans for future operating and capital expenditures, reserve information and information relating to projected production and (B) conclusions and reports regarding reserves by the Trust’s independent reserve engineers. See “Risk Factors—Neither the trust nor the trust’s unitholders have the ability to influence VOC Brazos or control the operations or development of the underlying properties” in the Form 10-K.

*Changes in Internal Control over Financial Reporting.* During the quarter ended June 30, 2022, there was no change in the Trust’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting. The Trustee notes for purposes of clarification that it has no authority over, and makes no statement concerning, the internal control over financial reporting of VOC Brazos.

## Risk factors

As filed, 146 characters.

There have not been any material changes from the risk factors previously disclosed in the Trust’s response to Item 1A to Part I of the Form 10-K.

Filed Aug 9, 2022.
Source: SEC EDGAR, the filing index for accession 0001104659-22-087910. Last ingested by Listed: Oct 24, 2026, 15:12 ET. No prices; not investment advice.