# Permianville Royalty Trust: Form 10-Q for the period ended Sep 30, 2023

- Company: [Permianville Royalty Trust](/companies/pvl.md) (CIK 1520048)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 21:05 ET
- Period: 2023-09-30
- Accession: 0001104659-23-118067
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/1520048/000110465923118067/tm2324507d1_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1520048/000110465923118067/

## Management's discussion and analysis

As filed, 34,063 characters.

References to the “Trust” in this document refer to Permianville Royalty Trust, previously known as Enduro Royalty Trust, while references to “COERT” or the “Sponsor” in this document refer to COERT Holdings 1 LLC. References to “Enduro” in this document refer to Enduro Resource Partners LLC, the original sponsor of the Trust. The following review of the Trust’s financial condition and results of operations should be read in conjunction with the financial statements and notes thereto, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report on Form 10-K”). The Trust’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all other filings with the SEC are available on the SEC’s website at www.sec.gov.

### Forward-Looking Statements

This Quarterly Report on Form 10-Q (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. All statements other than statements of historical fact included in this Form 10-Q, including without limitation the statements under this “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements. Such statements may be influenced by factors that could cause actual outcomes and results to differ materially from those projected. No assurance can be given that such expectations will prove to have been correct. When used in this document, the words “believes,” “expects,” “anticipates,” “intends” or similar expressions are intended to identify such forward-looking statements. The following important factors, in addition to those discussed elsewhere in this Form 10-Q, in the Trust’s 2022 Annual Report on Form 10-K and the Trust’s other filings with the SEC could affect the future results of the energy industry in general, and COERT and the Trust in particular, and could cause actual results to differ materially from those expressed in such forward-looking statements:

- risks associated with the drilling and operation of oil and natural gas wells;
- the amount of future direct operating expenses and development expenses;
- the occurrence or threat of epidemic or pandemic diseases, such as the COVID-19 pandemic, or any government response to such occurrence or threat;
- the actions of the Organization of Petroleum Exporting Countries;
- the armed conflicts between Russia and Ukraine and between Israel and Hamas and the potential destabilizing effects such conflicts may pose for the global oil and gas markets;
- the effect of existing and future laws and regulatory actions;
- the effect of changes in commodity prices or alternative fuel prices;
- the prohibition on the Trust’s entry into any new hedging arrangements under the terms of the Conveyance;
- conditions in the capital markets;
- competition from others in the energy industry;
- climate change and the potential impact on fossil fuels;
- uncertainty of estimates of oil and natural gas reserves and production; and
- cost inflation.

You should not place undue reliance on these forward-looking statements. All forward-looking statements speak only as of the date of this Form 10-Q. The Trust does not undertake any obligation to release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, unless the securities laws require the Trust to do so.

This Form 10-Q describes other important factors that could cause actual results to differ materially from expectations of the Sponsor and the Trust. All forward-looking statements in this report and all subsequent written and oral forward-looking statements attributable to the Sponsor or the Trust or persons acting on behalf of the Sponsor or the Trust are expressly qualified in their entirety by such factors. The Trust assumes no obligation, and disclaims any duty, to update these forward-looking statements.

### Overview

Permianville Royalty Trust, a statutory trust created in May 2011, completed its initial public offering in November 2011. The Trust’s only asset and source of income is the net profits interest representing the right to receive 80% of the net profits from the sale of oil and natural gas production from certain properties in the states of Texas, Louisiana and New Mexico held by Enduro as of the date of the conveyance of the net profits interest to the Trust (the “Net Profits Interest”). The properties in which the Trust holds the Net Profits Interest are referred to as the “Underlying Properties.” The Net Profits Interest is passive in nature and neither the Trust nor the Trustee has any management control over or responsibility for costs relating to the operation of the Underlying Properties. Additionally, third parties operate substantially all of the wells on the Underlying Properties and, therefore, the Sponsor is not in a position to control the timing of development efforts, associated costs, or the rate of production of the reserves.

On August 31, 2018, COERT completed the acquisition from Enduro of the Underlying Properties and all of the outstanding Trust Units owned by Enduro (the “Sale Transaction”). In connection with the Sale Transaction, COERT assumed all of Enduro’s obligations under the Amended and Restated Trust Agreement of the Trust (the “Trust Agreement”) and other instruments to which Enduro and the Trustee were parties.

The Trust is required to make monthly cash distributions of substantially all of its monthly cash receipts, after deducting the Trust’s administrative expenses, to the holders of Trust Units as of the applicable record date (generally the last business day of each calendar month) on or before the 10th business day after the record date. The Net Profits Interest is entitled to a share of the profits from and after July 1, 2011 attributable to production occurring on or after June 1, 2011. The amount of Trust revenues and cash distributions to Trust unitholders depends on, among other things:

- oil and natural gas sales prices;
- volumes of oil and natural gas produced and sold attributable to the Underlying Properties;
- production and development costs;
- price differentials;
- potential reductions or suspensions of production;
- the amount and timing of Trust administrative expenses; and
- the establishment, increase, or decrease of reserves for approved development expenses or future liabilities of the Trust.

Generally, the Sponsor receives cash payment for oil production 30 to 60 days after it is produced and for natural gas production 60 to 90 days after it is produced.

### Outlook

The development activity on the Underlying Properties remained stable during the first nine months of 2023, despite year-over-year volatility in commodity prices. Although the global economy remains volatile, reflecting, among other factors, the current hostilities between Israel and Hamas amid increasing tensions in the Middle East, the ongoing war between Russia and Ukraine and the lingering effects of the COVID-19 pandemic, the Sponsor does not expect that these events will have a material impact on the Underlying Properties or the expected 2023 development activity as detailed in the Trust’s 2022 Annual Report on Form 10-K, aside from the effects of volatile commodity prices. The West Texas Intermediate spot price of crude oil has declined from $80.26 per barrel on December 30, 2022 to $77.17 per barrel on November 10, 2023. Natural gas prices have declined year-over-year, with the Henry Hub spot price decreasing from $3.52 per MMBtu on December 30, 2022 to $2.71 per MMBtu on November 10, 2023.

With oil prices achieving greater stability in recent periods, the Sponsor continues to expect a higher level of capital spending in 2023, at a range of $8.0 million to $12.0 million, or $6.4 million to $9.6 million net to the Trust’s Net Profits Interest, as detailed in the Trust’s Quarterly Report on Form 10-Q for the period ended June 30, 2023. The expected capital expenditures continue to be driven primarily by greater activity in the Permian basin by large-cap public operators, which compose the majority of the operators of the Underlying Properties. Meanwhile, with the recent stabilization in natural gas prices, the Sponsor has seen a slight recovery in future capital expenditures in the Haynesville portion of the Underlying Properties. Nevertheless, the outlook for capital expenditures remains subject to change, as operators are expected to continue to reevaluate their planned capital expenditures, particularly to the extent commodity prices experience further volatility in the future.

Over the first nine months of 2023, the Sponsor has seen a return of inflationary pressures and operating costs that had been affecting the Underlying Properties, in particular certain of the legacy producing properties in the Permian that require produced water disposal. Given the market volatility and recently increased capital expenditure activity levels, the Sponsor may establish a new cash reserve for approved, future development expenses during 2023 or expected expenses during 2024, similar to the cash reserve that the Sponsor had established in 2022. The Sponsor indicates that it continues to have access to adequate capital and liquidity to fund such capital expenditures as they come due.

The recent sale of certain of the Underlying Properties as discussed below under “—Sale of Divestiture Properties” is expected to help reduce the operating cost profile and future plugging and abandonment expenditures of the Underlying Properties. The Sponsor believes there could be further opportunity in 2023 and 2024 for prospective divestitures, as operators of some of the Underlying Properties look to acquire assets at compelling valuations against the backdrop of favorable oil prices compared to prior years.

### Capex Drilling Activity Update

Presented below is a summary of the current status of certain notable capital projects recently undertaken on the Underlying Properties pursuant to the capital expenditure program described above. All information has been provided by the Sponsor.

The following table is not intended to be a comprehensive list reflecting all capital expenditures to date. In addition, there can often be a several-month delay from the time of capital expenditures to the time of production and cash flows attributable to the Underlying Properties, especially given the non-operated nature of the Underlying Properties.

| Operator | Region | Number of Wells | Underlying Properties W/I | Project | Capex Cumulative Total (in thousands) | Status |
| --- | --- | ---: | ---: | --- | ---: | --- |
| Large Cap Major 1 | Haynesville | 1 | 4.4% | D&C New Drills | $400 | In-process |
| Large Cap E&P 1 | Midland | 5 | 6.6% | D&C New Drills | $155 | 2 Producing, Awaiting First Revenues; 3 Drilling In-Process/Pre Drill |
| Large Cap E&P 2 | Conventional Permian | N/A (Field) | 0.8% | New Drills / Workovers | $168 | In-process/ Continual Program |
| Large Private E&P 1 | Haynesville | 6 | 3.5% | D&C New Drills | - | Pre-Drill |
| PE-Backed Private 1 | Delaware | 4 | 5.4% | D&C New Drills | $683 | 4 Drilling In-Process |
| PE-Backed Private 2 | Delaware | 9 | 0.9% | D&C New Drills | $716 | 4 Producing, Awaiting First Revenues; 5 Pre-Drill |
| Large Cap E&P 3 | Midland | 4 | 3.4% | D&C New Drills | - | Pre-Drill |
| Large Cap E&P 4 | Haynesville | 5 | 3.7% | D&C New Drills | - | Pre-Drill |
| Private E&P 2 | Haynesville | 3 | 3.6% | Refrac | $776 | 3 In-Process |

In addition to the updated cumulative capex spending above and a new Haynesville project (Large Private E&P 1), three wells in the Midland operated by Large Cap E&P 1 began paying revenues during the third quarter. For the other projects identified above that are still in process or awaiting first revenues, the Sponsor expects a majority to be completed and to begin producing during the remainder of 2023 and the first half of 2024.

### Non-producing Property Divestiture

In May 2023, the Sponsor sold approximately $0.3 million in non-producing, non-cash flowing acreage to a private oil company, free and clear of the Net Profits Interest, as permitted under the Trust Agreement. The proceeds from this sale attributable to the Trust’s Net Profits Interest were included in the distribution that was paid to Trust unitholders on August 14, 2023.

### Sale of Divestiture Properties

On May 3, 2023, the Sponsor notified the Trustee that the Sponsor had entered into an agreement to divest certain acreage and associated production in the Permian Basin (the “Divestiture Properties”) that constituted part of the Underlying Properties and were therefore burdened by the Trust’s Net Profits Interest, for a total purchase price of approximately $6.7 million. On July 19, 2023, at a special meeting of Trust unitholders, the unitholders approved the foregoing transaction and the release of the Trust’s Net Profits Interest in the Divestiture Properties. On August 9, 2023, the Sponsor completed the sale of the Divestiture Properties. The total proceeds received by the Sponsor from the sale of the Divestiture Properties, after preliminary closing adjustments, were approximately $6.5 million, inclusive of the escrow funded by the buyer and partial expense reimbursement associated with the proxy solicitation. The Sponsor deducted the final transaction expenses from the sales proceeds, along with an escrow amount of $250,000 to cover possible indemnification obligations under the purchase and sale agreement (the “Indemnification Escrow Amount”), to arrive at final net proceeds, based upon the Trust’s Net Profits Interest.

On September 20, 2023, the Trust announced a special cash distribution to Trust unitholders of $0.069670 per unit, payable on October 13, 2023 to unitholders of record on October 2, 2023, reflecting 50% of the Trust’s share of the net proceeds, after accounting for the Indemnification Escrow Amount. As previously disclosed, the remaining 50% of the Trust’s share of the net proceeds was temporarily retained by the Sponsor as a source of payment of the Trust’s proportionate share of any post-closing purchase price adjustments, with any amount remaining (less any amounts in dispute) after such adjustments to be paid to the Trust within five business days after finalization of the settlement statement and included in a distribution to unitholders. On November 6, 2023, the Trust announced a special cash distribution to Trust unitholders of $0.077250 per unit, payable on November 22, 2023 to unitholders of record on November 16, 2023, reflecting the remaining 50% of the Trust’s share of the net proceeds (net of the Indemnification Escrow Amount). Within 12 months after the closing of the sale, any remaining amount from the Indemnification Escrow Amount (less any amounts in dispute) will be released to the Trust and included in a distribution to unitholders.

### Results of Operations

#### Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The Trust’s net profits income consists of monthly net profits attributable to the Net Profits Interest, which was determined as shown in the following table:

| Gross profits: | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Oil sales | $11,501,341 | $12,315,980 | (7)% |
| Natural gas sales | 2,488,980 | 4,801,883 | (48)% |
| Total | 13,990,321 | 17,117,863 | (18)% |
| Costs: |  |  |  |
| Direct operating expenses: |  |  |  |
| Lease operating expenses | 6,752,000 | 4,955,000 | 36% |
| Compression, gathering and transportation | 606,000 | 938,000 | (35)% |
| Production, ad valorem and other taxes | 974,000 | 1,251,000 | (22)% |
| Development expenses | 2,401,000 | 6,251,000 | (62)% |
| Total | 10,733,000 | 13,395,000 | (20)% |
| Gross proceeds from sale of assets | 306,250 | – | 100% |
| Net profits | 3,563,571 | 3,722,863 | (4)% |
| Percentage allocable to Net Profits Interest | 80% | 80% |  |
| Net profits allocable to Net Profits Interest | 2,850,857 | 2,978,291 | (4)% |
| Plus: Sponsor reserve release for capital expenditures | – | 450,000 | (100)% |
| Less: Trust general and administrative expenses and cash withheld for expenses net of interest income | (375,857) | (425,291) | (12)% |
| Distributable income | $2,475,000 | $3,003,000 | (18)% |

15

The following table displays reported oil and natural gas sales volumes and average prices from the Underlying Properties, representing the amounts included in the net profits calculation for distributions paid during the three months ended September 30, 2023 and 2022:

| Underlying Properties Production Volumes: | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Oil (Bbls) | 146,735 | 118,574 | 24% |
| Natural Gas (Mcf) | 1,004,612 | 979,552 | 3% |
| Combined (Boe) | 314,170 | 281,833 | 11% |
| Average Prices: |  |  |  |
| Oil - NYMEX (applicable NPI period) ($/Bbl) | $74.81 | $106.39 | (30)% |
| Differential | $3.57 | $(2.52) | (242)% |
| Oil prices realized ($/Bbl) | $78.38 | $103.87 | (25)% |
| Natural gas - NYMEX (applicable NPI period) ($/Mcf) | $2.52 | $5.39 | (53)% |
| Differential | $(0.04) | $(0.49) | (92)% |
| Natural gas prices realized ($/Mcf) | $2.48 | $4.90 | (49)% |

Net profits attributable to the Underlying Properties for the three months ended September 30, 2023 were $3.6 million compared to $3.7 million for the three months ended September 30, 2022. The $0.1 million decrease in net profits attributable to the Underlying Properties from the 2022 period to the 2023 period was primarily due to the following items:

- Oil sales decreased $0.8 million primarily due to lower realized prices, which caused oil sales to decrease by $3.7 million. The decrease in oil sales due to lower realized prices was partially offset by a $2.9 million increase in oil sales due to increased sales volumes. The average oil price received decreased 25% as a result of the corresponding decrease in the average NYMEX oil price for the relevant production months. Oil sales volumes increased 24% primarily because the cash receipts for previously detailed drilling projects were finally converted to first revenues after a delay associated with the operator.
- Natural gas sales decreased $2.3 million primarily due to lower realized prices. The 3% increase in gas sales volumes in the 2023 period compared to the 2022 period increased revenues by $0.1 million; however, the 49% decrease in realized gas prices caused revenues to decrease by $2.4 million.
- Lease operating expenses during the three months ended September 30, 2023 increased $1.8 million compared to the three months ended September 30, 2022. Approximately $1.1 million of the increase was attributable to a settlement between the Sponsor and one of the operators of the Underlying Properties relating to a dispute with respect to certain lease operating expenses from 2018 and 2019 that the operator had mistakenly coded for Enduro instead of COERT. In May 2023, COERT and the operator agreed to settle the dispute at a discounted amount, resulting in an incremental lease operating expense adjustment of approximately $0.4 million per month from June 2023 through December 2023, after which no additional amounts relating to the disputed expenses will be owed to the operator.
- Compression, gathering and transportation costs decreased $0.3 million, primarily due to the decrease in natural gas prices.
- Production, ad valorem and other taxes decreased $0.3 million during the three months ended September 30, 2023 compared to the three months ended September 30, 2022, due to the decrease in oil and natural gas prices.
- Development expenses decreased $3.9 million in the 2023 period due to higher drilling and completion costs in the 2022 period, related to the drilling of multiple new wells in the Permian area.

For the three months ended September 30, 2023, the Trust withheld $0.4 million and paid $0.3 million for general and administrative expenses. Expenses paid during the period primarily consisted of fees for the preparation of the Trust’s monthly press releases, Trustee fees, and New York Stock Exchange listing fees. For the three months ended September 30, 2022, the Trust withheld $0.4 million and paid $0.2 million for general and administrative expenses.

#### Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

The Trust’s net profits income consists of monthly net profits attributable to the Net Profits Interest, which was determined as shown in the following table:

| Gross profits: | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Oil sales | $29,870,364 | $31,695,383 | (6)% |
| Natural gas sales | 9,647,284 | 12,697,339 | (24)% |
| Total | 39,517,648 | 44,392,722 | (11)% |
| Costs: |  |  |  |
| Direct operating expenses: |  |  |  |
| Lease operating expenses | 17,956,000 | 15,618,000 | 15% |
| Compression, gathering and transportation | 1,348,000 | 2,567,000 | (47)% |
| Production, ad valorem and other taxes | 2,531,000 | 3,605,000 | (30)% |
| Development expenses | 6,608,000 | 9,548,000 | (31)% |
| Total | 28,443,000 | 31,338,000 | (9)% |
| Gross proceeds from sale of assets | 306,250 | 130,030 | 136% |
| Net profits | 11,380,898 | 13,184,752 | (14)% |
| Percentage allocable to Net Profits Interest | 80% | 80% |  |
| Net profits allocable to Net Profits Interest | 9,104,719 | 10,547,801 | (14)% |
| Plus: Sponsor reserve release for capital expenditures | 1,000,000 | (700,000) | (243)% |
| Less: Trust general and administrative expenses and cash withheld for expenses net of interest income | (1,160,069) | (1,284,302) | (10)% |
| Distributable income | $8,944,650 | $8,563,499 | 4% |

17

The following table displays reported oil and natural gas sales volumes and average prices from the Underlying Properties, representing the amounts included in the net profits calculation for distributions paid during the nine months ended September 30, 2023 and 2022:

| Underlying Properties Production Volumes: | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Oil (Bbls) | 372,273 | 372,468 | 0% |
| Natural Gas (Mcf) | 2,331,906 | 2,688,212 | (13)% |
| Combined (Boe) | 760,924 | 820,503 | (7)% |
| Average Prices: |  |  |  |
| Oil – NYMEX (applicable NPI period) ($/Bbl) | $79.96 | $85.56 | (7)% |
| Differential | $0.28 | $(0.47) | (160)% |
| Oil prices realized ($/Bbl) | $80.24 | $85.10 | (6)% |
| Natural gas – NYMEX (applicable NPI period) ($/Mcf) | $4.33 | $4.68 | (8)% |
| Differential | $(0.19) | $0.04 | (585)% |
| Natural gas prices realized ($/Mcf) | $4.14 | $4.72 | (12)% |

Net profits attributable to the Underlying Properties for the nine months ended September 30, 2023 were $11.4 million compared to $13.2 million for the nine months ended September 30, 2022. The $1.8 million decrease in net profits attributable to the Underlying Properties from the 2022 period to the 2023 period was primarily due to the following items:

- Oil sales decreased $1.8 million primarily due to lower realized prices. The average oil price received decreased 6% primarily due to a 7% decrease in the average NYMEX oil price for the relevant production months.
- Natural gas sales decreased by $1.4 million due to lower realized prices and by $1.7 million due to lower produced volumes, for a total decline of $3.1 million compared to the 2022 period. The average natural gas price received decreased 12% primarily due to an 8% decrease in the average NYMEX natural gas price for the relevant production months.
- Lease operating expenses increased $2.3 million in the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Approximately $1.1 million of the increase was attributable to the lease operating expense settlement between COERT and one of the operators of the Underlying Properties as discussed above under “—Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022.”
- Compression, gathering and transportation costs decreased $1.2 million, primarily due to the decrease in natural gas volumes.
- Production, ad valorem and other taxes decreased $1.1 million during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, due to the decrease in oil and natural gas produced volumes.
- Development expenses decreased $2.9 million due to higher drilling and completion costs during the 2022 period, related to the drilling of multiple new wells in the Permian and Haynesville areas.

During the nine months ended September 30, 2023, COERT released the remaining $1.0 million from the cash reserve for future development expenses it had established in 2022 through the withholding of net profits otherwise payable to the Trust.

For the nine months ended September 30, 2023, the Trust withheld $1.2 million and paid $0.8 million for general and administrative expenses. Expenses paid during the period primarily consisted of fees for the preparation of the 2022 tax information for Trust unitholders, preparation of the Trust’s 2022 reserve report, financial statement audit fees, preparation of the Trust’s monthly press releases, Trustee fees, and New York Stock Exchange listing fees. For the nine months ended September 30, 2022, the Trust withheld $1.3 million and paid $0.6 million for general and administrative expenses.

### Liquidity and Capital Resources

The Trust’s principal sources of liquidity are cash flow generated from the Net Profits Interest and borrowing capacity under the letter of credit described below. 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. 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 any given month, over the Trust’s expenses paid for that month. Available funds are reduced by any cash the Trustee determines to hold as a reserve against future expenses.

The Trustee may create a cash reserve to pay for future liabilities of the Trust. In February 2022, the Trustee began withholding $37,833 from the funds otherwise available for distribution each month to gradually build a cash reserve of approximately $2.3 million for the payment of future known, anticipated or contingent expenses or liabilities of the Trust. Commencing with the distribution to Trust unitholders payable in April 2023, the Trustee has been withholding, and in the future intends to withhold, $50,000 from the funds otherwise available for distribution each month to gradually build the reserve. The Trustee may increase or decrease the targeted cash reserve 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 Trust 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 Trust unitholders, together with interest earned on the funds. As of September 30, 2023, the Trustee has withheld $841,386 toward this cash reserve.

If the Trustee determines that the cash on hand and the cash to be received are, or will be, insufficient to cover the Trust’s liabilities, the Trustee may authorize the Trust to borrow money to pay administrative or incidental expenses of the Trust that exceed cash held by the Trust. The Trustee may authorize the Trust to borrow from any person, including the Trustee or the Delaware Trustee or an affiliate thereof, although none of the Trustee, the Delaware Trustee or any affiliate thereof intends to lend funds to the Trust. The Trustee may also cause the Trust to mortgage its assets to secure payment of the indebtedness. The terms of such indebtedness and security interest, if funds were to be loaned by the entity serving as Trustee or Delaware Trustee or an affiliate thereof, would be similar to the terms which such entity would grant to a similarly situated commercial customer with whom it did not have a fiduciary relationship. In addition, COERT has provided the Trust with a $1.2 million letter of credit to be used by the Trust if its cash on hand (including available cash reserves) is insufficient to pay ordinary course administrative expenses. Further, if the Trust requires more than the $1.2 million under the letter of credit to pay administrative expenses, COERT has agreed to loan funds to the Trust necessary to pay such expenses. Any loan made by COERT to the Trust would be evidenced by a written promissory note, be on an unsecured basis, and have terms that are no less favorable to COERT than those that would be obtained in an arm’s length transaction between COERT and an unaffiliated third party. If the Trust borrows funds or draws on the letter of credit, no further distributions will be made to Trust unitholders until such amounts borrowed or drawn are repaid. Except for the foregoing, the Trust has no source of liquidity or capital resources. The Trustee has no current plans to authorize the Trust to borrow any funds. As of September 30, 2023 and December 31, 2022, the Trust had cash of $1,332,263 and $922,913, respectively, to be used towards future Trust expenses. Since its formation, the Trust has not borrowed any funds and no amounts have been drawn on the letter of credit.

From time to time, if the Trust’s cash on hand (including available cash reserves, if any) is not sufficient to pay the Trust’s ordinary course administrative expenses that are due prior to the monthly payment to the Trust of proceeds from the Net Profits Interest, COERT may advance funds to the Trust to pay such expenses. At September 30, 2023 and December 31, 2022, there was no outstanding balance. Any advances to the Trust will be carried forward to be repaid out of future net profits generated by the Underlying Properties.

Cash held by the Trustee as a reserve against future liabilities or for distribution at the next distribution date may be held in a noninterest-bearing account or may be invested in:

- interest-bearing obligations of the United States government;
- money market funds that invest only in United States government securities;
- repurchase agreements secured by interest-bearing obligations of the United States government; or
- bank certificates of deposit.

The Trust pays the Trustee an annual administrative fee of $200,000 and the Delaware Trustee an annual fee of $2,000. The Trust also incurs, either directly or as a reimbursement to the Trustee, legal, accounting, tax and engineering fees, printing costs and other expenses that are deducted by the Trust before distributions are made to Trust unitholders. The Trust also is responsible for paying other expenses incurred as a result of being a publicly traded entity, including costs associated with annual and quarterly reports to Trust unitholders, tax return and Form 1099 preparation and distribution, NYSE listing fees, independent auditor fees and registrar and transfer agent fees.

The Trust does not have any transactions, arrangements or other relationships with unconsolidated entities or persons that could materially affect the Trust’s liquidity or the availability of capital resources.

### Off-Balance Sheet Arrangements

The Trust has no off-balance sheet arrangements. The Trust has not guaranteed the debt of any other party, nor does the Trust have any other arrangements or relationships with other entities that could potentially result in unconsolidated debt, losses or contingent obligations.

### Critical Accounting Policies and Estimates

Please read “Item 7. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” of the Trust’s 2022 Annual Report on Form 10-K for additional information regarding the Trust’s critical accounting policies and estimates. There were no material changes to the Trust’s critical accounting policies or estimates during the three months ended September 30, 2023.

### Subsequent Events

### Distributions Paid or Declared

On October 13, 2023, a distribution of $0.003700 per unit, which was declared on September 18, 2023, was paid to Trust unitholders of record as of September 29, 2023.

On October 13, 2023, a special cash distribution of $0.069670 per unit, which was declared on September 20, 2023, was paid to Trust unitholders of record as of October 2, 2023. Please see “Overview—Sale of Divestiture Properties” above for additional information regarding the special distribution.

On October 16, 2023, the Trust declared a distribution of $0.006000 per unit to Trust unitholders of record as of September 29, 2023. The distribution was paid to Trust unitholders on November 13, 2023.

On November 6, 2023, the Trust declared a special cash distribution of $0.077250 per unit to Trust unitholders of record as of November 16, 2023. The distribution, which reflected the remaining 50% (net of the Indemnification Escrow Amount described in “Overview—Sale of Divestiture Properties” above) of the Trust’s share of the net proceeds from the sale of the Divestiture Properties, will be paid to Trust unitholders on November 22, 2023. Please see “Overview—Sale of Divestiture Properties” above for additional information regarding the special distribution.

## Market risk

As filed, 151 characters.

As a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K, the Trust is not required to provide information required by this Item.

## Controls and procedures

As filed, 2,028 characters.

#### Evaluation of Disclosure Controls and Procedures

The Trustee conducted an evaluation of the Trust’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, the Trustee has concluded that the disclosure controls and procedures of the Trust were effective, as of the end of the period covered by this report, in ensuring that information required to be disclosed by the Trust in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Trustee to allow timely decisions regarding required disclosure.

Due to the nature of the Trust as a passive entity and in light of the contractual arrangements pursuant to which the Trust was created, including the provisions of (i) the Trust Agreement and (ii) the Conveyance, the Trustee’s disclosure controls and procedures related to the Trust necessarily rely on (A) information provided by the Sponsor, including information relating to results of operations, the costs and revenues attributable to the Trust’s interest under the Conveyance and other operating and historical data, plans for future operating and capital expenditures, reserve information, information relating to projected production, and other information relating to the status and results of operations of the Underlying Properties and the Net Profits Interest, and (B) conclusions and reports regarding reserves by the Trust’s independent reserve engineers.

#### Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2023, there were no changes in the Trust’s internal control over financial reporting that have materially affected, or are 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 the Sponsor.

## Risk factors

As filed, 124 characters.

There have been no material changes to the risk factors contained in Item 1A of the Trust’s 2022 Annual Report on Form 10-K.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001104659-23-118067. Last ingested by Listed: Oct 24, 2026, 15:13 ET. No prices; not investment advice.