Permian Basin Royalty Trust: Form 10-Q for the period ended Sep 30, 2025

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, regulatory matters, Unitholder meetings, and amendments to the Trust Indenture. 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. In the first half of 2024, the price of oil and gas began to increase over 2023 prices, 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. The price of oil hit a high price of $79.28 per barrel on January 17, 2025 and steadily decreased through May 2025. Since that time, the price of oil fluctuated in the second quarter between $58.50 per barrel on May 5, 2025, and $75.89 per barrel on June 18, 2025. Prices have also fluctuated in the third quarter as well, with a high of $71.09 per barrel on July 30, 2025 and a low of $62.22 on September 5, 2025. The price of oil was $61.79 on November 3, 2025. 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, including the conflicts in Eastern Europe and the Middle East
• worldwide economic and geopolitical conditions;
• weather conditions;
• trade barriers and tariffs;
• 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 Unitholders.

Liquidity and Capital Resources

As stipulated in the Trust Indenture, the Trust is intended to be passive in nature, and the Trustee does not have any control over or any responsibility relating to the operation of the Underlying Properties. The Trustee has powers to collect and distribute proceeds received by the Trust and pay Trust liabilities and expenses and its actions have been limited to those activities. 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. As a result, other than such borrowings, if any, the Trust has no source of liquidity or capital resources other than the Royalties.

Recent Events

Special Meeting

On October 10, 2025, the Trustee received a request from SoftVest Advisors, LLC (“SoftVest”), together with other Unitholders who collectively with SoftVest own more than 15% of the outstanding Units, to call a special meeting (“Special Meeting”) of the Unitholders to be held on December 16, 2025, with a record date of November 11, 2025. The purpose of the Special Meeting requested by the Unitholders is to present for a vote by the Unitholders a proposal in support of SoftVest or another appropriate party taking appropriate actions to effect the judicial reformation of the Trust Indenture to provide that the affirmative vote of a majority of Units cast at a special meeting (at which a quorum is present) be sufficient to approve any amendment to the Trust Indenture. In accordance with the terms of the Trust Indenture, the Trustee intends to call the Special Meeting. Additional details regarding the Special Meeting will be set forth in the Trustee’s notice of special meeting to be mailed to Unitholders and are also expected to be set forth in a proxy statement to be filed by SoftVest with respect to the Special Meeting.

Blackbeard Settlement

On August 19, 2025, the Trustee on behalf of the Trust, entered into a settlement agreement and release (the “Settlement Agreement”) in connection with its lawsuit against Blackbeard. Pursuant to the lawsuit, the Trustee had sought to recover more than $9 million in damages it alleged resulted from Blackbeard’s failure to properly calculate and pay royalties due and owing to the Trust.

Pursuant to the Settlement Agreement, Blackbeard has agreed to pay the Trust $9,000,000, of which $4,500,000 was paid in September, and the remainder of which will be paid in four equal installments of $1,125,000 quarterly during the 2026 calendar year.

Additionally, the Settlement Agreement established the overhead rate that may be charged to the Trust and permits Blackbeard to pass through third-party charges for saltwater disposal and gathering and transportation, and charge technical labor on reservoir engineers using an agreed allocation methodology against the net overriding royalty. The parties also agreed that the Trust would not make future claims for lost volumes in the case of ordinary line loss (as defined by third party purchase agreements with purchasers). The Trust will have the option to conduct annual site audits, at its expense. The Settlement Agreement also set forth agreed reporting that Blackbeard will provide the Trustee going forward.

Results of Operations

Three Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

For the quarter ended September 30, 2025, royalty income received by the Trust amounted to $7,258,464 compared to royalty income of $8,366,375 during the third quarter of 2024. The royalty income for the three months ended September 30, 2025 includes the $4.5 million partial settlement payment from Blackbeard. Pricing information for the Waddell Ranch properties is for June, July, and August 2025 (reflecting the period for which proceeds would have been distributed to Unitholders in the third quarter of 2025). For the Waddell Ranch properties, the average realized oil and gas prices were $62.32 per barrel (Bbl) and $1.35 per thousand cubic feet (Mcf), respectively for the three months ended August 31, 2025, compared to $79.91 per Bbl and $1.19 per Mcf for the three months ended August 31, 2024. 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 the Texas Royalty properties, the average realized oil and gas prices were $65.20 per Bbl and $8.65 per Mcf, respectively for the quarter ended September 30, 2025, compared to $79.06 per Bbl and $10.54 per Mcf, respectively for the quarter ended September 30, 2024. The lower royalty income reported in the three months ended September 30, 2025, compared to the same time period in 2024 is attributable to a deficit position in the third quarter of 2025, resulting in no royalty income being received from the Waddell Ranch properties due to an excess in working interest costs and lower oil pricing during the third quarter of 2025, somewhat offset by the partial settlement payment of $4.5 million received in September 2025. No deficit position existed during the third quarter of 2024, and royalty income was received from the Waddell Ranch properties during such period.

Interest income for the quarter ended September 30, 2025 was $15,049 compared to $54,534 during the third quarter of 2024. The decrease in interest income is primarily attributable to decreased amounts of funds available for investment as well as lower interest rates. Total expenses during the third quarter of 2025 amounted to $411,626 compared to $367,625 during the third quarter of 2024. The increase in total expenses can be primarily attributed to increased expenses for professional services associated with legal proceedings with Blackbeard.

These transactions resulted in distributable income for the quarter ended September 30, 2025 of $6,861,887 or $0.15 per Unit outstanding of beneficial interest. Distributions of $0.015311, $0.016418, and $0.115493 per Unit were made to Unitholders of record as of July 31, 2025, August 29, 2025, and September 30, 2025, respectively. The September distribution includes the first installment, in the amount of $4.5 million, of the settlement agreed upon between the Trust and Blackbeard to end the lawsuit filed in 2024. For the third quarter of 2024, distributable income was $8,053,284 or $0.17 per Unit outstanding of beneficial interest.

From and after May 2024, Blackbeard has provided, and will continue to provide, information to calculate net proceeds during the last week of the month. In accordance with the Trust Indenture, if royalty income is received on or just prior to the record date, it will be included in the following month's distribution, rather than the current month's distribution. As such, royalty income reporting for the Waddell Ranch properties is one month in arrears. 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 2025 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, June, and July 2025.

Beginning in May 2024, Blackbeard has provided 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 on a quarterly basis, as required in the conveyance, approximately 30 days after the end of each fiscal quarter. On October 30, 2025, Blackbeard provided the Trustee with a quarterly statement showing the production volumes and computation of net proceeds to the Trust for each month of the quarter ended September 30, 2025. Oil and gas sales attributable to the Royalties and the properties from which the Royalties were carved are as follows:

Pricing and Production Discussion

For the Waddell Ranch properties, the average realized price of oil decreased to $62.32 per Bbl for the production months of April through June 2025 compared to $79.91 per Bbl for April through June of 2024 due to worldwide market variables. The average realized price of gas (including plant products) increased to $1.35 per Mcf for the production months of April through June 2025 from $1.19 per Mcf for the production months of April through June of 2024.

For the Texas Royalty properties, the average realized price of oil decreased to $65.20 per Bbl in the third quarter of 2025, compared to $79.06 per Bbl in the third quarter of 2024 due to worldwide market variables. The average realized price of gas (including natural gas liquids) for the Texas Royalty properties decreased to $8.65 per Mcf in the third quarter of 2025 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 decreased and gas volumes increased from the Underlying Properties for the applicable period in 2025 compared to 2024, while for the Waddell Ranch properties, oil volumes and natural gas volumes (including plant products) increased for the applicable period in 2025 compared to 2024.

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 2025 totaled $53.3 million (gross) as compared to $24 million (gross) for the third quarter of 2024. The three months ended September 30, 2025 and 2024 include expenditures for the production months of April through June. Blackbeard does not provide capital expenditures budget information or development information for the Waddell Ranch properties such as well completions, workovers, remedial activities, and plugging and abandonment.

Blackbeard advised the Trustee that lease operating expenses and property taxes totaled $26.6 million (gross) for the third quarter of 2025, compared to $22.6 million (gross) for the same period in 2024 on the Waddell Ranch properties. The quarter ended September 30, 2025 and September 30, 2024, for the Waddell Ranch properties includes April through June expenditures.

Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

For the nine months ended September 30, 2025, royalty income received by the Trust amounted to $13,403,049 compared to royalty income of $23,175,406 for the nine months ended September 30, 2024. The royalty income for the nine months ended September 30, 2025, includes the $4.5 million partial settlement payment from Blackbeard. Pricing information for the Waddell Ranch properties is for the nine month period of December 2024 through August 2025 (reflecting the period for which proceeds would have been distributed to Unitholders in the first nine months of 2025). The average realized oil and gas prices for the Waddell Ranch properties were $66.68 per Bbl and $1.80 per Mcf, respectively for the nine months ended September 30, 2025 compared to $76.62 per Bbl and $1.61 per Mcf for the eight months ended August 31, 2024. For the Texas Royalty properties, the average realized oil and gas prices were $67.66 per Bbl and $9.11 per Mcf, respectively for the nine months ended September 30, 2025 compared to $77.40 per Bbl and $9.69 per Mcf, respectively for the nine months ended September 30, 2024. The decrease in royalty income reported in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 is attributable to the deficit position of the Waddell Ranch properties due to an excess in working interest costs during the first nine months of 2025, somewhat offset by the partial settlement payment of $4.5 million received in September 2025. No deficit position existed during the first nine months of 2024.

Interest income for the nine months ended September 30, 2025, was $47,324 compared to $122,688 during the nine months ended September 30, 2024. The decrease in interest income is primarily attributable to a decrease in the amounts of funds available for investment and the decrease in interest rates. Total expenses during the nine months ended September 30, 2025, amounted to $1,595,019 compared to $1,315,916 during the nine months ended September 30, 2024. The increase in total expenses can be primarily attributed to increased expenses for professional services associated with legal proceedings with Blackbeard.

These transactions resulted in distributable income for the nine months ended September 30, 2025 of $11,855,354, or $0.25 per Unit. For the nine months ended September 30, 2024, distributable income was $21,982,178 or $0.47 per Unit.

From and after May 2024, Blackbeard, the operator of the Waddell Ranch properties, provides the Trustee information necessary to calculate the net proceeds the last week of the month. In accordance with the Trust Indenture, if royalty income is received on or prior to the record date, it will be included in the following month's distribution, rather than the current month's distribution. As such, royalty income reporting for the Waddell Ranch properties is one month in arrears. Royalty income for the Trust for the first nine months of the calendar year is associated with actual oil and gas production for October 2024 through June 2025 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 2024 through July 2025.

As of May 2024, Blackbeard provides 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 on a quarterly basis, approximately 30 days after the end of each fiscal quarter. On October 30, 2025, Blackbeard provided the Trustee with a quarterly statement showing the production volumes and computation of net proceeds to the Trust for each month of the quarter ended September 30, 2025. Oil and gas sales attributable to the Royalties and the properties from which the Royalties were carved are as follows:

(1) Waddell Ranch information reflects Royalty income received by the Trust during the nine-month period of December 2024 through August 2025. See Note 2 to the Condensed Financial Statements.

Pricing and Production Discussion

Production and pricing information for the Waddell Ranch properties is shown for the months of December 2024 through August 2025. The average realized price of oil decreased to $66.68 per Bbl for December 2024 through August 2025 compared to $76.62 per Bbl for the eight month period ended August 31, 2024 due to worldwide market variables. The average realized price of gas for the nine months ended August 31, 2025, was $1.80 per Mcf an increase from $1.61 per Mcf for the eight-month period ending August 31, 2024.

For the Texas Royalty properties, the average realized price of oil decreased to $67.66 per Bbl for the nine months ended September 30, 2025, compared to $77.40 per Bbl for the same period of 2024 due to worldwide market variables. The average realized price of gas (including natural gas liquids) for the Texas Royalty properties decreased from $9.69 per Mcf in the nine months ended September 30, 2024 to $9.11 per Mcf in the same period of 2025 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, oil and gas sales volumes decreased for the properties from which the Royalties are carved for the applicable period of 2025 compared to 2024, while for the Waddell Ranch properties, oil and natural gas volumes (including plant products) increased for the applicable period in 2025 compared to 2024.

Blackbeard Capital Expense Discussion

Capital expenditures for drilling, remedial and maintenance activities on the Waddell Ranch properties for the nine months ended September 30, 2025 totaled $162.5 million (gross). For the nine months ended September 30, 2024, capital expenditures were $67.9 million (gross) to the Trust. The nine months ended September 30, 2025 for the Waddell Ranch properties includes December 2024 through August 2025 expenditures and the nine months ended September 30, 2024 include the eight months of January through August 2024.

Development information for the Waddell Ranch properties, such as well activity, completions, workovers, remedial activities, and plugging and abandonment, is not provided by Blackbeard.

Lease operating expenses and property taxes totaled $67.8 million (gross) for the nine months ended September 30, 2025, compared to $60.1 million (gross) for the same period in 2024. The nine months ended September 30, 2025, for the Waddell Ranch properties includes December 2024 through August 2025 expenses and taxes and the 2024 expenses and taxes include the months of January through August 2024.

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, 2025 and 2024, respectively, was computed as shown in the table below:

(1) Due to an NPI deficit, the Waddell Ranch properties did not contribute to royalty income from November 2024 through September 2025.

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, 2024. There have been no significant changes to the critical accounting policies during the three and nine months ended September 30, 2025.

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.

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 Unitholders 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 Unitholders 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.

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 relating to the Trust are contained in Item 1A of the Trust's Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Except as set forth in such filing, no material change to such risk factors has occurred during the nine months ended September 30, 2025.

Items 2 through 4

Not applicable.