It's like a Real Estate Investment Trust (REIT), but instead of owning buildings, it owns a passive interest in specific oil and gas production and distributes that income directly to investors.

• Cash Distributions from Royalty Interests: The trust distributes income to its unit holders, derived from its overriding royalty interests in oil and natural gas properties located primarily in the Permian Basin.

• XTO Energy Inc. (a subsidiary of Exxon Mobil Corporation, symbol: XOM). XTO Energy operates 100% of the Waddell Ranch Properties and a substantial portion of the Texas Royalty Properties from which Permian Basin Royalty Trust receives its royalty income.

1. Legal Disputes and Operational Control with Operators: A primary risk stems from legal disputes and the trust's limited operational control over the underlying properties. Specifically, ongoing litigation with Blackbeard Operating, LLC, the operator of the Waddell Ranch properties, regarding alleged underpayment of royalties and withheld production data, poses a critical vulnerability. This dispute could delay distributions and erode investor confidence. Furthermore, PBT, as a pass-through trust, has no control over production decisions or cost management by its operators, exacerbating financial stability concerns, particularly regarding high operating costs at the Waddell Ranch properties.
2. Volatility of Oil and Gas Prices: The trust's income and, consequently, its distributions are directly tied to the fluctuating prices and production volumes of oil and gas. Significant declines in commodity prices, such as the reported near four-year low in oil prices, directly and negatively impact the trust's revenue and distribution capacity. This inherent sensitivity to market forces makes PBT highly susceptible to cyclical downturns in the energy sector.
3. Energy Transition and Long-Term Demand Uncertainty: The long-term outlook for Permian Basin Royalty Trust is subject to the broader energy transition and the uncertain future demand for fossil fuels. While the Permian Basin currently exhibits robust efficiency, the shift towards renewable energy sources and environmental regulations could diminish the long-term value and demand for oil and gas assets, affecting PBT's underlying royalty interests.

The clear emerging threat for Permian Basin Royalty Trust (PBT) is the accelerating global energy transition away from fossil fuels and towards renewable energy sources.

This macro trend poses several risks:

• Depressed Long-Term Commodity Prices: As renewable energy technologies advance and become more widespread, and as demand-side factors like electric vehicle adoption increase, the long-term demand and price for oil and gas could face significant downward pressure. Since PBT's distributions are directly tied to the sale price of oil and gas produced from its royalty interests, a sustained decline in commodity prices would directly reduce income for unit holders.
• Reduced Investment in Fossil Fuel Production: Operators of the underlying properties (such as ConocoPhillips, through its subsidiary Burlington Resources) are facing increasing pressure to decarbonize and shift capital towards more sustainable energy solutions. This could lead to a reduction in capital allocated to drilling new wells or enhancing recovery in mature fields, like those underlying PBT's royalty interests. Such reduced investment could accelerate the natural decline in production from the underlying assets, thereby shortening the economic life of the trust and diminishing overall distributions.
• Increased Regulatory and Environmental Scrutiny: Governments worldwide are implementing policies to incentivize renewable energy and restrict fossil fuel production. While PBT is a passive trust, these regulations could indirectly impact the operational costs of the underlying wells or the operator's willingness to continue production, ultimately affecting PBT's revenue stream.

The main products for Permian Basin Royalty Trust (PBT) are oil and natural gas, derived from their royalty interests in properties primarily located in the Permian Basin and other counties in Texas, United States.

The addressable market for these products is the U.S. oil and gas market.

The U.S. oil and gas market size is calculated at approximately USD 1.61 trillion in 2025. This market is projected to reach around USD 2.24 trillion by 2034, growing at a Compound Annual Growth Rate (CAGR) of 3.75% between 2025 and 2034.

Within this broader market, the Permian Basin itself is a significant contributor. In 2024, the Permian Basin accounted for 44% of the U.S. oil & gas market by deployment. It also contributed over 45% of the national crude output in 2024.

Looking specifically at production in the Permian Basin, crude oil output is projected to reach 6.6 million barrels per day (b/d) in 2025. Marketed natural gas production in the Permian Basin is expected to grow to an average of 25.8 billion cubic feet per day (Bcf/d) in 2025.

1. Fluctuations in Oil and Natural Gas Prices: As a royalty trust, PBT's revenue is directly tied to the market prices of crude oil and natural gas. Higher commodity prices translate to increased royalty income, while lower prices have a detrimental effect on its financial performance.
2. Production Volume from Underlying Properties: Revenue for PBT is directly dependent on the volume of oil and gas produced from the properties it holds royalty interests in, particularly the Waddell Ranch properties. Any increase in production, potentially through enhanced drilling techniques or new discoveries, could boost its financial performance.
3. Reduction in Operating Costs at Waddell Ranch Properties: While not a direct revenue driver, a significant reduction in the operating costs associated with the Waddell Ranch properties could lead to a substantial increase in the Trust's distributable income. This would positively impact the net income available for distribution to unitholders.
4. Resolution and Recovery from Litigation: Permian Basin Royalty Trust has initiated a lawsuit to recover over $25 million based on an audit for the years 2020 to 2022, with a trial scheduled for November 17, 2025. A successful outcome in this litigation could provide a significant, albeit non-recurring, increase in funds available to the Trust, impacting its financial results within the next 2-3 years.

Capital Expenditures

• Capital expenditures for drilling, remedial, and maintenance activities on the Waddell Ranch properties totaled $9.5 million in the first quarter of 2021, compared to $528,000 for the first quarter of 2020.
• The approved capital expenditures budget for the Waddell Ranch properties for 2021 was $88.6 million (gross), with $32.5 million net to the Trust.
• Total capital expenditures for the Waddell Ranch properties in 2020 amounted to $10.4 million (gross).