Analogy 1: A Real Estate Investment Trust (REIT) for oil and gas royalties.

• Cash Distributions to Unitholders: The trust collects net profits from underlying oil and natural gas production and distributes the available cash to its unitholders on a regular basis.
• Passive Investment Vehicle for Oil & Gas Royalties: PRT offers investors a financial instrument to gain exposure to the income generated from oil and natural gas royalty interests without direct operational involvement.

PermRock Royalty Trust (PRT) is a royalty trust that derives its revenue from a net profits interest in oil and natural gas properties. As such, the trust does not directly sell oil and gas to end customers (either companies or individuals). Instead, it receives payments from the operating company that extracts and sells the resources from the underlying properties.

Therefore, PRT's major "customer" (the entity that is obligated to make the net profits interest payments to the trust) is:

• Permian Resources Operating, LLC, which is a subsidiary of **Permian Resources Corporation** (PR).

• The Bank of New York Mellon (NYSE: BK)
• Deloitte & Touche LLP
• Vinson & Elkins LLP

The key risks to PermRock Royalty Trust (PRT) primarily stem from its structure as a royalty trust in the energy sector.

1. Commodity Price Volatility: PermRock Royalty Trust's financial performance and distributions are exceptionally sensitive to the fluctuating prices of oil and natural gas. The trust's revenue is "dramatically reliant on the price of oil" and "inherently exposed to downside in energy prices". A significant risk highlighted is the absence of a hedging program to mitigate against price drops. The suspension of dividends for five months in 2020 due to a weak oil price environment serves as a clear illustration of this risk.
2. Declining Production from Underlying Assets: The trust's income stream is directly linked to the volume of oil and gas produced from its properties in the Permian Basin. There is evidence of "declining production against a steady payout commitment," with oil and natural gas production volumes reported to have "declined every year since 2019". This trend indicates that the underlying assets are maturing, which could lead to a "structural decline" in the trust's cash flow over time.
3. Dependence on the Operator: PermRock Royalty Trust is a passive entity, holding an 80% net profits interest, but it lacks "management control over or responsibility for costs relating to the operation of the Underlying Properties". The trust's success and the consistency of its distributions are "functionally dependent upon the stability and competence of the operating company". Historically, Boaz Energy operated these properties, which were subsequently sold to T2S Permian Acquisition II LLC. Any operational issues, poor asset management, or financial instability of the operator could negatively impact the trust's performance and returns.

The accelerating global transition to alternative energy sources (such as solar, wind, and electric vehicles) and enhanced energy efficiency measures, which could lead to a sustained, structural decline in demand for crude oil and natural gas. This fundamental shift threatens to permanently depress commodity prices, thereby undermining the long-term profitability of the trust's underlying oil and gas assets and, consequently, its ability to generate distributions.

• In 2023, crude oil production was approximately 5,790 thousand barrels of oil per day (mbd).
• In 2023, natural gas production was approximately 19,315 million cubic feet per day (mmcfd).

• Crude oil output in the Permian Basin is projected to reach 6.6 million barrels per day (b/d).
• Marketed natural gas production is expected to grow to an impressive 25.8 billion cubic feet per day.

PermRock Royalty Trust (PRT) is expected to have its future revenue growth over the next 2-3 years primarily driven by the following factors:

1. Fluctuations in Oil and Natural Gas Prices: The Trust's revenue is directly tied to the market prices of oil and natural gas. Higher commodity prices translate into increased royalty income, while lower prices can negatively impact revenue. For instance, a decline in net profits income in 2024 was attributed to decreased oil and natural gas sales volumes and prices. Conversely, the Trust tends to benefit significantly from rising oil prices.
2. Oil and Natural Gas Production Volumes: Revenue is derived from the royalties on oil and natural gas produced from the underlying properties in the Permian Basin. An increase in oil sales volumes has been observed, with a 10.9% rise to 24,965 barrels from 22,491 barrels in a recent period, though natural gas volumes saw a decrease. Sustained or increased production volumes are crucial for long-term earnings for oil producers.
3. Operator's Capital Expenditures and Drilling Activities: The activities of the operating company (currently Boaz Energy, with a pending sale of interests to T2S Permian Acquisition II LLC expected to close by the end of March 2025) directly influence the production from the underlying properties. Capital expenditures, such as those for drilling activities on non-operated wells in the Permian Shelf, impact future production volumes and thus the Trust's royalty income.
4. Strategic Focus on the Permian Basin: The Trust's strategic positioning, with its focus on oil and natural gas properties in the Permian Basin, a highly prolific oil-producing region in the U.S., allows it to capitalize on the region's production rates. The continued strategic emphasis and successful operations in this basin by the operator are vital for revenue generation.