{"url_path":"/sec/pbt/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation","topic":"sec","document":{"doc_type":"10-K/A","doc_date":"2026-07-14","source_url":"https://www.sec.gov/Archives/edgar/data/319654/0001193125-26-303155-index.html","accession_number":"0001193125-26-303155","cik":"0000319654","ticker":"PBT","issuer_name":"PERMIAN BASIN ROYALTY TRUST","edgar_url":"https://www.sec.gov/Archives/edgar/data/319654/0001193125-26-303155-index.html","primary_entity_key":"0000319654","primary_entity_name":"PERMIAN BASIN ROYALTY TRUST"},"word_count":3782,"has_tables":true,"body_markdown":"Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation\n\nTrustee’s Discussion and Analysis for the Three-Year Period Ended December 31, 2025\n\nRecent Developments\n\nSoftVest Special Meeting and Petition\n\nOn December 16, 2025, the Trust held a special meeting of its Unit holders (the “Special Meeting”). The Special Meeting was called by the Trustee as required by Section 8.02 of the Trust Indenture at the request of SoftVest Advisors, LLC (“SoftVest Advisors”) and other Unit holders of the Trust collectively owning not less than 15% of the outstanding Trust Units. At the Special Meeting, Unit holders approved a non-binding proposal for SoftVest Advisors or another appropriate party to take appropriate actions as beneficiaries of the Trust to effect the judicial reformation or modification of the Trust Indenture, to allow for the approval of any amendment to the Trust Indenture by a simple majority of votes cast by Unit holders at a special meeting at which a quorum is present.\n\nOn or about February 10, 2026, SoftVest, L.P. (“SoftVest”), a Unit holder of the Trust, mailed documents to the other Unit holders, which included a cover letter, a Citation in the District Court of Tarrant County, Texas (“Citation”), the Original Petition for Modification of Trust (the “Petition”) in the District Court of Tarrant County, Texas (Cause No. 96-373245-25) seeking judicial modification of the Trust’s Indenture, and the Petitioner SoftVest, L.P.’s Notice of Bench Trial on Petitioner's Original Petition for Modification of Trust (“Notice of Bench Trial”), also collectively known as the “Unit holder Mailing”. The Unit holder Mailing advises Unit holders of a hearing to be scheduled Friday, May 8, 2026, at 10:30 a.m. before the 96th District Court of Tarrant County, Tom Vandergriff Civil Courts Building, 4th Floor, 100 North Calhoun Street, Fort Worth, Texas 76196, on the merits of SoftVest’s Petition pursuant to which it seeks to (1) amend Section 8.03 of the Indenture to eliminate the requirement that certain amendments require approval by 75% of the outstanding Units of the Trust, and (2) delete Section 10.01 of the Indenture that sets forth certain prohibited amendments and replace Article X of the Indenture with a provision permitting amendment of any provision of the Indenture by a vote of Unit holders in accordance with Article VIII (which, as amended, would permit amendment by a majority in interest of Unit holders constituting a quorum at a meeting of Unit holders where a quorum is present).\n\nBlackbeard Settlement\n\nOn August 19, 2025, the Trustee entered into a settlement agreement and release (the “Settlement Agreement”) in connection with its lawsuit against Blackbeard, as operator of the properties in the Waddell Ranch, in Crane County, Texas, in which the Trust holds a 75% net overriding royalty. 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.\n\nPursuant to the Settlement Agreement, Blackbeard agreed to pay the Trust $9,000,000, of which $4,500,000 was paid to the Trust on September 18, 2025, and the remainder of which will be paid in four equal installments of $1,125,000 quarterly during the 2026 calendar year.\n\nAdditionally, the Settlement Agreement established the overhead rate that may be charged to the Trust and permits Blackbeard to pass through third-party charges for salt water disposal, 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.\n\nLiquidity and Capital Resources\n\nAs stipulated in the Trust Agreement, 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.\n\n26\n\n[Table of Contents](#toc_page)\n\n \n\nResults of Operations\n\nRoyalty income received by the Trust for the three-year period ended December 31, 2025, which for 2025 is only from the Texas Royalty Properties, due to the excess cost position of the Waddell Ranch properties, is reported in the following table:\n\n \n\n \n\nYear Ended December 31,\n\n \n\nRoyalties\n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\n \n\n2023\n\n \n\nTotal Royalty Income(1)\n\n \n\n$\n\n11,555,301\n\n \n\n \n\n$\n\n26,963,365\n\n \n\n \n\n$\n\n29,010,704\n\n \n\n \n\n \n\n100\n\n%\n\n \n\n \n\n100\n\n%\n\n \n\n \n\n100\n\n%\n\nOil Royalty Income\n\n \n\n \n\n10,399,771\n\n \n\n \n\n \n\n24,267,029\n\n \n\n \n\n \n\n24,949,205\n\n \n\n \n\n \n\n90\n\n%\n\n \n\n \n\n90\n\n%\n\n \n\n \n\n86\n\n%\n\nGas Royalty Income\n\n \n\n \n\n1,155,530\n\n \n\n \n\n \n\n2,696,336\n\n \n\n \n\n \n\n4,061,499\n\n \n\n \n\n \n\n10\n\n%\n\n \n\n \n\n10\n\n%\n\n \n\n \n\n14\n\n%\n\nTotal Royalty Income/Unit\n\n \n\n$\n\n0.247921\n\n \n\n \n\n$\n\n0.578504\n\n \n\n \n\n$\n\n0.622430\n\n \n\n \n\n(1) Total Royalty Income for 2025 does not include the $4.5 million partial payment of the lawsuit settlement paid to the Trust in September 2025 by Blackbeard.\n\n \n\nAs of May 2024, Blackbeard, the operator of the Waddell Ranch properties, provides the Trustee information necessary to calculate the net proceeds after the NYSE notification date such that royalty income of the Trust for the current calendar year is associated with actual oil and gas production for the period from October 2024 through September 2025 for the Waddell Ranch properties. Royalty income for the Trust for the calendar year for the Texas Royalty properties is associated with actual oil and gas production from November 2024 through October 2025. Oil and gas production for 2025, 2024 and 2023 generated by the Royalties and the Underlying Properties, excluding portions attributable to the adjustments discussed hereafter, are presented in the following table:\n\n \n\n \n\nYear Ended December 31,\n\n \n\nRoyalties\n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\n \n\n2023\n\n \n\nOil Sales (Bbls)\n\n \n\n \n\n3,432,650\n\n \n\n \n\n \n\n2,214,113\n\n \n\n \n\n \n\n2,277,307\n\n \n\nGas Sales (Mcf)\n\n \n\n \n\n15,540,798\n\n \n\n \n\n \n\n12,200,992\n\n \n\n \n\n \n\n12,174,696\n\n \n\nUnderlying Properties\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOil\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nTotal Oil Sales (Bbls)\n\n \n\n \n\n4,543,613\n\n \n\n \n\n \n\n2,913,075\n\n \n\n \n\n \n\n2,994,897\n\n \n\nAverage Per Day (Bbls)\n\n \n\n \n\n12,448\n\n \n\n \n\n \n\n7,981\n\n \n\n \n\n \n\n8,090\n\n \n\nAverage Price/Bbl\n\n \n\n$\n\n65.95\n\n \n\n \n\n$\n\n76.04\n\n \n\n \n\n$\n\n76.72\n\n \n\nGas\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nTotal Gas Sales (Mcf)\n\n \n\n \n\n20,698,346\n\n \n\n \n\n \n\n16,250,885\n\n \n\n \n\n \n\n16,183,928\n\n \n\nAverage Per Day (Mcf)\n\n \n\n \n\n56,708\n\n \n\n \n\n \n\n44,523\n\n \n\n \n\n \n\n44,340\n\n \n\nAverage Price/Mcf\n\n \n\n$\n\n1.78\n\n \n\n \n\n$\n\n1.45\n\n \n\n \n\n$\n\n2.40\n\n \n\n \n\nThe average price of oil decreased to $65.95 per barrel in 2025, down from $76.04 per barrel in 2024. The average price of oil in 2023 was $76.72 per barrel. In addition, the average price of gas increased from $1.45 per Mcf in 2024 to $1.78 per Mcf in 2025. The average price of gas in 2023 was $2.40 per Mcf. Oil prices have decreased primarily because of world market conditions. Oil prices are expected to remain volatile. Gas liquids values have declined due to high production levels, consistently mild weather patterns, and decreased heating demand. Blackbeard, after assuming the role of operator of the Waddell Ranch properties, immediately instituted a workover of specific wells, which caused the Trust not to receive any royalty income from the Waddell Ranch properties in portions of 2023 and 2024, and all of 2025. Royalty income was not received for the Waddell Ranch properties for the year 2025 due to large capital expenditures.\n\nSubsequent to December 31, 2025, the price of both oil and gas continued to fluctuate, giving rise to a correlating adjustment of the respective standardized measure of discounted future net cash flows. As of March 16, 2026, NYMEX posted oil prices were approximately $93.39 per barrel, which compared to the posted price of $65.34 per barrel, used to calculate the worth of future net revenue of the Trust’s proved developed reserves, would result in a larger standardized measure of discounted future net cash flows for oil. As of March 16, 2026, NYMEX posted gas prices were $3.03 per MMBtu. The use of such price, as compared to the posted price of $3.387 per MMBtu, used to calculate the future net revenue of the Trust’s proved developed reserves would result in a smaller standardized measure of discounted future net cash flows for gas.\n\n27\n\n[Table of Contents](#toc_page)\n\n \n\nPrices obtained for oil and gas production depend upon numerous factors that are beyond the control of the Trust. Inflationary pressures continued during 2025, which has impacted the cost of goods and services for operators on the Underlying Properties and administrative costs for the Trust.\n\n \n\nAs of May 2024, Blackbeard has provided the Trustee information necessary to calculate the net proceeds after the announcement date for monthly distributions. In accordance with the Trust indenture, if royalty income is received from the Waddell Ranch properties on or prior to the record date, it will be included in the following month’s distribution, rather than the current month’s distribution. There was no royalty income received for the year ending December 31, 2025.\n\nSince 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), production amounts do not necessarily provide a meaningful comparison. For the Underlying Properties oil and gas production increased approximately 56% and 46% respectively, from 2024 to 2025 which the Trustee believes were likely primarily due to new development based on the increased levels of capital expenditures.\n\nTotal capital expenditures for the twelve months of production reported in 2025 and used in the net overriding royalty calculation were approximately $228.7 million (gross). Total capital expenditures were $109.4 million (gross) in 2024 and $120.4 million (gross) in 2023.\n\nDevelopment information for the Waddell Ranch properties, such as well activity, completions, workovers, remedial activities, and plugging and abandonment, is not provided by Blackbeard.\n\nBlackbeard does not provide a proposed capital expenditure budget.\n\nIn 2025, lease operating expense and property taxes on the Waddell Ranch properties amounted to approximately $98.0 million, compared to approximately $82.2 million in 2024, and approximately $79.6 million in 2023.\n\nThe Trustee was previously advised by the operator that as of December 31, 2023, the majority of Waddell Ranch oil production is now pipeline connected and sold under long term crude purchase agreements. Blackbeard would not confirm if this information remained accurate for 2024 or 2025.\n\nDuring 2025, the monthly royalty receipts were invested by the Trustee in cash and cash equivalents until the monthly distribution date, and earned interest totaled $72,761. Interest income for 2024 and 2023 was $150,779 and $85,879, respectively.\n\nGeneral and administrative expenses in 2025 were $1,827,899 compared to $1,698,776 in 2024 and $1,118,096 in 2023, primarily due to audit of properties and other professional services. The reserve balance for administrative expenses for any potentially extraordinary events and/or expenses was $1,100,000 as of December 31, 2025, 2024 and 2023. There were no additions to the reserves for expenses during the years ended December 31, 2025, 2024 and 2023.\n\nDistributable income for 2025 was $14,300,162 or $0.31 per Unit. Distributable income includes a $4.5 million partial settlement received from Blackbeard declared in the September 2025 distribution that was paid on October 15, 2025. The $4.5 million partial payment is included in the financial statements under “Statements of Distributable Income” and “Statement of Changes in Trust Corpus” as of December 31, 2025, as well as in “Quarterly Schedule of Distributable Income (Unaudited) for the year ended December 31, 2025” (See Notes 3 and 7).\n\nDistributable income for 2024 was $25,415,368 or $0.55 per Unit.\n\nDistributable income for 2023 was $27,978,487 or $0.060 per Unit.\n\nResults of the Fourth Quarters of 2025 and 2024\n\nRoyalty income received by the Trust for the fourth quarter of 2025 amounted to $2,652,251 or $0.06 per Unit, a decrease from the fourth quarter of 2024, when the Trust received royalty income of $3,784,959 or $0.08 per Unit. The decrease in the fourth quarter of 2025 was due in part to no royalty income being received from the Waddell Ranch properties for the full quarter ended December 31, 2025, as opposed to just the last two months of the quarter ended December 31, 2024. Interest income for the fourth quarter of 2025 amounted to $25,437 compared to $28,091 for the fourth quarter of 2024. The decrease in interest income is primarily attributable to decreased amounts of funds available for investment. Total general and administrative expenses were $232,880 for the fourth quarter of 2025 compared to $382,860 for the fourth quarter of 2024. The decrease in expenses primarily related to timing of payments of legal and auditor expenses.\n\n28\n\n[Table of Contents](#toc_page)\n\n \n\nAssets, liabilities, and distributions for each month in the fourth quarter of 2025 are as follows:\n\n \n\nOctober\n\n \n\nNovember\n\n \n\nDecember\n\n \n\nAssets\n\n$\n\n2,195,609\n\n \n\n$\n\n2,158,851\n\n \n\n$\n\n1,877,733\n\n \n\nLiabilities\n\n$\n\n2,033,186\n\n \n\n$\n\n1,996,428\n\n \n\n$\n\n1,715,167\n\n \n\nDistributions declared\n\n$\n\n933,195\n\n \n\n$\n\n896,437\n\n \n\n$\n\n615,176\n\n \n\nDistributions per Unit\n\n$\n\n0.020021\n\n \n\n$\n\n0.019233\n\n \n\n$\n\n0.013198\n\n \n\nAs of May 2024, Blackbeard, the operator of the Waddell Ranch properties, has provided the Trustee information necessary to calculate the net proceeds after the NYSE notification date such that royalty income of the Trust for the fourth quarter is associated with actual oil and gas production for the period from July through September of the current and prior years for the Waddell Ranch properties. Royalty income for the Trust for the fourth quarters of 2024 and 2025 for the Texas Royalty properties is associated with actual oil and gas production from August through October of both years. Oil and gas production attributable to the Underlying Properties for each month in the fourth quarter of 2025 and the comparable period for 2025 are as follows:\n\n \n\n \n\n \n\nWaddell Ranch Properties\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\n \n\n \n\nSeptember\n\n \n\nOctober\n\n \n\nNovember\n\n \n\nTotal\n\n \n\n \n\nSeptember\n\n \n\nOctober\n\n \n\nNovember\n\n \n\nTotal\n\n \n\nRoyalties\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOil sales (Bbls)\n\n \n\n \n\n298,802\n\n \n\n \n\n326,081\n\n \n\n \n\n328,684\n\n \n\n \n\n953,567\n\n \n\n \n\n \n\n174,367\n\n \n\n \n\n198,955\n\n \n\n \n\n189,143\n\n \n\n \n\n562,465\n\n \n\nGas sales (Mcf)\n\n \n\n \n\n1,432,575\n\n \n\n \n\n1,429,268\n\n \n\n \n\n1,425,154\n\n \n\n \n\n4,286,997\n\n \n\n \n\n \n\n1,077,265\n\n \n\n \n\n1,181,264\n\n \n\n \n\n1,101,120\n\n \n\n \n\n3,359,649\n\n \n\nProperties From Which The Royalties Were Carved:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOil:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n     Total oil sales (Bbls)\n\n \n\n \n\n398,402\n\n \n\n \n\n434,775\n\n \n\n \n\n438,245\n\n \n\n \n\n1,271,422\n\n \n\n \n\n \n\n232,489\n\n \n\n \n\n265,273\n\n \n\n \n\n252,191\n\n \n\n \n\n749,953\n\n \n\n     Average per day (Bbls)\n\n \n\n \n\n13,280\n\n \n\n \n\n14,025\n\n \n\n \n\n14,608\n\n \n\n \n\n13,972\n\n \n\n \n\n \n\n7,750\n\n \n\n \n\n8,557\n\n \n\n \n\n8,406\n\n \n\n \n\n8,241\n\n \n\n     Average realized price per Bbl\n\n \n\n$\n\n66.22\n\n \n\n$\n\n63.15\n\n \n\n$\n\n68.98\n\n \n\n \n\n64.16\n\n \n\n \n\n$\n\n77.35\n\n \n\n$\n\n75.00\n\n \n\n$\n\n68.98\n\n \n\n$\n\n73.78\n\n \n\nGas:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n     Total gas sales (Mcf)\n\n \n\n \n\n1,910,099\n\n \n\n \n\n1,905,690\n\n \n\n \n\n1,900,206\n\n \n\n \n\n5,715,995\n\n \n\n \n\n \n\n1,436,353\n\n \n\n \n\n1,575,019\n\n \n\n \n\n1,468,160\n\n \n\n \n\n4,479,532\n\n \n\n     Average per day (Mcf)\n\n \n\n \n\n63,670\n\n \n\n \n\n61,474\n\n \n\n \n\n63,340\n\n \n\n \n\n62,813\n\n \n\n \n\n \n\n47,878\n\n \n\n \n\n50,807\n\n \n\n \n\n48,939\n\n \n\n \n\n49,226\n\n \n\n     Average realized price per Mcf\n\n \n\n$\n\n2.01\n\n \n\n$\n\n1.57\n\n \n\n$\n\n1.16\n\n \n\n$\n\n1.58\n\n \n\n \n\n$\n\n1.14\n\n \n\n$\n\n0.73\n\n \n\n$\n\n1.81\n\n \n\n$\n\n1.23\n\n \n\n \n\n \n\n \n\nTexas Royalty Properties\n\n \n\n \n\n2025\n\n \n\n \n\n \n\n \n\n2024\n\n \n\n \n\n \n\n \n\n \n\nOctober\n\n \n\nNovember\n\n \n\nDecember\n\n \n\nTotal\n\n \n\n \n\nOctober\n\n \n\nNovember\n\n \n\nDecember\n\n \n\nTotal\n\n \n\nRoyalties\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOil sales (Bbls)\n\n \n\n \n\n14,323\n\n \n\n \n\n14,356\n\n \n\n \n\n11,957\n\n \n\n \n\n40,636\n\n \n\n \n\n \n\n16,103\n\n \n\n \n\n14,246\n\n \n\n \n\n16,432\n\n \n\n \n\n46,781\n\n \n\nGas sales (Mcf)\n\n \n\n \n\n11,709\n\n \n\n \n\n9,425\n\n \n\n \n\n10,456\n\n \n\n \n\n31,590\n\n \n\n \n\n \n\n7,106\n\n \n\n \n\n5,788\n\n \n\n \n\n6,315\n\n \n\n \n\n19,209\n\n \n\nProperties From Which The Royalties Were Carved:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOil:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n     Total oil sales (Bbls)\n\n \n\n \n\n16,329\n\n \n\n \n\n16,337\n\n \n\n \n\n13,834\n\n \n\n \n\n46,500\n\n \n\n \n\n \n\n17,969\n\n \n\n \n\n16,035\n\n \n\n \n\n18,407\n\n \n\n \n\n52,411\n\n \n\n     Average per day (Bbls)\n\n \n\n \n\n527\n\n \n\n \n\n545\n\n \n\n \n\n446\n\n \n\n \n\n505\n\n \n\n \n\n \n\n580\n\n \n\n \n\n535\n\n \n\n \n\n594\n\n \n\n \n\n570\n\n \n\n     Average realized price per Bbl\n\n \n\n$\n\n65.08\n\n \n\n$\n\n63.38\n\n \n\n$\n\n60.17\n\n \n\n \n\n62.90\n\n \n\n \n\n$\n\n77.19\n\n \n\n$\n\n75.68\n\n \n\n$\n\n70.83\n\n \n\n \n\n74.57\n\n \n\nGas:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n     Total gas sales (Mcf)\n\n \n\n \n\n13,282\n\n \n\n \n\n10,723\n\n \n\n \n\n12,089\n\n \n\n \n\n36,094\n\n \n\n \n\n \n\n7,932\n\n \n\n \n\n6,521\n\n \n\n \n\n7,073\n\n \n\n \n\n21,526\n\n \n\n     Average per day (Mcf)\n\n \n\n \n\n428\n\n \n\n \n\n357\n\n \n\n \n\n390\n\n \n\n \n\n392\n\n \n\n \n\n \n\n256\n\n \n\n \n\n217\n\n \n\n \n\n228\n\n \n\n \n\n234\n\n \n\n     Average realized price per Mcf\n\n \n\n$\n\n8.10\n\n \n\n$\n\n7.10\n\n \n\n$\n\n8.32\n\n \n\n$\n\n7.88\n\n \n\n \n\n$\n\n10.02\n\n \n\n$\n\n11.30\n\n \n\n$\n\n11.05\n\n \n\n$\n\n10.79\n\n \n\n \n\nFor the Waddell Ranch properties, the posted price of oil decreased for the fourth quarter of 2025 compared to the fourth quarter of 2024, resulting in an average price per barrel of $64.16 compared to $73.78 in the same period of 2024. The average price of gas increased for the fourth quarter of 2025 compared to the same period in 2024, resulting in an average price per Mcf of $1.58 compared to $1.23 in the fourth quarter of 2024. Both oil and gas production increased in the fourth quarter of 2025 compared to the same period in 2024 for the Waddell Ranch properties.\n\nFor the Texas Royalty properties, the posted price of oil decreased for the fourth quarter of 2025 compared to the fourth quarter of 2024, resulting in an average price per barrel of $62.90 compared to $74.57 in the same period of 2024. The average price of gas decreased for the fourth quarter of 2025 compared to the same period in 2024, resulting in an average price per Mcf of $7.88 compared to $10.79 in the fourth quarter of 2024. Oil production decreased, while gas production increased in the fourth quarter of 2025 compared to the same period in 2024 for the Texas Royalty properties.\n\n29\n\n[Table of Contents](#toc_page)\n\n \n\nDevelopment information for the Waddell Ranch properties such as well completions, workovers, remedial activities, and plugging and abandonment, is not provided by Blackbeard.\n\nUse of Estimates\n\nThe preparation of financial statements in conformity with the basis of accounting described above requires management to make estimates and assumptions that affect reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting periods. Actual results may differ from such estimates.\n\nImpairment\n\nThe Trustee routinely reviews its royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If an impairment event occurs and it is determined that the carrying value of the Trust’s royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely be measured by discounting projected cash flows. There was no impairment of the assets during the years ended December 31, 2025, 2024, or 2023.\n\nCritical Accounting Policies and Estimates\n\nThe Trust’s financial statements reflect the selection and application of accounting policies that require the Trust to make significant estimates and assumptions. The following are some of the more critical judgment areas in the application of accounting policies that currently affect the Trust’s financial condition and results of operations.\n\n1.\nBasis of Accounting\n\nThe financial statements of the Trust are prepared on the following modified cash basis of accounting and are not intended to present financial position and results of operations in conformity with accounting principles generally accepted in the United States of America (“GAAP”):\n\n•\nRoyalty income recorded for a month is the amount computed and paid to the Trustee on behalf of the Trust by the interest owners. Royalty income consists of the amounts received by the owners of the interest burdened by the Royalties from the sale of production less accrued production costs, development and drilling costs, applicable taxes, operating charges and other costs and deductions multiplied by 75% in the case of the Waddell Ranch properties and 95% in the case of the Texas Royalty properties.\n\n•\nTrust expenses, consisting principally of routine general and administrative costs, recorded are based on liabilities paid and cash reserves established out of cash received or borrowed funds for liabilities and contingencies.\n\n•\nDistributions to Unit holders are recorded when declared by the Trustee.\n\n•\nRoyalty income is computed separately for each of the conveyances under which the Royalties were conveyed to the Trust. If monthly costs exceed revenues for any conveyance (“excess costs”), such excess costs cannot reduce royalty income from other conveyances, but is carried forward with accrued interest to be recovered from future net proceeds of that conveyance.\n\nThe financial statements of the Trust differ from financial statements prepared in accordance with GAAP because revenues are not accrued in the month of production and certain cash reserves may be established for contingencies which could not be accrued in financial statements prepared in accordance with GAAP. Amortization of the Royalties calculated on a unit-of-production basis is charged directly to trust corpus. This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the SEC as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.\n\n2.\nRoyalty Income\n\nRevenues from royalty interests are recognized in the period in which amounts are received by the Trust. For the Texas Royalty Properties, royalty income received by the Trust in a given calendar year will generally reflect the proceeds from crude oil and natural gas produced for the twelve-month period ended October 31st in that calendar year. As of May 2024, Blackbeard has provided the Trustee information necessary to calculate the net proceeds for the Waddell Ranch properties after the NYSE notification date such that royalty income for 2025 is associated with actual oil and gas production for the 12-month period of October 1, 2024 through September 30, 2025. There was no royalty income received from Blackbeard for the calendar year 2025.\n\n30\n\n[Table of Contents](#toc_page)\n\n \n\n3.\nReserve Disclosure\n\nIndependent petroleum engineers estimate the net proved reserves attributable to the royalty interests. Estimates of future net revenues from proved reserves have been prepared using average 12-month oil and gas prices, determined as an unweighted arithmetic average of the first-day-of-the-month benchmark price for each month within the 12-month period preceding the end of the most recent fiscal year, unless prices are defined by contractual arrangements. The standardized measure of discounted future net cash flows is achieved by using a discount rate of 10% a year to reflect the timing of future cash flows relating to proved oil and gas reserves. The reserves actually recovered and the timing of production may be substantially different from the reserve estimates and related costs. Numerous uncertainties are inherent in estimating volumes and the value of proved reserves and in projecting future production rates and the timing of development of non-producing reserves. Such reserve estimates are subject to change as market conditions change.\n\nDetailed information concerning the number of wells on royalty properties is not generally available to the owner of royalty interests. Consequently, the Registrant does not have information that would be disclosed by a company with oil and gas operations, such as an accurate account of the number of wells located on its royalty properties, the number of exploratory or development wells drilled on its royalty properties during the periods presented by this report, or the number of wells in process or other present activities on its royalty properties, and the Registrant cannot readily obtain such information.\n\n4.\nContingencies\n\nContingencies related to the Underlying Properties that are unfavorably resolved would generally be reflected by the Trust as reductions to future royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders.\n\nNew Accounting Pronouncements\n\nThere are no new pronouncements that are expected to have a significant impact on the Trust’s financial statements."}