{"url_path":"/sec/pvl/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 ****Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.**","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1520048/0001104659-26-062622-index.html","accession_number":"0001104659-26-062622","cik":"0001520048","ticker":"PVL","issuer_name":"Permianville Royalty Trust","edgar_url":"https://www.sec.gov/Archives/edgar/data/1520048/0001104659-26-062622-index.html","primary_entity_key":"0001520048","primary_entity_name":"Permianville Royalty Trust"},"word_count":4168,"has_tables":true,"body_markdown":"**Item 2.****Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.**\n\nReferences to the “Trust” in this document\nrefer to Permianville Royalty Trust, previously known as Enduro Royalty Trust, while references to “COERT” or the “Sponsor”\nin this document refer to COERT Holdings 1 LLC. References to “Enduro” in this document refer to Enduro Resource Partners\nLLC, the original sponsor of the Trust. The following review of the Trust’s financial condition and results of operations should\nbe read in conjunction with the financial statements and notes thereto, as well as Management’s Discussion and Analysis of Financial\nCondition and Results of Operations contained in the Trust’s Annual Report on Form 10-K for the year ended December 31,\n2025 (the “2025 Annual Report on Form 10-K”). The Trust’s annual reports on Form 10-K, quarterly reports on\nForm 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.\n\n**Forward-Looking Statements**\n\nThis Quarterly Report on Form 10-Q (this “Form 10-Q”)\nincludes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and\nSection 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included\nin this Form 10-Q, including without limitation the statements under this “Trustee’s Discussion and Analysis of Financial\nCondition and Results of Operations,” are forward-looking statements. Such statements may be influenced by factors that could cause\nactual outcomes and results to differ materially from those projected. Such expectations may not prove to have been correct. When used\nin this document, the words “will,” “plans,” “believes,” “expects,” “anticipates,”\n“intends” or similar expressions are intended to identify such forward-looking statements. The following important factors,\nin addition to those discussed elsewhere in this Form 10-Q, in the Trust’s 2025 Annual Report on Form 10-K and the Trust’s\nother filings with the SEC could affect the future results of the energy industry in general, and COERT and the Trust in particular, and\ncould cause actual results to differ materially from those expressed in such forward-looking statements:\n\n·risks associated with the drilling and operation of oil and natural gas wells;\n\n·the amount of future direct operating expenses and development expenses;\n\n·the occurrence or threat of epidemic or pandemic diseases or other public\nhealth event or any government response to such occurrence or threat;\n\n·the impact of geopolitical developments and tensions, war and uncertainty\ninvolving or in the geographical region of oil producing countries (including the ongoing wars in Ukraine and the Persian Gulf and any\nrelated political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global\neconomy);\n\n·global economic conditions, such as a general slowdown in the global economy,\ntrade barriers and tariffs, supply chain disruptions, inflationary pressures, currency fluctuations, changes in interest rates, and instability\nof financial institutions;\n\n·the effects of actions by, or disputes among or between members of the Organization\nof Petroleum Exporting Countries (“OPEC”) and other oil-exporting nations with respect to production levels or other matters\nrelated to the prices of oil and natural gas;\n\n·the effect of existing and future laws and regulatory actions;\n\n·the effect of changes in commodity prices or alternative fuel prices;\n\n·the prohibition on the Trust’s entry into any new hedging arrangements\nunder the terms of the Conveyance;\n\n·conditions in the capital markets;\n\n10\n\n·competition from others in the energy industry;\n\n·uncertainty of estimates of oil and natural gas reserves and production;\n\n·potential impacts on the Sponsor’s business resulting from climate\nchange, greenhouse gas regulations, and the impact of climate change related changes in the frequency and severity of weather patterns;\nand\n\n·other risks described under the caption “Risk Factors” in Part I, Item\n1A of the 2025 Annual Report on Form 10-K.\n\nYou should not place undue reliance on these forward-looking\nstatements. All forward-looking statements speak only as of the date of this Form 10-Q. The Trust does not undertake any obligation\nto release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date of this Form 10-Q\nor to reflect the occurrence of unanticipated events, unless the securities laws require the Trust to do so.\n\nThis Form 10-Q describes other important factors\nthat could cause actual results to differ materially from expectations of the Sponsor and the Trust. Initial production rates may not\nbe indicative of future production rates and are not indicative of the amounts of oil and gas that a well may produce. All forward-looking\nstatements in this report and all subsequent written and oral forward-looking statements attributable to the Sponsor or the Trust or persons\nacting on behalf of the Sponsor or the Trust are expressly qualified in their entirety by such factors. The Trust assumes no obligation,\nand disclaims any duty, to update these forward-looking statements.\n\n**Overview**\n\nPermianville Royalty Trust, a statutory trust created\nin May 2011, completed its initial public offering in November 2011. The Trust’s only asset and source of income is the\nnet profits interest representing the right to receive 80% of the net profits from the sale of oil and natural gas production from certain\nproperties in the states of Texas, Louisiana and New Mexico held by Enduro as of the date of the conveyance of the net profits interest\nto the Trust (the “Net Profits Interest”). The properties in which the Trust holds the Net Profits Interest are referred to\nas the “Underlying Properties.” The Net Profits Interest is passive in nature and neither the Trust nor the Trustee has any\nmanagement control over or responsibility for costs relating to the operation of the Underlying Properties. Additionally, third parties\noperate substantially all of the wells on the Underlying Properties and, therefore, the Sponsor is not in a position to control the timing\nof development efforts, associated costs, or the rate of production of the reserves.\n\nOn August 31, 2018, COERT completed the acquisition\nfrom Enduro of the Underlying Properties and all of the outstanding Trust Units owned by Enduro (the “Sale Transaction”).\nIn connection with the Sale Transaction, COERT assumed all of Enduro’s obligations under the Amended and Restated Trust Agreement\nof the Trust (the “Trust Agreement”) and other instruments to which Enduro and the Trustee were parties.\n\nThe Trust is required to make monthly cash distributions\nof substantially all of its monthly cash receipts, after deducting the Trust’s administrative expenses, to the holders of Trust\nUnits as of the applicable record date (generally the last business day of each calendar month) on or before the 10th business\nday after the record date. The Net Profits Interest is entitled to a share of the profits from and after July 1, 2011 attributable\nto production occurring on or after June 1, 2011. The amount of Trust revenues and cash distributions to Trust unitholders depends\non, among other things:\n\n·oil and natural gas sales prices;\n\n·volumes of oil and natural gas produced and sold attributable to the Underlying\nProperties;\n\n·production and development costs;\n\n·price differentials;\n\n11\n\n·potential reductions or suspensions of production;\n\n·the amount and timing of Trust administrative expenses; and\n\n·the establishment, increase, or decrease of reserves for approved development\nexpenses or future liabilities of the Trust.\n\nGenerally, the Sponsor receives cash payment for\noil production 30 to 60 days after it is produced and for natural gas production 60 to 90 days after it is produced.\n\n**Outlook**\n\nThe Sponsor has indicated to the Trustee that although\ndevelopment activity on the Underlying Properties through the first three months of 2026 decreased over 50% compared to the same period\nin 2025, the current level of in-progress drilling not yet billed to the Underlying Properties suggests that the forward outlook and indicated\nactivity from operators appears to be improving. The Sponsor believes that the activity outlook for the remainder of the year will likely\nbe weighted towards natural gas drilling in the Haynesville, similar to last year, as seen in the approximately 48% increase in natural\ngas production for the Underlying Properties for the first three months of 2026 compared to the same period in 2025. Given the indicated\nactivity outlook from the super major oil and gas operator of the Underlying Properties responsible for much of the recent Haynesville\nactivity, the Sponsor has maintained a cash reserve for near-term capital expenditures, consistent with prior periods in which material\nfuture capital expenditure obligations have been expected. As of March 31, 2026, the cash reserve balance was $0.9 million. At the\nbeginning of the year, based on publicly announced budgets from various operators of the Underlying Properties, oil-weighted capital expenditures\nwere expected to decrease year-over-year. However, based on more recent public announcements, prior estimated capital expenditures could\nincrease but remain subject to substantial volatility given current macro events. As in prior periods, future capital expenditure expectations\nremain subject to revision from the operators of the Underlying Properties.\n\nThe Sponsor believes that the outlook for the oil\nand gas industry has improved compared to early second quarter of 2025, as recent macro events such as the Persian Gulf conflict have\nincreased commodity price forecasts and emphasized the importance of North American-based oil and gas operations. Since the start of the\nyear, oil prices have ranged from a low of $56 per Bbl to as high as $113 per Bbl, while natural gas prices have also experienced volatility,\nranging from a low of $2.52 per MMBtu to a high of $7.46 per MMBtu over the same period. Although natural gas prices at the end of the\nfirst quarter of 2026 were lower than at the end of the first quarter of 2025, industry analysts continue to forecast increasing demand\nfrom the buildout of datacenters and the AI ecosystem that are expected to require both renewable energy sources and natural gas-powered\nelectricity generation. Meanwhile, the Sponsor continues to believe that consolidation within the oil and gas sector could lead to lower\noperating costs given economies of scale, but could also lead to more binary swings in capital spending, as more assets and capital budgets\nare set by fewer operators than in years past.\n\nDespite this volatility, given the pace of capital\nexpenditures during the first three months of 2026, the Sponsor is reaffirming its 2026 capital spending outlook of $9.0 million to $15.0\nmillion, or $7.2 million to $12.0 million net to the Trust’s Net Profits Interest, but currently expects those expenditures to trend\ntoward the higher end of the range given current expectations and guidance from the operators of the Underlying Properties. The Sponsor\nexpects a majority of the remaining anticipated capital expenditures in 2026 to be focused on the Haynesville area, given known projects\ncurrently in process. The Sponsor believes that any further increases to the expected capital expenditure budget likely would come from\noil-weighted projects by operators in the Permian region adding near-term activity in response to the recent oil price increases driven\nby the ongoing Persian Gulf conflict. As in prior periods, however, the outlook for capital expenditures remains subject to change, as\noperators are expected to continue to reevaluate their planned capital expenditures, particularly given volatile capital markets and an\nuncertain geopolitical situation.\n\n12\n\nOver the first three months of 2026, the Sponsor\ncontinued to see a reduction in operating costs on a per unit basis for the Underlying Properties compared to prior periods, due in part\nto the higher total production for the first quarter of 2026 compared to the same period last year. The Sponsor indicates that this increase\nin production has come predominately from natural gas production growth in the Haynesville region, which generally features lower operating\ncosts compared to legacy production areas within the Underlying Properties. The Sponsor expects this trend to continue given the near-term\noutlook for natural-gas-weighted capital expenditure activity. According to the Sponsor, this decline in operating costs per unit has\nbeen partially offset by ongoing operational issues and cost overruns at some of the legacy, marginal oil-weighted assets on the Underlying\nProperties, which the Sponsor indicates it is continuing to proactively address through joint interest billing audits among other avenues\nafforded to non-operating working interest partners.\n\nAlthough\nthe commodity markets remain volatile, and there remains an inherent delay in cash flows given the non-operated nature of the Underlying\nProperties, the Sponsor indicates that it continues to have access to adequate capital and liquidity to fund such operating and capital\nexpenditures as they come due. Furthermore, the Sponsor believes additional opportunities could arise in the coming quarters for\npotential divestitures and/or leasing of some or all of the Underlying Properties, subject to the Trust’s Net Profits Interest,\nas certain operators of the Underlying Properties may look to acquire assets.\n\n**Capex Drilling Activity Update**\n\nPresented below is a summary of the current status\nof certain notable capital projects recently undertaken on the Underlying Properties pursuant to the capital expenditure program described\nabove. All information has been provided by the Sponsor.\n\nThe following table is not intended to be a comprehensive\nlist reflecting all capital expenditures to date. In addition, there can often be a several-month delay from the time of capital expenditures\nto the time of production and cash flows attributable to the Underlying Properties, especially given the non-operated nature of the Underlying\nProperties.\n\nOperator\nRegion\nNumber\nof Wells\nUnderlying\nProperties\nWorking\nInterest\nProject\nCapex\nCumulative\nTotal\nStatus\n\nLarge Cap E&P 1\nDelaware\n3\n5.0%\nD&C New Drills\n–\n3 Pre Drills\n\nLarge Cap E&P 2\nMidland\n6\n0.8%\nD&C New Drills\n$460,237\n6 Drilling in Process\n\nLarge Cap E&P 3\nDelaware\n19\n1.0%\nD&C New Drills\n–\n19 Pre Drills\n\nLarge Cap E&P 4\nDelaware\n1\n1.0%\nD&C New Drills\n–\n1 Pre Drills\n\nLarge Super Major 1\nHaynesville\n3\n8.9%\nD&C New Drills\n$3,181,894\n3 Drilling in Process\n\nPE-Backed Private 1\nDelaware\n2\n4.6%\nD&C New Drills\n$703,816\n2 Producing awaiting first revenue\n\nPE-Backed Private 2\nDelaware\n7\n1.2%\nD&C New Drills\n$479,873\n7 Drilling in Process\n\nThe projects identified above are still in process\nor awaiting first revenues, and the Sponsor expects a majority of those projects to be completed and to begin producing during the second\nhalf of 2026.\n\n13\n\n**Results of Operations**\n\n*Three Months Ended March 31, 2026 Compared to Three Months\nEnded March 31, 2025*\n\nThe Trust’s net profits income consists of\nmonthly net profits attributable to the Net Profits Interest, which was determined as shown in the following table:\n\nThree Months Ended\n March 31,\n\n2026\n2025\nIncrease\n(Decrease)\n\nGross profits:\n\nOil sales\n$6,218,262\n$8,530,705\n(27%)\n\nNatural gas sales\n4,828,871\n2,041,676\n137%\n\nTotal\n11,047,133\n10,572,381\n4%\n\nCosts:\n\nDirect operating expenses:\n\nLease operating expenses\n4,588,000\n4,729,000\n(3%)\n\nCompression, gathering and transportation\n2,159,000\n1,002,000\n115%\n\nProduction, ad valorem and other taxes\n695,000\n708,000\n(2%)\n\nDevelopment expenses\n2,286,000\n7,157,000\n(68%)\n\nTotal\n9,728,000\n13,596,000\n(28%)\n\nNet profits\n1,319,133\n(3,023,619)\n(144%)\n\nPercentage allocable to Net Profits Interest\n80%\n80%\n\nNet profits allocable to Net Profits Interest\n1,055,307\n(2,418,895)\n144%\n\nCapex Reserve – Release for anticipated 2025-2026 capital expenditures\n900,000\n–\nN/A\n\nLess: Trust general and administrative expenses and cash withheld for expenses net of interest income\n(536,307)\n–\nN/A\n\nDistributable income\n$1,419,000\n$–\nN/A\n\nDuring the three months ended March 31, 2025,\ndirect operating and development expenses exceeded cash receipts, leading to a Net Profits Interest shortfall of approximately $1.4 million\nas of March 31, 2025, which was carried forward to be deducted from future net profits generated by the Underlying Properties. As\na result, there were no net profits reported or distributed in the first three months of 2025.\n\n14\n\nThe following table displays reported oil and natural\ngas sales volumes and average prices from the Underlying Properties, representing the amounts included in the net profits calculation\nfor distributions paid or payable during the three months ended March 31, 2026 and 2025:\n\nThree Months Ended March 31,\n\n2026\n2025\nIncrease\n(Decrease)\n\nUnderlying Properties Production Volumes:\n\nOil (Bbls)\n104,082\n114,380\n(9%)\n\nNatural Gas (Mcf)\n1,750,936\n1,180,460\n48%\n\nCombined (Boe)\n395,905\n311,123\n27%\n\nAverage Prices:\n\nOil - NYMEX (applicable NPI period) ($/Bbl)\n$61.03\n$70.16\n(13%)\n\nDifferential\n$(1.28)\n$4.43\n(129%)\n\nOil prices realized ($/Bbl)\n$59.74\n$74.58\n(20%)\n\nNatural gas - NYMEX (applicable NPI period) ($/Mcf)\n$2.80\n$2.15\n30%\n\nDifferential\n$(0.04)\n$(0.42)\n(90%)\n\nNatural gas prices realized ($/Mcf)\n$2.76\n$1.73\n59%\n\nNet profits attributable to the Underlying Properties\nfor the three months ended March 31, 2026 were $1.3 million compared to a net profits deficit of $3.0 million for the three\nmonths ended March 31, 2025. The $4.3 million increase in net profits attributable to the Underlying Properties from the 2025\nperiod to the 2026 period was primarily due to the following items:\n\n·Oil sales decreased $2.3 million due to lower produced volumes and lower\nrealized prices. The 9% reduction in produced volumes decreased revenues by $0.8 million. Realized oil sales prices decreased 20% in the\n2026 period compared to the 2025 period, which decreased revenues by $1.5 million.\n\n·Natural gas sales increased $2.8 million compared to the 2025 period, reflecting\na $1.8 million increase due to higher realized prices. The 48% increase in produced volumes increased revenues by $1.0 million. The average\nnatural gas price received increased 59% primarily due to the increase in the average realized natural gas price for the relevant production\nmonths.\n\n·Lease operating expenses during the three months ended March 31, 2026\ndecreased $0.1 million compared to the three months ended March 31, 2025.\n\n·Compression, gathering and transportation costs increased $1.2 million, primarily\ndue to higher sales volumes from three new Haynesville wells included in the three months ended March 31, 2026 compared to the three\nmonths ended March 31, 2025.\n\n·Production, ad valorem and other taxes remained consistent at $0.7 million\nduring the three months ended March 31, 2026 compared to the three months ended March 31, 2025.\n\n·Development expenses decreased $4.9 million during the three months ended\nMarch 31, 2026 compared to the same period in 2025.\n\nFor the three months ended March 31, 2026,\nthe Trust withheld $0.5 million and paid $0.1 million for general and administrative expenses. Expenses paid during the period primarily\nconsisted of fees for the preparation of the Trust’s monthly press releases, insurance expense, Trustee fees, and New York Stock\nExchange listing fees. For the three months ended March 31, 2025, the Trust withheld $0.0 million and paid $0.2 million for general\nand administrative expenses.\n\n15\n\n**Liquidity and Capital Resources**\n\nThe Trust’s principal sources of liquidity\nare cash flow generated from the Net Profits Interest and borrowing capacity under the letter of credit described below. Other than Trust\nadministrative expenses, including any reserves established by the Trustee for future liabilities, the Trust’s only use of cash\nis for distributions to Trust unitholders. Available funds are the excess cash, if any, received by the Trust from the Net Profits Interest\nand other sources (such as interest earned on any amounts reserved by the Trustee) in any given month, over the Trust’s expenses\npaid for that month. Available funds are reduced by any cash the Trustee determines to hold as a reserve against future expenses.\n\nThe Trustee may create a cash reserve to pay for\nfuture liabilities of the Trust. In February 2022, the Trustee began withholding $37,833 from the funds otherwise available for distribution\neach month to gradually build a cash reserve of approximately $2.3 million for the payment of future known, anticipated or contingent\nexpenses or liabilities of the Trust. Commencing with the distribution to Trust unitholders payable in April 2023, the Trustee has\nbeen withholding, and in the future intends to withhold, $50,000 from the funds otherwise available for distribution each month to gradually\nbuild the reserve. The Trustee may increase or decrease the targeted cash reserve amount at any time, and may increase or decrease the\nrate at which it is withholding funds to build the cash reserve at any time, without advance notice to the Trust unitholders. Cash held\nin reserve will be invested as required by the Trust Agreement. Any cash reserved in excess of the amount necessary to pay or provide\nfor the payment of future known, anticipated or contingent expenses or liabilities eventually will be distributed to Trust unitholders,\ntogether with interest earned on the funds. As of March 31, 2026, the Trustee has withheld $1,692,534 toward this cash reserve.\n\nIf the Trustee determines that the cash on hand\nand the cash to be received are, or will be, insufficient to cover the Trust’s liabilities, the Trustee may authorize the Trust\nto borrow money to pay administrative or incidental expenses of the Trust that exceed cash held by the Trust. The Trustee may authorize\nthe Trust to borrow from any person, including the Trustee or the Delaware Trustee or an affiliate thereof, although none of the Trustee,\nthe Delaware Trustee or any affiliate thereof intends to lend funds to the Trust. The Trustee may also cause the Trust to mortgage its\nassets to secure payment of the indebtedness. The terms of such indebtedness and security interest, if funds were to be loaned by the\nentity serving as Trustee or Delaware Trustee or an affiliate thereof, would be similar to the terms which such entity would grant to\na similarly situated commercial customer with whom it did not have a fiduciary relationship. In addition, COERT has provided the Trust\nwith 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\npay ordinary course administrative expenses. Further, if the Trust requires more than the $1.2 million under the letter of credit to pay\nadministrative expenses, COERT has agreed to loan funds to the Trust necessary to pay such expenses. Any loan made by COERT to the Trust\nwould be evidenced by a written promissory note, be on an unsecured basis, and have terms that are no less favorable to COERT than those\nthat would be obtained in an arm’s length transaction between COERT and an unaffiliated third party. If the Trust borrows funds\nor draws on the letter of credit, no further distributions will be made to Trust unitholders until such amounts borrowed or drawn are\nrepaid. Except for the foregoing, the Trust has no source of liquidity or capital resources. The Trustee has no current plans to authorize\nthe Trust to borrow any funds. As of March 31, 2026 and December 31, 2025, including the aggregate amounts withheld as of such\ndates toward the approximately $2.3 million cash reserve discussed above, the Trust had cash of $3,186,425 and $2,733,791, respectively,\nto be used towards future Trust expenses. Since its formation, the Trust has not borrowed any funds and no amounts have been drawn on\nthe letter of credit.\n\nFrom time to time, if the Trust’s cash on\nhand (including available cash reserves, if any) is not sufficient to pay the Trust’s ordinary course administrative expenses that\nare 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\nsuch expenses. At March 31, 2026 and December 31, 2025, there were no outstanding advances. Any advances to the Trust will be\ncarried forward to be repaid out of future net profits generated by the Underlying Properties.\n\nCash held by the Trustee as a reserve against future\nliabilities or for distribution at the next distribution date may be held in a noninterest-bearing account or may be invested in:\n\n·interest-bearing obligations of the United States government;\n\n16\n\n·money market funds that invest only in United States government securities;\n\n·repurchase agreements secured by interest-bearing obligations of the United\nStates government; or\n\n·bank certificates of deposit.\n\nThe Trust pays the Trustee an annual administrative\nfee 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\nTrustee, legal, accounting, tax and engineering fees, printing costs and other expenses that are deducted by the Trust before distributions\nare made to Trust unitholders. The Trust also is responsible for paying other expenses incurred as a result of being a publicly traded\nentity, including costs associated with annual and quarterly reports to Trust unitholders, tax return and Form 1099 preparation and\ndistribution, NYSE listing fees, independent auditor fees and registrar and transfer agent fees.\n\nThe Trust does not have any transactions, arrangements\nor other relationships with unconsolidated entities or persons that could materially affect the Trust’s liquidity or the availability\nof capital resources.\n\n**Off-Balance Sheet Arrangements**\n\nThe Trust has no off-balance sheet arrangements.\nThe Trust has not guaranteed the debt of any other party, nor does the Trust have any other arrangements or relationships with other entities\nthat could potentially result in unconsolidated debt, losses or contingent obligations.\n\n**Critical Accounting Policies and Estimates**\n\nPlease read “Item 7. Trustee’s Discussion\nand Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” of the Trust’s\n2025 Annual Report on Form 10-K for additional information regarding the Trust’s critical accounting policies and estimates.\nThere were no material changes to the Trust’s critical accounting policies or estimates during the three months ended March 31,\n2026."}