Pacific Coast Oil Trust (ROYT) Doesn't Plan October Cash Distribution

September 28, 2016 4:22 PM EDT

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PACIFIC COAST OIL TRUST (NYSE: ROYT) (the “Trust”) a perpetual royalty trust formed by Pacific Coast Energy Company LP (“PCEC”), announced today that there will be no cash distribution to the holders of its units of beneficial interest of record on October 11, 2016. The Trust’s distribution calculation relates to net profits and overriding royalties generated during August 2016 as provided in the conveyance of net profits and overriding royalty interest.

The current month’s calculation for the Developed Properties resulted in a deficit of $237,000 of revenues less direct operating expenses and development costs. The current month’s revenues were $2.2 million, lease operating expenses including property taxes were $2.5 million, and capital expenditures were $65,000. Average realized prices for the Developed Properties were $33.26 per Boe in August ($38.97 per Boe excluding prior period adjustments as noted below), as compared to $36.79 per Boe in July. The net profits for the month of August resulted in a cumulative net profits deficit of $237,000 for the Developed Properties as compared to a cumulative net profits deficit of zero in July.

The current month’s calculations included $78,000 for the 7.5% overriding royalty on the Remaining Properties from Orcutt Diatomite and Orcutt Field. Average realized prices for the Remaining Properties were $52.14 per Boe in August ($37.20 per Boe excluding prior period adjustments as noted below), as compared to $36.59 per Boe in July. The cumulative net profits deficit on the Remaining Properties, including the 7.5% overriding royalty payments, decreased $24,000 and now totals $2.1 million.

The expected current month shortfall is $60,000, reflecting $88,000 for the monthly operating and services fee payable to PCEC and $50,000 Trust general and administrative expenses, partially offset by $78,000 in proceeds from the 7.5% overriding royalty on the Remaining Properties in August. The expected current month shortfall will be borrowed from PCEC in October 2016 and is expected to increase the cumulative borrowings from PCEC, including interest, to $1,098,000.

The Trustee periodically engages an independent oil and gas consulting firm to perform a detailed review of the computation of the amounts paid to the Trust. The consulting firm has concluded its review of payments relating to 2014, the Trustee and PCEC have concluded their reviews and discussions of the findings, and the resulting adjustments have been included in the current month’s calculation. The adjustments decreased the amount payable to the Trust from the Developed Properties by $199,000 and increased the amount payable from the Remaining Properties by $74,000, making the aggregate change to the Trust a negative $125,000. The adjustments increased the Overriding Royalty Interests by $35,000, which was used to reduce the amount that the Trust needed to borrow under the promissory note described below for August 2016.

PCEC has agreed to loan funds to the Trust necessary to pay such expenses at an interest rate of 8.5% per annum from February 25, 2016 to August 9, 2016 and 4% per annum from August 10, 2016 until maturity (March 31, 2018). PCEC previously provided the Trust with a $1 million letter of credit to be used by the Trust if its cash on hand (including available cash reserves) is not sufficient to pay ordinary course administrative expenses as they become due. Any funds provided under the letter of credit or loaned by PCEC may only be used for the payment of current accounts or other obligations to trade creditors in connection with obtaining goods or services or for the payment of other accrued current liabilities arising in the ordinary course of the Trust’s business. No distribution will be made to Trust unitholders until the indebtedness borrowed, including interest thereon, has been paid in full.

Sales Volumes and Prices

The following table displays PCEC’s underlying sales volumes and average prices for the month of August 2016 (including prior period adjustments):

Underlying Properties
Sales Volumes Average Price
(Boe) (per Boe)
Developed Properties (a) 66,756 $33.26
Remaining Properties (b) 26,500 $52.14
(a) Crude oil sales represented 96% of sales volumes
(b) Crude oil sales represented 100% of sales volumes

Status of the Trust

As oil and natural gas prices continue to be depressed and as we are unable to predict future commodity prices with any greater precision than the futures market, it appears likely that distributions to the Trust will continue to be significantly impacted. The Trust Agreement provides that the Trust will terminate in the event that annual proceeds received by the Trust attributable to the Conveyed Interests (as defined in the Trust Agreement), in the aggregate, are less than $2 million for each of any two consecutive years.

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