Currently the lawsuit only covers expenses charged to the trust with a minimum of $15M currently discovered and does not cover any of the missing production outlined in this article. Production allocated incorrectly could easily be added as discovery continues to evolve and reading the conveyance of the Permian Basin Royalty Trust(PBT) shows that shareholders have a lot of rights not given to all royalty trusts. Blackbeard seems a bit aggressive in response to legitimate claims by the trustee allowing this to get as far as a filed lawsuit and it might be time for NGP to step in and explain to them how things work and how this ends.
Item 17 is extremely important because it shows that the trustee believes that they have found enough to bring a lawsuit and are confident in their findings but have not had access to all information and will need discovery to determine the whole scope. Blackbeard also seems to operate its own service side for completions and workovers that are charged to the trust and though we don't know the breakdown of costs for these wells they are a large part of the overall costs based on number completed since early 2020 which has been a focus by Blackbeard to add production. If they are double charging for utilities and pipe not used than the trustee should also be looking into the costs charged to the trust for these services by Blackbeard to determine if they were done at fair market. I am assuming at this point that this is a known possibility but unprovable with current information access by the trustee but will share this with them to guarantee they are looking at all possibilities.
The direct immediate positive result to this situation is that the trustee is taking this serious and the last 2 months have shown a large decrease in CAPEX which lines up with the time frame of when Blackbeard would of been put on notice and lack of response leading to the filing of the lawsuit. Also the 'true up' on ad valorem taxes stated in the production report 8K in December leads me to believe some reconciliation on the production is already happening.
Last thing to note is the gas production is now showing for October sales in Texas comptroller reports and there is a significant jump in sales for leases 018745, 005263, 012508, 005294, 015266, 012207, 045532, 056515, and 055403 that can be verified here:
*make sure to use leading zeros and select dates for all of 2023(Beg Period: 2301 End Period:2310) and select Crane - 052 for the county
All leases are showing 4.4M vs prior months at 2.2M and 2.1M; I only included the large lease numbers above for ease since there are smaller ones that don't contribute a ton to the overall change. Prices for natural gas in October were suppressed do to bad cold weather outlook and bulls getting washed out makes this gain in volume not add much to the revenue for the next report but it is a good sign that the Targa Plant is now fully operational and we can expect more production for gas, oil and other liquids because production was most likely being choked back in anticipation for this bottleneck to be resolved.
I'm not surprised but the potential level of under/over reporting is a little frighting given the royalty size and Conveyance. My perspective this kind of thing happens to many trusts because the ability/desire to do anything about it is limited.
Unfortunately it is extremely common in the oil and gas sector to see some level of theft, especially in double billing, and a royalty trust can be a good place to try and hide it. So far I am very happy with the steps taken by Argent and with them inheriting these issues from Simmons in January and already moving forward with a lawsuit makes me hopeful that this is resolved quickly. It's my opinion that Blackbeard thought they could add tons of production with large monthly cash distribution and no one would care/notice but that production possibly lagged along with greed on both sides of CAPEX and barrels not accounted for.
The nice thing here is Waddell is contained with one operator. There are so many like SBR where they have lots of royalty spread out across many states and many operators. It is an administrative nightmare and Trusts are not designed to do the homework, observation, adminstration and followup.
Waddell is a nice clean block of leases and a site audit, which probably should have started already, would be extremely easy to perform here to remove any doubt. Blackbeard really didn't think this through if the wrongful allocation is to the extent I am estimating.
One last comment for now. This sell down in PBT seems a bit strange given it is occurring about the time the payouts could go up. When for months in stayed in the low 20s when there was basically nothing. I have not looked at Sofvest nor HK average price but it has to be much higher than hight now. First I agree now is the time to buy and I am and I would think Sofvest and HK will be doing the same. They are long term players. Also thy may be behind the suit given TPL they now how to do it. Smart money is buying and retail seems to be doing their thing by selling at the wrong time. Thanks for you input. Very useful.
Hi, what is your thinking on the $300M 2024 capital budget? I see it as a ploy given the suit because there is no way they could manage that kind of budget. It seems to be at a stand still right now.
The trustee seemed to change the way they stated the budget which caused a lot of confusion in the recent 10K annual report. The budget was stated as gross of $301M but the trust is only required to contribute 37.5% NPI for majority of the Waddell Ranch. 2024 budget is actually a ~12.9% reduction year on year.
Year Gross($M) Net($M)
2023 325.12 121.92
2024 301.43 106.11
When the budget was first announced I questioned the trustee on it being incorrect and was lead to believe that it was substantially higher but was a preliminary budget. At that time it was my understanding from the trustee that the budget was communicated prior to the lawsuit and communication had broken down since. It was explained that they decided to include that budget to avoid incorrect booking of reserves under the 5 years rule (SEC Ch 210.4-10 Sec 31 .) even though it was not a final budget.
(ii) Undrilled locations can be classified as having undeveloped reserves only
if a development plan has been adopted indicating that they are scheduled to be drilled
within five years, unless the specific circumstances, justify a longer time.
Another important piece of the recent press release was the statement on the lawsuit dismissal:
Trust Litigation. On March 5, 2024, the lawsuit against Blackbeard was dismissed without prejudice, but the dispute has not been resolved. The Trustee will provide material updates as they become available.
Thanks seems it has been clarified in todays March report. Your response makes it even more clear. Trustee should have never put their gross number out there it caused a big sell off. Not that they really care or are impacted. The law suit must have been half baked. Trustee is not coming from a strong or knowledgable position must of had hope for discovery to enhance their position. I still believe Blackbeard is playing games wit the production. Let's see if some how they come clean not holding breath. Thanks
I said it was my last but it isn't. Two points, Seeking Alpha analysis is terrible and I'm on ignore by one of them because his analysis is so uninformed I could not help myself. The other point and I know the answer but will ask. Texas properties is there any insight into what and where and if there is any opportunity other than milking the old oil wells? Why I ask SBR has some premium royalty in the Hor plays and you can see it with the SJT Ventures work.
I haven't looked into the Texas Properties enough to speculate but in theory there's a lot of production trapped that could be maximized off recompletions alone. 302k gross acres of potential across 33 different counties definitely needs some time spent on it.
Thank you for the detailed update on PBT and sharing your expert analysis.
What is your thoughts on the recent lawsuit between the Trust and Blackbeard? Is this about production or expenses or both?
Currently the lawsuit only covers expenses charged to the trust with a minimum of $15M currently discovered and does not cover any of the missing production outlined in this article. Production allocated incorrectly could easily be added as discovery continues to evolve and reading the conveyance of the Permian Basin Royalty Trust(PBT) shows that shareholders have a lot of rights not given to all royalty trusts. Blackbeard seems a bit aggressive in response to legitimate claims by the trustee allowing this to get as far as a filed lawsuit and it might be time for NGP to step in and explain to them how things work and how this ends.
From the lawsuit:
------------------------------------------------------------
16. Among other things, Blackbeard breached the Conveyance by:
a. incorrectly charging against the Net Proceeds certain overhead costs;
b. double charging the Trust for services, materials, and electric utilities;
c. improperly applying certain costs for employee benefits, operator-generated
costs, and gathering fees and oil transportation fees;
d. improperly charging the Trust for casing in excess of the amount actually
used; and
e. charging the Trust for services performed and equipment installed on
property unrelated to the Conveyance.
17. Accordingly, Blackbeard has failed to comply with its obligations under the
Conveyance. As a result of the manner and method of the reporting and remittance of royalties,
Blackbeard’s breaches of the Conveyance have been inherently undiscoverable absent the full
disclosure of such information by Blackbeard. The Trustee affirmatively pleads the doctrines of
fraudulent concealment and the discovery rule.
------------------------------------------------------------
Item 17 is extremely important because it shows that the trustee believes that they have found enough to bring a lawsuit and are confident in their findings but have not had access to all information and will need discovery to determine the whole scope. Blackbeard also seems to operate its own service side for completions and workovers that are charged to the trust and though we don't know the breakdown of costs for these wells they are a large part of the overall costs based on number completed since early 2020 which has been a focus by Blackbeard to add production. If they are double charging for utilities and pipe not used than the trustee should also be looking into the costs charged to the trust for these services by Blackbeard to determine if they were done at fair market. I am assuming at this point that this is a known possibility but unprovable with current information access by the trustee but will share this with them to guarantee they are looking at all possibilities.
The direct immediate positive result to this situation is that the trustee is taking this serious and the last 2 months have shown a large decrease in CAPEX which lines up with the time frame of when Blackbeard would of been put on notice and lack of response leading to the filing of the lawsuit. Also the 'true up' on ad valorem taxes stated in the production report 8K in December leads me to believe some reconciliation on the production is already happening.
Last thing to note is the gas production is now showing for October sales in Texas comptroller reports and there is a significant jump in sales for leases 018745, 005263, 012508, 005294, 015266, 012207, 045532, 056515, and 055403 that can be verified here:
https://mycpa.cpa.state.tx.us/cong/leaseDropNGAction.do
*make sure to use leading zeros and select dates for all of 2023(Beg Period: 2301 End Period:2310) and select Crane - 052 for the county
All leases are showing 4.4M vs prior months at 2.2M and 2.1M; I only included the large lease numbers above for ease since there are smaller ones that don't contribute a ton to the overall change. Prices for natural gas in October were suppressed do to bad cold weather outlook and bulls getting washed out makes this gain in volume not add much to the revenue for the next report but it is a good sign that the Targa Plant is now fully operational and we can expect more production for gas, oil and other liquids because production was most likely being choked back in anticipation for this bottleneck to be resolved.
I'm not surprised but the potential level of under/over reporting is a little frighting given the royalty size and Conveyance. My perspective this kind of thing happens to many trusts because the ability/desire to do anything about it is limited.
Unfortunately it is extremely common in the oil and gas sector to see some level of theft, especially in double billing, and a royalty trust can be a good place to try and hide it. So far I am very happy with the steps taken by Argent and with them inheriting these issues from Simmons in January and already moving forward with a lawsuit makes me hopeful that this is resolved quickly. It's my opinion that Blackbeard thought they could add tons of production with large monthly cash distribution and no one would care/notice but that production possibly lagged along with greed on both sides of CAPEX and barrels not accounted for.
The nice thing here is Waddell is contained with one operator. There are so many like SBR where they have lots of royalty spread out across many states and many operators. It is an administrative nightmare and Trusts are not designed to do the homework, observation, adminstration and followup.
Waddell is a nice clean block of leases and a site audit, which probably should have started already, would be extremely easy to perform here to remove any doubt. Blackbeard really didn't think this through if the wrongful allocation is to the extent I am estimating.
One last comment for now. This sell down in PBT seems a bit strange given it is occurring about the time the payouts could go up. When for months in stayed in the low 20s when there was basically nothing. I have not looked at Sofvest nor HK average price but it has to be much higher than hight now. First I agree now is the time to buy and I am and I would think Sofvest and HK will be doing the same. They are long term players. Also thy may be behind the suit given TPL they now how to do it. Smart money is buying and retail seems to be doing their thing by selling at the wrong time. Thanks for you input. Very useful.
Hi, what is your thinking on the $300M 2024 capital budget? I see it as a ploy given the suit because there is no way they could manage that kind of budget. It seems to be at a stand still right now.
The trustee seemed to change the way they stated the budget which caused a lot of confusion in the recent 10K annual report. The budget was stated as gross of $301M but the trust is only required to contribute 37.5% NPI for majority of the Waddell Ranch. 2024 budget is actually a ~12.9% reduction year on year.
Year Gross($M) Net($M)
2023 325.12 121.92
2024 301.43 106.11
When the budget was first announced I questioned the trustee on it being incorrect and was lead to believe that it was substantially higher but was a preliminary budget. At that time it was my understanding from the trustee that the budget was communicated prior to the lawsuit and communication had broken down since. It was explained that they decided to include that budget to avoid incorrect booking of reserves under the 5 years rule (SEC Ch 210.4-10 Sec 31 .) even though it was not a final budget.
(ii) Undrilled locations can be classified as having undeveloped reserves only
if a development plan has been adopted indicating that they are scheduled to be drilled
within five years, unless the specific circumstances, justify a longer time.
Another important piece of the recent press release was the statement on the lawsuit dismissal:
Trust Litigation. On March 5, 2024, the lawsuit against Blackbeard was dismissed without prejudice, but the dispute has not been resolved. The Trustee will provide material updates as they become available.
Thanks seems it has been clarified in todays March report. Your response makes it even more clear. Trustee should have never put their gross number out there it caused a big sell off. Not that they really care or are impacted. The law suit must have been half baked. Trustee is not coming from a strong or knowledgable position must of had hope for discovery to enhance their position. I still believe Blackbeard is playing games wit the production. Let's see if some how they come clean not holding breath. Thanks
I said it was my last but it isn't. Two points, Seeking Alpha analysis is terrible and I'm on ignore by one of them because his analysis is so uninformed I could not help myself. The other point and I know the answer but will ask. Texas properties is there any insight into what and where and if there is any opportunity other than milking the old oil wells? Why I ask SBR has some premium royalty in the Hor plays and you can see it with the SJT Ventures work.
I haven't looked into the Texas Properties enough to speculate but in theory there's a lot of production trapped that could be maximized off recompletions alone. 302k gross acres of potential across 33 different counties definitely needs some time spent on it.