PermRock Royalty Trust: Is the 11.9% Yield a Blessing or a Mirage?

Energy royalty trusts like PermRock Royalty Trust (NYSE: PRT) have long been magnets for income-seeking investors, offering high yields tied to hydrocarbon production. However, PRT now faces a pivotal test: Can its 11.9% annualized yield survive declining oil volumes, rising expenses, and reliance on reserve funds to prop up distributions? This analysis dissects the data to uncover whether PRT remains a buy, a hold, or a cautionary tale for yield hunters.

The Decline in Oil Receipts vs. Natural Gas Recovery

PermRock’s revenue streams are under strain. Oil receipts fell by $0.12 million in February 2025 due to lower production volumes and a $2.71/barrel price drop compared to January. Meanwhile, natural gas prices surged to $4.15/Mcf in February, partially offsetting oil’s slump. Yet, gas’s contribution remains small: its $0.11 million in cash receipts in February accounted for just 7% of total revenue, underscoring PRT’s oil-heavy exposure.

The real threat lies in operational costs:
- Direct operating expenses rose to $0.66 million in February 2025, up from $0.61 million in January.
- Capital expenses, though modest at $0.05 million, are trending upward, with T2S Permian (the new operator) reserving $48,000 in February to cover future obligations.

Reserve utilization is another red flag. In March 2025, PRT drew $144,000 from prior reserves to support distributions, signaling that without these buffers, payouts might already be shrinking. This tactic is unsustainable long-term.

Year-to-Date Distribution Trends: A Deteriorating Picture

Compare PRT’s distribution trends across years to gauge consistency:
| Year | YTD Total (Through April 2025) | Monthly Average |
|----------|-------------------------------------|---------------------|
| 2023 | $0.514745 | $0.043 |
| 2024 | $0.273256 (Est.) | $0.0228 |
| 2025 | $0.063834 (Jan-Apr) | $0.0159 |

The data is stark. 2025’s YTD distributions are 63% below 2023 levels, with April’s $0.0238/unit payout marking a 43% drop from March. Even with natural gas price gains, PRT is failing to offset oil’s decline and cost pressures.

The 11.9% Yield: A Tempting Trap?

At a recent price of $4.02, PRT’s $0.48 annualized distribution yields 11.9%. This is a siren song for income investors—but the risks are mounting:

1. Volume Declines: Oil production averaged 765 Bbls/day in February 2025, down from 805 Bbls/day in August 2024.
2. Expense Inflation: Operating costs have risen by $0.17 million year-over-year, squeezing margins.
3. Reserve Drawdown: The Trust’s corpus fell to $71.29 million by Q1 2025, down from $72.38 million in late 2024, as amortization and payouts erode principal.

Strategic Stance: Hold for Income or Exit Now?

Case for Holding:

• The 11.9% yield remains among the highest in energy trusts, offering unmatched income in a low-yield world.
• PRT’s net profits interest (NPI) structure ensures unitholders receive 80% of Permian Basin production cash flows, with no debt obligations.
• Natural gas price resilience (up 14% year-over-year) could stabilize revenues if oil stabilizes.

Case for Exiting:

• Distribution erosion is accelerating: April’s payout is half its 2023 average.
• Structural limits: The Trust’s finite lifespan (ending when oil/gas reserves deplete) and amortization of NPI assets mean cash flows will eventually vanish.
• Market skepticism: PRT’s stock price has fallen 28% since early 2023, reflecting investor doubts about sustainability.

Final Recommendation

Hold PRT only if you can tolerate distribution cuts—and are prepared for volatility.

• For income investors: The 11.9% yield is compelling enough to justify a small position, provided you treat PRT as a “high-risk, high-reward” satellite holding.
• For risk-averse investors: Exit now. The odds of further distribution reductions are high, and the Trust’s structural decline is inevitable.

Action Steps:
1. Monitor PRT’s May 2025 distribution (payable June 14) for signs of stabilization.
2. Track oil prices and production volumes—the Permian Basin’s health is PRT’s lifeline.
3. Diversify income streams: Pair PRT with lower-risk assets like dividend-paying utilities or high-quality bonds.

PermRock Royalty Trust is at a crossroads. While its yield dazzles, the math of declining cash flows and rising costs is undeniable. Investors must ask: Is this a fleeting opportunity or a trap? For now, the answer is clear: Proceed with caution.