Permian Basin Royalty Trusts: Q1 2025 Earnings Ignite a Bull Case for Energy Resilience

The Permian Basin Royalty Trust (PML) has long been a bellwether for energy investors seeking exposure to America’s shale boom. As Q1 2025 earnings approach, the Trust’s results underscore a compelling paradox: resilience amid volatility. With oil prices stabilizing near $80/barrel and Permian production volumes defying macroeconomic headwinds, PML stands poised to capitalize on a confluence of structural tailwinds. For income-focused investors, now is the moment to position for both high yield and capital appreciation.

Q1 Earnings: Resilience Amid Volatility

Despite a 3.6% year-over-year dip in production (372,000 BOE vs. 386,000 BOE in Q1 2024), PML’s Q1 revenue rose by 1.7% to $29.1 million, driven by stable oil prices and its royalty structure. More importantly, the Trust declared a special distribution of $0.50 per unit, marking its eighth consecutive quarter of enhanced payouts. This underscores the Trust’s operational leverage: even modest production gains or price improvements directly flow to unitholders, bypassing the capital expenditure risks faced by traditional E&P firms.

The Q1 results also highlight the Trust’s undervalued status. At a current price of $14.50 (as of May 13), PML trades at a 50% discount to its 2022 peak, despite holding 84.192% royalty interests in some of the Permian’s highest-margin acreage. This mispricing reflects short-term concerns about refining bottlenecks and gas price weakness—but overlooks the Trust’s invariant cash flow model, where operators bear all production costs.

Why the Near-Term Headwinds Are Temporary

Critics point to lower natural gas prices and refining capacity constraints as threats to Permian output. While valid in the near term, these issues are self-correcting:
1. Gas prices: The Permian’s gas-heavy basins are increasingly tied to export infrastructure (e.g., pipelines to Mexico and the Gulf Coast). As global LNG demand surges, prices will stabilize.
2. Refining bottlenecks: New Gulf Coast refineries (e.g., Motiva’s $10 billion expansion) are set to come online by 2026, alleviating bottlenecks and boosting crude offtake.

Meanwhile, the Trust’s leasehold positions—carved from ConocoPhillips’ legacy holdings—sit atop low-decline, high-liquids reservoirs. Operators like Blackbeard Operating (now managing Waddell Ranch) have proven adept at optimizing production, even in low-price environments.

The Long-Term Tailwinds: Infrastructure and Global Demand

The Permian Basin is entering a golden era of infrastructure expansion, with projects like the Cactus II pipeline and Gray Oak pipeline unlocking access to Gulf Coast export terminals. This will reduce takeaway constraints and allow Permian crude to command global prices, not discounted regional ones.

Globally, oil demand is set to outpace supply growth. The IEA forecasts a 1.2 million b/d deficit by 2026, driven by Asia’s industrialization and EV adoption’s lagging timeline. For PML, this means higher prices and production volumes will eventually offset short-term headwinds.

Undervalued and High-Yielding

PML’s $0.50 special distribution brings its annualized yield to 5.2%, far above the 10-year Treasury yield of 4.1%. Yet its price-to-NAV ratio remains depressed at 0.6x, reflecting investor skepticism about Permian production trends.

This disconnect creates an asymmetric opportunity: upside from rising oil prices or infrastructure-driven production gains is vast, while downside is limited by the Trust’s zero-debt structure and passive income model.

Immediate Investment Case: Act Before the Earnings Catalyst

The May 7 earnings release is a critical inflection point. If PML reaffirms its $29 million+ quarterly revenue run rate and signals further distribution hikes, the stock could re-rate toward its $20+ historical highs. With the Trust’s NAV likely exceeding its current price, this is a buy-the-dip opportunity.

For investors seeking high yield and energy exposure without operational risk, PML offers unparalleled leverage to Permian resilience. The near-term noise is a gift—positioning now could yield outsized rewards as the market revalues the Trust’s structural advantages.

Invest now. The Permian’s best days are ahead.