PACIFIC COAST OIL TRUST (NYSE:ROYT) (the “Trust”), a 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 May 18, 2020 based on the
Trust’s calculation of net profits generated during March 2020 (the
“Current Month”) as provided in the conveyance of net profits
interests and overriding royalty interest. If the Trust continues
to experience negative monthly net profits, the Trust is expected
to terminate by its terms by the end of 2021. As described further
below, based on information from PCEC, the likelihood of
distributions to the unitholders in the foreseeable future is
extremely remote. The Trust may also be terminated upon the
occurrence of other events as described in the Trust’s filings with
the SEC. All financial and operational information in this press
release has been provided to the Trustee by PCEC.
The Current Month’s distribution calculation for the Developed
Properties resulted in $0.4 million of excess operating expenses
and development costs. Revenues from the Developed Properties were
$1.8 million, lease operating expenses including property taxes
were $2.1 million, and development costs were approximately
$128,000. The average realized price for the Developed Properties
was $30.46 per Boe for the Current Month, as compared to $54.64 per
Boe in February 2020, contributing to the significant decrease in
revenues. The decline in realized price per Boe is primarily
attributable to the decrease in demand for crude oil due to the
COVID-19 pandemic and oversupply resulting from the dispute over
production levels between Russia and the members of the
Organization of Petroleum Exporting Countries, including Saudi
Arabia. The cumulative net profits deficit amount for the Developed
Properties, which reflects the deduction of the estimated asset
retirement obligation (“ARO”) relating to the Developed Properties
as discussed in last month’s press release and below under “Update
on Estimated Asset Retirement Obligations” of approximately $25.8
million, increased to approximately $25.6 million for the Current
Month.
The Current Month’s calculation included approximately $34,000
for the 7.5% overriding royalty interest on the Remaining
Properties from Orcutt Diatomite and Orcutt Field. Average realized
prices for the Remaining Properties were $28.12 per Boe in the
Current Month, as compared $50.37 per Boe in February 2020. The
cumulative net profits deficit for the Remaining Properties,
including the 7.5% overriding royalty interest payments and
reflecting the deduction of the estimated ARO relating to the
Remaining Properties as discussed below under “Update on Estimated
Asset Retirement Obligations,” decreased by approximately $0.3
million and was approximately $3.1 million for the Current
Month.
The monthly operating and services fee of approximately $93,000
payable to PCEC, quarterly letter of credit fee of $19,000 and
Trust general and administrative expenses of $55,000, together
exceeded the payment of approximately $34,000 received from PCEC
from the 7.5% overriding royalty interest on the Remaining
Properties, creating a shortfall of approximately $133,000.
PCEC has 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. Further, if the Trust
requires more than the $1 million under the letter of credit to pay
administrative expenses, PCEC may loan funds to the Trust necessary
to pay such expenses; however, PCEC has informed the Trustee that
for the foreseeable future PCEC does not expect to loan such funds
to the Trust. 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. The Trust will be drawing funds from the letter of credit
to pay the expected shortfall of approximately $133,000, which
together with prior drawdowns will leave approximately $751,000
remaining of the $1 million. In addition to the funds drawn from
the letter of credit, the Trust has outstanding borrowings from
PCEC of approximately $261,000 related to shortfalls from prior
months, including interest thereon. Consequently, no further
distributions may be made to Trust unitholders until the
indebtedness created by such amounts drawn or 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 Current Month:
Underlying Properties
Sales Volumes
Average Price
(Boe)
(Boe/day)
(per Boe)
Developed Properties (a)
59,229
1,911
$30.46
Remaining Properties (b)
17,544
566
$28.12
(a) Crude oil sales represented 97% of
sales volumes
(b) Crude oil sales represented 100% of
sales volumes
Update on Estimated Asset Retirement Obligations
As previously disclosed, in November 2019, PCEC informed the
Trustee that, as permitted by the agreements governing the
conveyances to the Trust, PCEC intended to begin deducting its
estimated ARO associated with the West Pico, Orcutt Hill, Orcutt
Hill Diatomite, East Coyote and Sawtelle fields reducing the
amounts payable to the Trust under its Net Profits Interest. ARO is
the accounting recognition related to plugging and abandonment
obligations that all operators face. PCEC engaged an accounting
firm to assist PCEC in determining its estimated ARO, and on
February 27, 2020, PCEC informed the Trustee that PCEC’s estimate
of its ARO, as of December 31, 2019, is $45,695,643, which is
approximately $10.0 million less than the originally estimated
amount as previously disclosed in the Trust’s Current Report on
Form 8‑K filed on November 13, 2019. According to PCEC, the
estimated ARO, which reflects PCEC’s assessment of current market
conditions and recent changes in California law, was determined to
be approximately $33.2 million for the Developed Properties and
approximately $12.5 million for the Remaining Properties, and PCEC
has reflected these amounts in the calculation of the net profits
generated during January 2020. The consulting firm engaged by the
Trustee to review PCEC’s original estimate of its ARO is continuing
its review, and that firm as well as the Trust’s independent
registered public accounting firm are continuing to evaluate PCEC’s
more recent estimate. The actual ARO incurred in the future may
exceed the estimated amounts provided by PCEC.
Based on PCEC’s estimate of its ARO attributable to the Net
Profits Interest, deductions relating to estimated ARO are likely
to eliminate the likelihood of any distributions to Trust
unitholders for the foreseeable future, as previously disclosed in
the Trust’s Current Report on Form 8-K filed on November 13,
2019.
As described in more detail in the Trust’s filings with the SEC,
the Trust will terminate if the annual cash proceeds received by
the Trust from the Net Profits Interest and Royalty Interest total
less than $2.0 million for each of any two consecutive calendar
years. PCEC is deducting estimated ARO, thereby reducing the
amounts payable to the Trust. Unless significant market changes
were to occur, no payments will be made by PCEC to the Trust for
the foreseeable future, which would result in the total proceeds
received by the Trust to total less than $2.0 million in each of
2020 and 2021.
Production Update
On March 11, 2020, the World Health Organization characterized
the outbreak of COVID-19 as a pandemic, which has resulted in the
implementation of a series of public health and emergency measures
to combat the spread of the virus. COVID-19 and the responses by
federal, state and local governmental authorities to the pandemic
has resulted in widespread and localized health crises that
adversely affect general commercial activity, the economies and
financial markets of many countries and localities, as well as
global demand for oil and natural gas. COVID-19 has also resulted
in significant business and operational disruptions, including
business closures, disruptions to supply chains, travel
restrictions and limitations on the availability of workforces. The
full impact of COVID-19 is unknown and is rapidly evolving. The
extent to which COVID-19 negatively impacts PCEC or any third-party
operator of and production from the Underlying Properties will
depend on the severity, location and duration of the effects and
spread of COVID‑19, the actions undertaken by federal, state and
local governments and health officials to contain the virus or
treat its effects, and how quickly and to what extent economic
conditions improve and normal business and operating conditions
resume. In addition, a dispute over production levels between
Russia and the members of the Organization of Petroleum Exporting
Countries, including Saudi Arabia, has resulted in global
oversupply of crude oil. A prolonged period of low crude oil and
natural gas prices would adversely affect PCEC or any third-party
operator of the Underlying Properties. If commodity prices for
crude oil and natural gas remain at reduced levels, monthly cash
distributions to unitholders will be substantially lower than
historical distributions, and in certain periods there may be no
distribution to unitholders. Continued low prices of oil and
natural gas will reduce the amount of the net proceeds to which the
Trust is entitled and may ultimately reduce the amount of oil and
natural gas that is economic to produce from the underlying
properties. As a result, PCEC or any third-party operator could
determine during periods of low commodity prices to shut in or
curtail production from wells on the underlying properties. In
addition, PCEC or any third-party operator could determine during
periods of low commodity prices to plug and abandon marginal wells
that otherwise may have been allowed to continue to produce for a
longer period under conditions of higher prices. In addition, the
substantial declines in crude oil and natural gas prices will
materially decrease the Trust’s oil and gas reserve estimates and
may also result in a significant decrease in the quantities of
recovered reserves attributable to the Underlying Properties.
PCEC has informed the Trustee that due to the economic effects
of the COVID-19 pandemic and the oversupply of crude oil resulting
from the dispute over production levels, PCEC is in the process of
shutting in a substantial portion of its production, having shut in
approximately 13% of its production to date since the beginning of
the crisis, as current market conditions do not allow PCEC to cover
costs related to production. As a result, PCEC has informed the
Trustee that any quarterly payments that PCEC may make to the Trust
will unlikely be sufficient to cover the Trust’s administrative
expenses, and therefore the likelihood of distributions to the
unitholders in the foreseeable future is extremely remote.
Overview of Trust Structure
Pacific Coast Oil Trust is a Delaware statutory trust formed by
PCEC to own interests in certain oil and gas properties in the
Santa Maria Basin and the Los Angeles Basin in California (the
“Underlying Properties”). The Underlying Properties and the Trust’s
net profits, and royalty interests are described in the Trust’s
filings with the SEC. As described in the Trust’s filings with the
SEC, the amount of any periodic distributions is expected to
fluctuate, depending on the proceeds received by the Trust as a
result of actual production volumes, oil and gas prices,
development expenses, and the amount and timing of the Trust’s
administrative expenses, among other factors. For additional
information on the Trust, please visit
www.pacificcoastoiltrust.com.
Cautionary Statement Regarding
Forward-Looking Information
This press release contains statements that are "forward-looking
statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. All statements contained in this
press release, other than statements of historical facts, are
"forward-looking statements" for purposes of these provisions.
These forward-looking statements include estimates of future asset
retirement obligations, expectations regarding the impact of
deductions for such obligations on future distributions to
unitholders, estimates of future total distributions to unitholders
in 2020 and 2021, expectations regarding the impact of COVID-19 on
the Trust and the impact of the pandemic on future distributions to
unitholders, expectations regarding the impact of lower commodity
prices on oil and gas reserve estimates, PCEC’s plans to shut in
production, and the amount and date of any anticipated distribution
to unitholders. In any case, PCEC’s deductions of its estimated
asset retirement obligations will have a material adverse effect on
distributions to the unitholders and on the trading price of the
Trust units and may result in the termination of the Trust. Any
anticipated distribution is based, in part, on the amount of cash
received or expected to be received by the Trust from PCEC with
respect to the relevant period. Any differences in actual cash
receipts by the Trust could affect this distributable amount. The
amount of such cash received or expected to be received by the
Trust (and its ability to pay distributions) has been and will be
significantly and negatively affected by prevailing low commodity
prices, which have declined significantly, could decline further
and could remain low for an extended period of time in light of the
economic effects of the COVID-19 pandemic and the dispute over
production levels between Russia and the members of the
Organization of Petroleum Exporting Countries, including Saudi
Arabia. Other important factors that could cause actual results to
differ materially include expenses related to the operation of the
Underlying Properties, including lease operating expenses, expenses
of the Trust, and reserves for anticipated future expenses.
Statements made in this press release are qualified by the
cautionary statements made in this press release. Neither PCEC nor
the Trustee intends, and neither assumes any obligation, to update
any of the statements included in this press release. An investment
in units issued by Pacific Coast Oil Trust is subject to the risks
described in the Trust's Annual Report on Form 10-K for the year
ended December 31, 2018 filed with the SEC on March 8, 2019, and if
applicable, the Trust’s subsequent Quarterly Reports on Form 10-Q.
The Trust's Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q are available over the Internet at the SEC's website at
http://www.sec.gov.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200507006027/en/
Pacific Coast Oil Trust The Bank of New York Mellon Trust
Company, N.A., as Trustee Sarah Newell 1 (512) 236-6555
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