PERMIAN BASIN ROYALTY TRUST (PBT) stock intrinsic value fair value estimate & owner earnings analysis

Permian Basin Royalty Trust owns no wells and has no debt. It holds two sets of oil and gas royalty interests in West Texas and passes the cash it collects to unitholders after small administrative costs (about $1.8 million in 2025). The Texas Royalty properties pay the trust 95% of net proceeds from royalty-type interests that carry little cost; they paid about $11.6 million in 2025 (roughly $0.25 per unit) and have been the only steady source of income. The Waddell Ranch properties in Crane County pay 75% of net profits after the operator, Blackbeard Operating, deducts its drilling and operating costs. Blackbeard reported about $229 million of capital spending on Waddell in the twelve months to November 2025, and nothing has reached the trust from Waddell since October 2024; the trust's monthly reports show Waddell still contributed nothing through August 2026. At March 31, 2026, Waddell had a shortfall of $62.8 million (about $47.1 million belonging to the trust's share) that must be repaid with interest before it pays again. Cash paid per unit has ranged from $0.23 to $1.15 over the last ten years (median about $0.49), and was $0.55 in 2024 and $0.31 in 2025. What changed: on May 8, 2026 a Texas court approved a unitholder petition that lets the trust agreement be amended by a simple majority instead of 75%. On July 28, 2026 SoftVest (a 13.3% unitholder) and Blackbeard signed an agreement, to which neither the trust nor the trustee is a party, to combine the trust's assets with land and royalty assets owned by Blackbeard in a new corporation, PBT Land and Minerals, Inc. Each trust unit would become one Class A share, unitholders would own about 59.3% and Blackbeard about 40.7%, the trust would terminate, and the Waddell net profits interest would be replaced by a cost-free royalty of about 15% of Waddell production. The new company would pay corporate income tax and carry a bank revolver (pro forma debt of about $60 million), and a $120 million rights offering and private placement would be part of the deal. It needs a majority vote at a special meeting and has an outside date of December 31, 2026. Previous estimates were made before any of this and are not comparable. How we valued it: we value the cash the interests can be shown to produce, and nothing that rests on promises. Every case below gives no credit to the land and royalty assets Blackbeard would contribute, because their earnings appear only in the sponsors' pro forma presentation (pro forma adjusted EBITDA of $127 million for 2025), which is a company-defined figure we could not rebuild from audited statements; if audited results confirm them they would add value that is not in these numbers. We also do not rely on the sponsors' statement that Waddell output rose to more than 35,000 barrels a day: the trust's own reports show about 12,800 barrels a day for December 2025 to February 2026, and we could not reconcile the two. Rights offering pricing is not yet known, so any dilution from it is not included. The trust's own reserve report shows $926 million of future net cash inflows, but it deducts almost none of the drilling and operating costs that have eliminated Waddell payments for nearly two years, so we do not use it. Base case (about $2.66 per unit): the combination closes. The new company receives the Texas Royalty income (about $11.5 million a year, declining 4% a year) and 15% of Waddell's gross oil and gas sales, about $46 million a year after production taxes (4.6 million barrels a year at about $66, the 2025 average, plus gas). Waddell output holds for three years, since it averaged 12,448 barrels a day in 2025 and about 12,800 in the winter of 2025-26 under a $190-230 million a year spending program, then declines 12% a year, because the trust's own reserve report implies proved developed output falls quickly without new wells. We assume $6 million a year of corporate costs and 21% tax on the shareholders' share. The business is worth about $3.43 per share, it owes about $0.76 per share (the $60 million revolver spread over about 78.6 million shares), leaving $2.66. First-year cash is about $0.52 per share against $0.31 per unit in 2025; the reason it is higher than the trailing result is the signed agreement of July 28, 2026 replacing the cost-bearing Waddell interest, and it depends on that vote passing. Trailing cash per unit fell 44% in 2025. Bull case (about $4.62): the combination closes, Waddell output is held for six years before declining 8% a year (Blackbeard is running three to four rigs and is spending its own money once the royalty is cost-free), and oil sells at about $76, the 2023-2024 average. The business is worth about $5.38, owes $0.76 and leaves $4.62. Bear case (about $1.10): oil falls to about $45 for two years, as in 2015-2016 and 2020, then recovers only to $55. Two outcomes make up the bear: the combination fails and the trust keeps only the Texas Royalty income (worth about $1.28 per unit, no debt, Waddell never paying); or it closes and Blackbeard cuts drilling so Waddell falls about 25% a year, leaving a business worth about $1.0 per share against $0.76 owed, about $0.23 net. The bear value sits between these two. What would make this wrong: the vote failing and Waddell staying dark (the Texas-only outcome), Blackbeard stopping capital spending after closing, or audited results for the contributed assets showing earnings far above what we credit. We tested the Waddell hold: from December 2025 to February 2026 Waddell sales were about $73 million while capital spending of $48.8 million and operating costs of $30.7 million exceeded them, so holding output takes heavy spending that is now Blackbeard's to fund. Margin-of-safety price: we are confident of the Texas Royalty income (about $0.20 per unit after expenses; 2021-2025 ranged from $11.6 to $19.3 million) and not confident of anything else. The worst plausible outcomes are a closed deal followed by Blackbeard curtailing drilling, or a failed vote with Waddell dark for years; either leaves unitholders with little beyond the Texas royalties, and the trust has no debt and a $1.1 million contingency reserve, so it survives but holds a depleting asset controlled by an operator. If we are wrong about Waddell's output and the vote, the shares are still worth about $1.3 on the Texas royalties alone. The price assumes a three-year holding period, over which the Texas royalties pay about $0.20 per unit a year. At $1.00 per unit, those payments alone are about a 20% yield and a Texas-only outcome still implies the required 20% a year without needing the combination, while the combination closing would be an additional gain. The margin-of-safety price is $1.00 per unit.