PermRock Royalty Trust (PRT) stock intrinsic value fair value estimate & owner earnings analysis

PermRock Royalty Trust owns one asset: a net profits interest that entitles it to 80% of the net profits (oil and gas sales less operating costs, taxes and development spending) from oil and gas properties in the Permian Basin of West Texas. It has no employees and no control over spending; it passes its monthly receipts, less its own expenses, to unitholders. The properties were sold by Boaz Energy to T2S Permian Acquisition II LLC on March 31, 2025, and T2S is now the operator. An affiliate of T2S, Ustx, LLC, holds 4,884,861 of the 12,165,732 units (about 40%). Because T2S both runs the wells and decides what to spend on them, its interests can differ from those of other unitholders. How we measure earnings. The trust has no stock compensation, no capital spending of its own and no working capital; development costs are deducted inside net profits before the trust is paid. Owner earnings therefore equal distributable income per unit: $0.606 (2021), $1.011 (2022), $0.515 (2023), $0.424 (2024) and $0.387 (2025). We reconciled this to the trust's statements (revenue less administrative expenses less amounts retained) and found no gap. A median of these years would suggest about $0.51, but the trust is a depleting asset with no way to replace its reserves, so a historical median would overstate what remains. We instead value the actual remaining stream of net profits. What the evidence shows. Oil volumes from the properties fell from 317,765 barrels (2023) to 289,918 (2024) and 252,834 (2025), while the average realized oil price fell from $75.33 to $64.83 per barrel. Distributable income per unit fell 8.7% in 2025, and quarterly distributions slid from $0.0914 (third quarter) to $0.0768 (fourth quarter of 2025). The three distributions declared for early 2026 were $0.0194, $0.0108 and $0.0030 per unit, about $0.033 for the first quarter, roughly $0.13 at an annual rate. T2S told the trustee it has budgeted no capital for 2026, only a $0.75 million workover budget, and it postponed drilling of two wells in Crane County, Texas. Two non-operated wells drilled in the Permian Shelf area in 2025 were not completed until the first quarter of 2026, and their completion cost may have weighed on that quarter, though the filing does not say so or quantify it. The cushion that T2S may hold back for future costs is down to $74,933. Independent engineers estimate the trust's proved reserves at 1,100 thousand barrels of oil equivalent, all already developed. The standardized value of those reserves fell from $64.4 million to $31.4 million during 2025, about $2.58 per unit at a 10% discount (undiscounted future net cash flows of $63.8 million). The trust has fixed costs of its own: administrative expense of $894,680 in 2025. It is also required to sell the net profits interest and dissolve if annual cash available for distribution falls below $2.0 million for two years in a row. On a shrinking asset that trigger is a real feature of the story, so each case runs distributions until it is met and then assumes the interest is sold. For the sale we count the remaining net profits, discounted at 10% (the discount used in the reserve report), because the trust agreement requires a sale; this sale value is our estimate, not a contracted price. We do not count the $1.0 million cash reserve the trust holds (about $0.08 per unit), which is likely to be consumed by wind-up costs. Oil prices are held at 2025 realized levels ($64.83 per barrel) in every case; we do not forecast price moves. Growth-path check: distributable income per unit fell 8.7% in 2025. Year one of our base case (2026) is about $0.20 per unit, roughly 49% lower, so we assume a faster decline than last year's, not a reversal, based on the first-quarter 2026 distributions and the absence of any 2026 capital budget. No growth is credited in any case: nothing is contracted, and the drilling that produced past volumes has been cut back. Bear case: $0.72 per unit. Net profits start 2026 at about $2.6 million (our estimate of the first-quarter pace, about $0.65 million a quarter, from the distributions paid plus the trust's typical quarterly expenses) and decline 15% a year, in line with the 13% oil volume decline and 12.5% fall in net profits seen in 2025 plus fixed-cost pressure. Distributions drop below $2.0 million in 2026 and 2027, triggering dissolution after 2027; the sale of the remaining interest is worth about $0.50 per unit today and distributions about $0.23. Base case: $1.22 per unit. Net profits of about $3.3 million in 2026 (the weak first quarter followed by three quarters of about $0.9 million each, somewhat below the fourth quarter of 2025's $1.06 million) declining 10% a year, roughly the average of the last two years' oil volume declines (8.8% and 12.8%). Distributions are about $0.20, $0.17, $0.15 and $0.12 per unit for 2026 to 2029, after which the dissolution trigger is met. Distributions are worth about $0.56 and the sale of the remaining interest about $0.66 per unit today. Bull case: $1.80 per unit. Net profits of about $3.9 million in 2026, a little below the fourth-quarter 2025 pace, declining 7% a year, similar to the 7% fall in net profits in 2024, with the interest sold after 2032. Distributions are worth about $1.07 and the sale about $0.74 per unit. We did not include the two postponed Crane County wells or any oil price rise, because no decision or contract supports them. What would prove this wrong: a decision by T2S to resume drilling, oil prices well above $65, or the first-quarter 2026 weakness proving to be mainly one-time completion costs would each lift results; a sharper decline, higher operating costs charged against net profits, or an earlier forced sale would push toward the bear case. The NYSE requires units to average at least $1.00 over 30 trading days; the trust discloses this as a listing risk, and no deficiency notice is mentioned in its filing. Margin-of-safety price: $0.60 per unit, below our bear case. The interest is a wasting asset controlled by a related operator, is exposed to the oil price, and could be sold on a short timetable, so the margin of safety is wide.