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 March 16, 2020 based on
the Trust’s calculation of net profits generated during January
2020 (the “current month”) as provided in the conveyance of net
profits interests and overriding royalty interest. All 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 $1.0 million of revenues less direct
operating expenses and development costs. Revenues from the
Developed Properties were $3.4 million, lease operating expenses
including property taxes were $2.4 million, and development costs
were approximately $97,000. The average realized price for the
Developed Properties was $61.40 per Boe in January, as compared to
$63.55 per Boe in December. The cumulative net profits deficit
amount for the Developed Properties, reflecting the deduction of
the estimated asset retirement obligation (“ARO”) relating to the
Developed Properties as discussed below under “Update on Estimated
Asset Retirement Obligations,” was approximately $25.8 million,
which will be subtracted from any future net profits until the
cumulative net profits deficit for the Developed Properties has
been reduced to zero.
The current month’s calculation included approximately $84,000
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 $59.34 per Boe in January,
as compared $61.34 per Boe in December. 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,” was
approximately $3.3 million.
The monthly operating and services fee of approximately $77,000
payable to PCEC, which reflected a credit of approximately $16,000
relating to funds that were erroneously added to the operating and
services fee for December 2019, and Trust general and
administrative expenses of $70,000, together exceeded the
distribution of approximately $84,000 received from PCEC from the
7.5% overriding royalty interest on the Remaining Properties,
creating a shortfall of approximately $63,000.
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. 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 borrowing funds from PCEC to pay the
expected shortfall of approximately $63,000, bringing the total
amount of outstanding funds borrowed from PCEC to approximately
$257,000. Consequently, no further distributions will 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 month of January 2020:
Underlying Properties
Sales Volumes
Average Price
(Boe)
(Boe/day)
(per Boe)
Developed Properties (a)
55,368
1,786
$61.40
Remaining Properties (b)
19,468
628
$59.34
(a) Crude oil sales represented 98% 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 Trustee has asked PCEC for an
explanation of its calculation. The consulting firm engaged by the
Trustee to review PCEC’s original estimate of its ARO is continuing
its review and will also need information regarding PCEC’s more
recent estimate in order to evaluate it. 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 significant distributions to Trust
unitholders for the next several years, 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 distributions 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; therefore, it appears likely that total
distributions to the Trust will total less than $2.0 million in
each of 2020 and 2021. The Trust may also be terminated by other
events as described in the Trust’s filings with the SEC.
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, 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. 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/20200304005771/en/
Pacific Coast Oil Trust The Bank of New York Mellon Trust
Company, N.A., as Trustee Sarah Newell 1(512) 236-6555
Pacific Coast Oil (NYSE:ROYT)
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