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 April 16, 2020 based on
the Trust’s calculation of net profits generated during February
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 $0.6 million of revenues less direct
operating expenses and development costs. Revenues from the
Developed Properties were $2.9 million, lease operating expenses
including property taxes were $2.0 million, and development costs
were approximately $239,000. The average realized price for the
Developed Properties was $54.64 per Boe in February, as compared to
$61.40 per Boe in January. 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, decreased by approximately $0.5
million and was approximately $25.3 million for February.
The current month’s calculation included approximately $58,000
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 $50.37 per Boe in
February, as compared $59.34 per Boe in January. 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,” increased by approximately $7,300 and was
approximately $3.3 million for February.
The monthly operating and services fee of approximately $93,000
payable to PCEC and Trust general and administrative expenses of
$120,000, together exceeded the distribution of approximately
$58,000 received from PCEC from the 7.5% overriding royalty
interest on the Remaining Properties, creating a shortfall of
approximately $155,000.
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 drawing funds from the aforementioned
letter of credit to pay the expected shortfall of approximately
$155,000. The letter of credit will have $845,000 remaining of the
$1 million after the Trust draw this month. In addition to the
funds to be drawn from the letter of credit, the Trust has
outstanding borrowings from PCEC of approximately $258,000 related
to shortfalls from prior months. 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 February 2020:
Underlying Properties
Sales Volumes
Average Price
(Boe)
(Boe/day)
(per Boe)
Developed Properties (a)
52,622
1,815
$54.64
Remaining Properties (b)
16,778
579
$50.37
(a) Crude oil sales represented 100% 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 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.
COVID-19 Update
On March 11, 2020, the World Health Organization characterized
the outbreak of a strain of novel coronavirus (“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 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
duration and impact of COVID-19 is unknown at this time and it is
not possible to reliably estimate the impact that these
developments will have on future periods.
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 in light of the
recent announcements by Saudi Arabia to abandon output restraints
and the economic effects of the COVID-19 pandemic. 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/20200406005688/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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