Pacific Coast Oil Trust Announces There Will Be No June Cash Distribution
Pacific Coast Oil Trust (OTC-ROYTL) announced no cash distribution for June 2024 due to insufficient net profits in April 2024. Revenues from developed properties were $3.4 million with an average price of $83.05 per Boe, while operating income was $1.6 million. Net profits were $1.2 million, decreasing the cumulative net profits deficit to $15.1 million for developed properties. The trust is facing a severe shortfall, with outstanding debt to PCEC of approximately $6.4 million and fully drawn down credit lines. The likelihood of future distributions remains extremely remote. The trust is mandated to dissolve as annual cash proceeds were less than $2.0 million for 2020 and 2021. Legal and administrative expenses continue to exceed revenues, causing further financial strain. Ongoing arbitration and legal issues related to asset retirement obligations and trustee replacement further complicate the trust’s situation.
- Revenues from developed properties reached $3.4 million in April 2024.
- The average realized price for developed properties increased to $83.05 per Boe.
- No cash distribution to unitholders for June 2024.
- Outstanding debt to PCEC of approximately $6.4 million.
- Fully drawn down $1 million letter of credit.
- Cumulative net profits deficit for developed properties at $15.1 million.
- Administrative and legal expenses exceeding revenues, creating a shortfall of approximately $317,000.
- Trust mandated to dissolve due to annual cash proceeds below $2.0 million for consecutive years.
The Current Month’s distribution calculation for the Developed Properties reflected operating income of approximately
The Current Month’s calculation included approximately
The monthly operating and services fee of approximately
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) |
41,637 |
1,388 |
|
|
Remaining Properties (b) |
13,574 |
452 |
|
|
(a) Crude oil sales represented |
||||
(b) Crude oil sales represented |
Update on Amounts Owed to PCEC by the Trust
PCEC has provided the Trust with a
As of the end of the Current Month, the Trust owed PCEC approximately
Loans made to the Trust and amounts drawn from the letter of credit, together with interest thereon, will be repaid from proceeds, if any, payable to the Trust pursuant to the Net Profits Interests and the Royalty Interest, and from any proceeds from a sale of the Trust’s assets in connection with the dissolution of the Trust. Consequently, no further distributions may be made until the Trust’s indebtedness created by such amounts drawn or borrowed, including interest thereon, has been paid in full. Given the outstanding amount borrowed by the Trust to date, there may not be any net proceeds from a sale of the Trust’s assets to be distributed to the Trust unitholders.
Update on Estimated Asset Retirement Obligations
As previously disclosed, in November 2019, PCEC informed the Trustee that, as permitted by the Conveyance, PCEC intended to begin deducting its estimated asset retirement obligations (“ARO”) associated with the West Pico, Orcutt Hill, Orcutt Hill Diatomite, East Coyote and Sawtelle fields, thereby reducing the amounts payable to the Trust under its Net Profits Interests. ARO is the recognition related to net present value of future plugging and abandonment costs that all oil and gas operators face. PCEC engaged an accounting firm, Moss Adams LLP (“Moss Adams”), acting as third-party consultants, to assist PCEC in determining its estimated ARO, and on February 27, 2020, PCEC informed the Trustee that based on the analysis performed by Moss Adams, PCEC’s estimated ARO, as of December 31, 2019, was
PCEC has informed the Trustee that in accordance with generally accepted accounting principles, PCEC will evaluate the ARO on a quarterly basis. As a result of that re-evaluation, the actual ARO incurred in the future may be greater or less than the estimated amounts provided by PCEC. As previously disclosed, PCEC has informed the Trustee that at year-end 2020, and following the end of each of the first, second and third quarters of 2021, in light of the accounting guidance under Accounting Standards Codification (“ASC”) 410-20-35-3, which requires the recognition of changes in the asset retirement obligation due to the passage of time and revision of the timing or amount of the originally estimated undiscounted cash flows, PCEC re-evaluated the estimated ARO, which resulted in an aggregate increase to the ARO accrual for the Developed Properties by approximately
In June 2023, PCEC engaged Cornerstone Engineering, Inc. (“Cornerstone”) to perform an ARO evaluation for the West Pico and Orcutt Hill fields. Based on Cornerstone’s report, Moss Adams has provided PCEC with an updated ARO valuation that reflects an upward adjustment in the ARO values as of December 31, 2022, of approximately
After reflecting the adjustment to PCEC’s legal fees as discussed below in “Status of the Dissolution of the Trust—PCEC Arbitration,” the net profits deficit for the Developed Properties decreased from approximately
Based on PCEC’s estimate of its ARO attributable to the Net Profits Interests, 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 previously disclosed, the Trust engaged Martindale Consultants, Inc. (“Martindale”), a provider of analysis and compliance review services to the oil and gas industry, to perform an independent review of the estimated ARO in the Moss Adams report that PCEC provided to the Trustee. The Trustee also has engaged an accounting expert to advise the Trustee regarding the accruals that PCEC has booked relating to its estimated ARO. As disclosed in the Trust’s Current Report on Form 8-K filed on December 29, 2020,
Status of the Dissolution of the Trust
As described in more detail in the Trust’s filings with the SEC, the Trust Agreement provides that the Trust will terminate if the annual cash proceeds received by the Trust from the Net Profits Interests and the Royalty Interest total less than
Evergreen Arbitration
As previously disclosed in the Trust’s Current Report on Form 8-K filed on December 23, 2021, on December 8, 2021, Evergreen Capital Management LLC (“Evergreen”) filed an Amended Class Action and Shareholder Derivative Complaint alleging a derivative action on behalf of the Trust and against PCEC in the Superior Court of the
On December 10, 2021, Evergreen filed a motion for temporary restraining order and for preliminary injunction, seeking to (1) enjoin the Trustee from dissolving the Trust, (2) enjoin PCEC from dissolving the Trust, (3) direct PCEC to account for all monies withheld from the Trust on the basis of ARO costs since September 2019, and (4) direct PCEC to place such monies in escrow. On December 16, 2021, the Court granted Evergreen’s application for a temporary restraining order only to the extent of enjoining the dissolution of the Trust. Accordingly, the Trust did not dissolve at the end of 2021 and commence the process of selling its assets and winding up its affairs.
On January 11, 2022, PCEC and Evergreen filed an agreed stipulation to stay the prosecution of Evergreen’s derivative claims pending an arbitration of such claims. On January 13, 2022, the Court signed an Order dissolving the December 16, 2021, temporary restraining order and entering a new temporary restraining order to preserve the status quo until a tribunal of three arbitrators appointed pursuant to the Trust Agreement could rule on any request by Evergreen for injunctive relief. On April 11, 2022, PCEC notified the Court, at the arbitrators’ request, that the arbitration panel had issued an order on April 7, 2022, denying Evergreen’s request for injunctive relief. On April 13, 2022, Evergreen notified the Court that Evergreen had filed a motion for reconsideration with the arbitration panel that same day, which was denied on May 26, 2022. On August 30, 2022, the arbitration Panel issued a Partial Final Award dismissing with prejudice Evergreen’s derivative claims against PCEC, including Evergreen’s application for an injunction. On December 5, 2023, the
On June 20, 2022, Evergreen filed an amended pleading in the arbitration, adding the Trustee as a party to that proceeding. In early September 2022, Evergreen informed the Trustee that it was going to seek a preliminary injunction while its claims against the Trustee were pending. At the request of the arbitration panel, the Trustee agreed to take no steps toward the sale of the Trust corpus until the Panel decided Evergreen’s application for a preliminary injunction. On September 12, 2022, the Trustee filed a motion to dismiss Evergreen’s claims against the Trustee. On September 22, 2022, Evergreen filed an opposition to the Trustee’s motion to dismiss. On September 15, 2022, Evergreen filed a motion to enjoin the Trustee from selling the Trust assets or dissolving the Trust during the pendency of the arbitration. The Trustee and PCEC filed a response in opposition to Evergreen’s motion on September 22, 2022. Both motions were heard by the Panel on October 24, 2022. On October 31, 2022, the Panel granted the Trustee’s motion and dismissed Evergreen’s claims against the Trustee with prejudice, which mooted Evergreen’s request for injunctive relief.
As a result, the Trustee plans to move forward with the winding up of the Trust in accordance with the provisions of the Trust Agreement, which will include selling all of the Trust’s assets and distributing the net proceeds of the sale to the Trust unitholders after payment, or reasonable provision for payment, of all Trust liabilities, including the establishment of cash reserves in such amounts as the Trustee in its discretion deems appropriate for the purpose of making reasonable provision for all claims and obligations of the Trust, including any contingent, conditional or unmatured claims and obligations, in accordance with the Delaware Statutory Trust Act.
PCEC Arbitration
On March 31, 2023, PCEC submitted a demand for arbitration against the Trustee, as trustee of the Trust, seeking, among other things, (1) an order compelling the Trustee to commence the process of dissolving the Trust pursuant to the provisions of the Trust Agreement, (2) a declaration that the Conveyance permits the legal fees and costs that PCEC, as operator, incurred in defending the Evergreen litigation and arbitration proceedings described above to be deducted from the proceeds from the Net Profits Interests, and (3) a declaration that the Trust must repay, with interest, the legal fees and costs that PCEC paid on behalf of the Trust to defend claims against the Trustee in the Evergreen proceedings or, alternatively, that PCEC may deduct such legal fees and costs from the proceeds from the Net Profits Interests.
The hearing before the arbitration panel was concluded on August 2, 2023, and on September 28, 2023, as previously disclosed, the arbitration panel issued its Partial Final Award, in which the panel found as follows:
- The Trustee is not required to immediately commence the marketing and sale of the Trust’s assets;
- PCEC is entitled to deduct from the net profits its own legal fees and the Trustee’s legal fees paid by PCEC in connection with the Evergreen proceedings; and
- PCEC is not entitled to reimbursement of such legal fees from the proceeds of the sale of the Trust’s assets.
In light of the arbitration panel’s finding that the Trustee is not required to immediately commence the marketing of the Trust’s assets, the Trustee has continued to work with PCEC and the Trust’s independent auditor to complete the audits of the Trust’s financial statements for the years ended December 31, 2019 through 2023 and to prepare a comprehensive annual report on Form 10-K as part of the Trust’s efforts to become current in its filing obligations under the Securities Exchange Act of 1934, as amended. The Trust expects to file the comprehensive annual report with the Securities and Exchange Commission as soon as possible after completion of the audits, at which point the Trustee expects to commence the marketing and sale process; however, it is possible that additional delays in the completion and filing of the comprehensive annual report could occur. In the meantime, the Trustee will continue to communicate material information to unitholders via press releases and Forms 8-K.
Meanwhile, because the Partial Final Award confirmed PCEC’s right to deduct from the net profits its own legal fees and the Trustee’s legal fees paid by PCEC in connection with the Evergreen proceedings, PCEC deducted approximately
Replacement of the Trustee
As previously disclosed, at a special meeting of the unitholders of the Trust held on July 12, 2023 (the “Special Meeting”), a majority of the unitholders voted to remove The Bank of New York Mellon Trust Company, N.A. as trustee of the Trust. A successor trustee was not nominated for approval at the Special Meeting. Under Section 6.05 of the Trust Agreement, if a new trustee has not been approved within 60 days after a vote of unitholders removing a trustee, a successor trustee may be appointed by any State or
On September 11, 2023, PCEC filed a petition with the Court of Chancery of the
On September 12, 2023, unitholders Evergreen Capital Management LLC, Shipyard Capital LP, Shipyard Capital Management LLC, Cedar Creek Partners LP, Eriksen Capital Management LLC and Walter Keenan (collectively, the “Unitholder Petitioners”) jointly filed a petition with the Court seeking to appoint Barclay Leib as temporary trustee and as successor trustee as of January 1, 2024. As Section 6.05 of the Trust Agreement requires that any successor trustee must be a bank or trust company having combined capital, surplus and undivided profits of at least
On October 31, 2023, PCEC filed a motion for summary judgment with regard to the appointment of a successor or temporary trustee, and the Trustee filed a response in opposition to that motion on November 14, 2023. The Court denied PCEC’s motion at a hearing held on November 28, 2023. PCEC elected not to proceed at this time and filed a stipulated dismissal of its petition, without prejudice, on February 27, 2024, which was signed by the Court that day.
The Trustee is unable to predict when a successor trustee will be appointed. Until that time, the Trustee will remain as trustee of the Trust and will continue to have the rights and obligations as trustee pursuant to the Trust Agreement.
The Trust expects to borrow funds from PCEC sufficient to pay the legal fees of the Trustee incurred in connection with the proceedings initiated by the Unitholder Petitioners.
Production Update
PCEC has informed the Trustee that PCEC continues to strategically deploy capital to maintain production within export and transportation constraints resulting from the previously disclosed termination of the Phillips 66 pipeline Connection Agreement described in greater detail below. These constraints have led to a curtailment of production at
Cancellation of Connection Agreement with Phillips 66
As previously disclosed, PCEC has informed the Trustee that on September 22, 2022, PCEC received notice from Phillips 66 of the cancellation of the Connection Agreement between PCEC and Phillips 66 with respect to the three leases located south of
The shutdown of the refinery and the pipeline will adversely affect PCEC’s financial performance, and the revenues that may be payable to the Trust. PCEC previously informed the Trustee that it was able to secure a short-term contract to transport oil from the
Overview of Trust Structure
Pacific Coast Oil Trust is a
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 the 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, the outcome of the proceedings relating to the appointment of a successor trustee, statements regarding the impact of returning shut-in wells to production, uncertainties regarding transportation of oil from the
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Pacific Coast Oil Trust
The Bank of New York Mellon Trust Company, N.A., as Trustee
Sarah
1 (512) 236-6555
Source: Pacific Coast Oil Trust
FAQ
Why is there no cash distribution for ROYTL in June 2024?
What are the revenues from developed properties for ROYTL in April 2024?
What is the net profits deficit for ROYTL's developed properties?
What is the average realized price for ROYTL's developed properties in April 2024?
What is the outstanding debt of ROYTL to PCEC?
Why is the likelihood of future distributions for ROYTL extremely remote?