SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 1999 Commission File No. 1-8033 PERMIAN BASIN ROYALTY TRUST Texas I.R.S. No. 75-6280532 Bank of America, N.A., Trust Department P. O. Box 1317 Fort Worth, Texas 76101 Telephone Number 817/390-6905 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Number of Units of beneficial interest outstanding at November 12, 1999: 46,608,796 Page 1 of 17 PERMIAN BASIN ROYALTY TRUST PART I - FINANCIAL STATEMENTS ITEM 1. FINANCIAL STATEMENTS The condensed financial statements included herein have been prepared by Bank of America, N.A. as Trustee for the Permian Basin Royalty Trust, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations, although the Trustee believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Trust's latest annual report on Form 10-K. In the opinion of the Trustee, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the assets, liabilities and trust corpus of the Permian Basin Royalty Trust at September 30, 1999, and the distributable income and changes in trust corpus for the three-month and nine-month periods ended September 30, 1999 and 1998 have been included. The distributable income for such interim periods is not necessarily indicative of the distributable income for the full year. Deloitte & Touche LLP, independent certified public accountants, has made a limited review of the condensed financial statements as of September 30, 1999 and for the three-month and nine-month periods ended September 30, 1999 and 1998 included herein. -2- INDEPENDENT ACCOUNTANTS' REPORT Bank of America, N.A. as Trustee for the Permian Basin Royalty Trust: We have reviewed the accompanying condensed statement of assets, liabilities and trust corpus of the Permian Basin Royalty Trust as of September 30, 1999 and the related condensed statements of distributable income and changes in trust corpus for the three-month and nine-month periods ended September 30, 1999 and 1998. These financial statements are the responsibility of the Trustee. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. The accompanying condensed financial statements are prepared on a modified cash basis as described in Note 1, which is a comprehensive basis of accounting other than generally accepted accounting principles. Based on our reviews, we are not aware of any material modifications that should be made to such condensed financial statements for them to be in conformity with the basis of accounting described in Note 1. We have previously audited, in accordance with generally accepted auditing standards, the statement of assets, liabilities and trust corpus of the Permian Basin Royalty Trust as of December 31, 1998, and the related statements of distributable income and changes in trust corpus for the year then ended (not presented herein); and in our report dated March 8, 1999, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed statement of assets, liabilities and trust corpus as of December 31, 1998 is fairly stated, in all material respects, in relation to the statement of assets, liabilities and trust corpus from which it has been derived. DELOITTE & TOUCHE LLP October 29, 1999 -3- PERMIAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS - ------------------------------------------------------------------------------------ September 30, December 31, ASSETS 1999 1998 (Unaudited) Cash and short-term investments $ 2,227,400 $ 525,193 Net overriding royalty interests in producing oil and gas properties (net of accumulated amortization of $7,964,508 and $7,638,633 at September 30, 1999 and December 31, 1998, respectively) 3,010,708 3,336,583 --------- --------- $ 5,238,108 $ 3,861,776 ========= ========= LIABILITIES AND TRUST CORPUS Distribution payable to Unit holders $ 2,227,400 $ 525,193 Commitments and contingencies Trust corpus - 46,608,796 Units of beneficial interest authorized and outstanding 3,010,708 3,336,583 --------- --------- $ 5,238,108 $ 3,861,776 ========= ========= CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) - --------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ---------------------- --------------------------- 1999 1998 1999 1998 Royalty income $5,965,535 $2,406,272 $11,698,796 $9,258,812 Interest income 7,821 1,997 14,822 19,910 --------- --------- --------- --------- 5,973,356 2,408,269 11,713,618 9,278,722 General and administrative expenditures 48,635 50,890 308,975 323,892 --------- --------- --------- --------- Distributable income $5,924,721 $2,357,379 $11,404,643 $8,954,830 ========= ========= ========== ========= Distributable income per Unit (46,608,796 Units) $ .127115 $ .050578 $ .244688 $ .192128 ========== ========= ========== ========== <FN> The accompanying notes to condensed financial statements are an integral part of these statements. </FN> -4- PERMIAN BASIN ROYALTY TRUST CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED) - ---------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ----------------------------- 1999 1998 1999 1998 Trust corpus, beginning of period $ 3,137,915 $ 3,411,371 $ 3,336,583 $ 3,496,594 Amortization of net overriding royalty interests (127,207) (36,044) (325,875) (121,267) Distributable income 5,924,721 2,357,379 11,404,643 8,945,830 Distributions declared (5,924,721) (2,357,379) (11,404,643) (8,954,830) ---------- ---------- ----------- ---------- Trust corpus, end of period $ 3,010,708 $ 3,375,327 $ 3,010,708 $ 3,375,327 ========== ========== ========== ========== <FN> The accompanying notes to condensed financial statements are an integral part of this statement. </FN> -5- PERMIAN BASIN ROYALTY TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - --------------------------------------------------------------------- 1. BASIS OF ACCOUNTING The Permian Basin Royalty Trust ("Trust") was established as of November 1, 1980. The net overriding royalties conveyed to the Trust include: (1) a 75% net overriding royalty carved out of Southland Royalty Company's fee mineral interests in the Waddell ranch in Crane County, Texas (the "Waddell Ranch properties"); and (2) a 95% net overriding royalty carved out of Southland Royalty Company's major producing royalty interests in Texas (the "Texas Royalty properties"). The net overriding royalty for the Texas Royalty properties is subject to the provisions of the lease agreements under which such royalties were created. The financial statements of the Trust are prepared on the following basis: - Royalty income recorded for a month is the amount computed and paid to Bank of America, N.A. ("Trustee") as Trustee for the Trust by the interest owners: Burlington Resources Oil & Gas Company ("BROG") for the Waddell Ranch properties and Riverhill Energy Corporation ("Riverhill Energy"), formerly a wholly owned subsidiary of Riverhill Capital Corporation ("Riverhill Capital") and formerly an affiliate of Coastal Management Corporation ("CMC"), for the Texas Royalty properties. CMC currently conducts all field, technical and accounting operations on behalf of BROG with regard to the Waddell Ranch properties. CMC also conducts the accounting operations for the Texas Royalty properties on behalf of Riverhill Energy. Royalty income consists of the amounts received by the owners of the interest burdened by the net overriding royalty interests ("Royalties") from the sale of production less accrued production costs, development and drilling costs, applicable taxes, operating charges, and other costs and deductions multiplied by 75% in the case of the Waddell Ranch properties and 95% in the case of the Texas Royalty properties. As was previously reported, in February 1997, BROG sold its interest in the Texas Royalty properties to Riverhill Energy. The Trustee has been advised that in the first quarter of 1998, Schlumberger Technology Corporation ("Schlumberger") acquired all of the shares of stock of Riverhill Capital. Prior to such acquisition by Schlumberger, CMC and Riverhill Energy were wholly owned subsidiaries of Riverhill Capital. The Trustee has further been advised that in connection with Schlumberger's acquisition of Riverhill Capital, the shareholders of Riverhill Capital acquired ownership of all of the shares of stock of Riverhill Energy. Thus, the ownership in the Texas Royalty properties referenced above remained in Riverhill Energy, the stock ownership of which was acquired by the former shareholders of Riverhill Capital. - Trust expenses recorded are based on liabilities paid and cash reserves established out of cash received or borrowed funds for liabilities and contingencies. - Distributions to Unit holders are recorded when declared by the Trustee. - Royalty income is computed separately for each of the conveyances under which the Royalties were conveyed to the Trust. If monthly costs exceed revenues for any conveyance ("excess costs"), such excess cannot reduce royalty income from other conveyances, but is carried forward with accrued interest to be recovered from future net proceeds of that conveyance (see Note 3). The financial statements of the Trust differ from financial statements prepared in accordance with generally accepted accounting principles ("GAAP") because revenues are not accrued in the month of production and certain cash reserves may be established for contingencies which would not be accrued -6- in financial statements prepared in accordance with GAAP. Amortization of the Royalties calculated on a unit-of-production basis is charged directly to trust corpus. On July 5, 1999, NationsBank, N.A., Trustee of the Permian Basin Royalty Trust, legally changed its name to Bank of America, N.A. On July 23, 1999, Bank of America, N.A. (formerly known as NationsBank, N.A.) was merged with and into Bank of America NT&SA, with the resulting entity being called Bank of America, N.A. As a result, immediately following the close of business on July 23, 1999, the remaining legal entity was Bank of America, N.A. As a result of such merger, the Trustee of the Trust is Bank of America, N.A., successor by merger to NationsBank, N.A. 2. FEDERAL INCOME TAXES For Federal income tax purposes, the Trust constitutes a fixed investment trust which is taxed as a grantor trust. A grantor trust is not subject to tax at the trust level. The Unit holders are considered to own the Trust's income and principal as though no trust were in existence. The income of the Trust is deemed to have been received or accrued by each Unit holder at the time such income is received or accrued by the Trust and not when distributed by the Trust. The Royalties constitute "economic interests" in oil and gas properties for Federal income tax purposes. Unit holders must report their share of the revenues of the Trust as ordinary income from oil and gas royalties and are entitled to claim depletion with respect to such income. The Trust has on file technical advice memoranda confirming the tax treatment described above. The classification of the Trust's income for purposes of the passive loss rules may be important to a Unit holder. As a result of the Tax Reform Act of 1986, royalty income will generally be treated as portfolio income and will not offset passive losses. 3. EXCESS COSTS In the calculation of royalty income for the months of June through December 1998, costs exceeded revenues for the Waddell Ranch properties underlying the Waddell Ranch Net Overriding Royalty Conveyance by $1,218,732. Such excess costs were recovered from net proceeds of the underlying Waddell Ranch properties during the first quarter of 1999 and these properties are again contributing Trust royalty income. 4. SUSPENSE PAYMENTS During the month of September 1998, the Trust received and recorded as royalty income $1,041,340 representing amounts that the Trust had been advised had been previously held in suspense by BROG relating to the Texas Royalty properties. The Trustee had been advised that these amounts related to revenues received by BROG prior to conveyance of its interest in the Texas Royalty properties to Riverhill Energy in February 1998. This amount was included in the October 15, 1998 distribution to Unit holders of record on September 30, 1998. Subsequently, Riverhill Energy advised the Trustee that an overpayment to the Trust was made in September 1998 with regard to such suspended funds in the amount of $521,183. Pursuant to the provisions of the Texas Royalty Net Overriding Conveyance dated effective November 1, 1980, Riverhill Energy had offset the overpayment against royalty income attributable to the Texas Royalty properties for the month of October 1998 leaving a net amount due as a result of such overpayment of $172,648. Such amount was recovered from future net proceeds attributable to the underlying Texas Royalty properties before these properties could again contribute to the Trust royalty income. ****** -7- ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS FORWARD LOOKING INFORMATION Certain information included in this report contains, and other materials filed or to be filed by the Trust with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Trust) may contain or include, forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such forward looking statements may be or may concern, among other things, capital expenditures, drilling activity, development activities, production efforts and volumes, hydrocarbon prices and the results thereof, and regulatory matters. Although the Trustee believes that the expectations reflected in such forward-looking statements are reasonable, such expectations are subject to numerous risks and uncertainties and the Trustee can give no assurance that they will prove correct. There are many factors, none of which is within the Trustee's control, that may cause such expectations not to be realized, including, among other things, factors such as actual oil and gas prices and the recoverability of reserves, capital expenditures, general economic conditions, actions and policies of petroleum-producing nations and other changes in the domestic and international energy markets. Such forward looking statements generally are accompanied by words such as "estimate," "expect," "predict," "anticipate," "goal," "should," "assume," "believe," or other words that convey the uncertainty of future events or outcomes. YEAR 2000 ISSUE Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by the Year 2000. The Year 2000 issue affects virtually all companies and organizations. If a company or organization does not successfully address its Year 2000 issues, it may face material adverse consequences. As the Trust does not directly maintain any systems, the Trust will not incur any direct costs related to the Year 2000 issue. The Trustee has identified those vendors it believes could have an impact on its day-to-day operations if their operations were interrupted as a result of Year 2000 problems. The Trustee has made formal inquiries to these vendors requesting information on their state of readiness for the Year 2000. Through responses received and other literature reviewed by the Trustee with respect to its vendors, the Trustee believes that all significant vendors are currently addressing the Year 2000 issue and plan to be compliant prior to the Year 2000. The Trustee has no reason to believe that its vendors will not be Year 2000 compliant prior to Year 2000. In the event the Trustee learns that a vendor's system will not be Year 2000 compliant, the Trustee will assess the potential risk and develop contingency plans at that time. The Trust is a passive entity with no business operations and the information technology systems ("IT") employed by the Trustee in connection with its duties on behalf of the Trust are less extensive than the systems employed by many business entities. The Trust has no formal IT budget and the Trust has not incurred any expenditures relating to the Trustee's IT systems used in connection with the Trust during 1999. -8- Because the royalty interests held by the Trust are fixed, the Trust is dependent upon the third parties that hold operating interests with respect thereto for the receipt of royalty income. Thus, if any such third party failed to deliver royalty income, the Trust would have no alternative source for such income. The Trustee believes that the worst case scenario would be the failure by one or more of the third parties who pay royalties to the Trust or who make distributions to Unit holders for the Trust to identify and remediate Year 2000 problems on a timely basis, which could cause the Trustee to be unable to make required distributions to Unit holders. With respect to a failure by a third party to deliver royalty income or make distributions to Unit holders on a timely basis, the Trustee believes that it would have no control over the efforts of such third party to correct the problems, and significant delays in the receipt of royalty income and distributions to Unit holders could result. There can be no guarantee that the Trustee will be able to identify all potential Year 2000 problems or fully remediate all Year 2000 problems identified on a timely basis. There can be no assurance that the systems of the Trustee or third party vendors on which the Trust relies will be timely remediated. The failure by the Trustee or any such third party to fully remediate its Year 2000 problems on a timely basis could have a material adverse affect on the Trustee's ability to receive revenue, account for and make timely distribution of the Trust's distributable income. Certain of the statements made above regarding the Trustee's Year 2000 program are forward looking statements, and there can be no assurance that the Trustee will be able to achieve Year 2000 compliance in the manner and by the dates indicated above. THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 For the quarter ended September 30, 1999, royalty income received by the Trust amounted to $5,965,535 compared to royalty income of $2,406,272 during the third quarter of 1998. The increase in royalty income is primarily attributable to an increase in average oil and gas prices as well as a decrease in allocated capital expenditures compared to the third quarter of 1998. In the calculation of royalty income for the months of July through September 1998, costs exceeded revenues for the Waddell Ranch properties underlying the Waddell Ranch Net Overriding Royalty Conveyance by $512,498. Such excess costs were recovered from net proceeds of the underlying Waddell Ranch properties during the first quarter of 1999 and these properties are again contributing trust royalty income. During the month of September 1998, the Trust received and recorded as royalty income $1,041,340 representing amounts that the Trustee had been advised had been previously held in suspense by BROG relating to the Texas Royalty properties. The Trustee had been advised that these amounts related to revenues received by BROG prior to the conveyance of its interest in the Texas Royalty properties to Riverhill Energy in February 1997. This amount was included in the October 15, 1998 distribution to Unit holders of record on September 30, 1998. Subsequently, Riverhill Energy advised the Trustee that an overpayment to the Trust was made in September 1998 with regard to such suspended funds in the amount of $521,183. Pursuant to the provisions of the Texas Royalty Net Overriding Conveyance dated effective November 1, 1980, Riverhill Energy had offset such overpayment against royalty income attributable to the Texas Royalty properties for the month of October 1998 leaving a net amount due as a result of such overpayment of $172,648. Such amount was recovered from future net proceeds attributable to the underlying Texas Royalty properties before such properties could again contribute to the Trust royalty income. Interest income for the quarter ended September 30, 1999, was $7,821, compared to $1,997 during the third quarter of 1998. The increase in interest income is primarily attributable to an increase in funds available for investment. General and administrative expenses during the third quarter of 1999 amounted to $48,635, compared to $50,890 during the third quarter of 1998. The decrease in general and administrative expenses can be primarily attributed to timing differences in the receipt and payment of these expenses. -9- These transactions resulted in distributable income for the quarter ended September 30, 1999, of $5,924,721 or $.127115 per Unit of beneficial interest. Distributions of $.041629, $.037697 and $.047789 per Unit were made to Unit holders of record as of July 30, August 31 and September 30, 1999, respectively. For the third quarter of 1998, distributable income was $2,357,379 or $.050578 per Unit of beneficial interest. Royalty income for the Trust for the third quarter of the calendar year is associated with actual oil and gas production for the period May through July 1999 from the properties from which the Trust's net overriding royalty interests ("Royalties") were carved. Oil and gas sales attributable to the Royalties and the properties from which the Royalties were carved are as follows: Third Quarter ------------------------- 1999 1998 ROYALTIES: Oil sales (Bbls) 247,834 97,557 Gas sales (Mcf) 1,007,978 198,019 PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED: Oil: Total oil sales (Bbls) 410,051 501,903 Average per day (Bbls) 4,457 5,455 Average price per Bbl $16.14 $11.26 Gas: Total gas sales (Mcf) 1,749,773 1,886,462 Average per day (Mcf) 19,019 20,505 Average price per Mcf $ 2.18 $ 2.03 The posted price of oil increased to an average price per barrel of $16.14 in the third quarter of 1999, compared to $11.26 in the third quarter of 1998. The Trustee has been advised by BROG that for the period August 1, 1993, through September 30, 1999, the oil from the Waddell Ranch properties was being sold under a competitive bid to a third party. The increase in the average price of gas from $2.03 in the third quarter of 1998 to $2.18 in the third quarter of 1999 is primarily attributable to an increase in the spot prices of natural gas. Since the oil and gas sales attributable to the Royalties are based on an allocation formula that is dependent on such factors as price and cost (including capital expenditures), the production amounts in the Royalties section of the above table do not provide a meaningful comparison. The oil and gas sales from the properties from which the Royalties are carved decreased slightly for the applicable period in 1999 compared to 1998. Capital expenditures for drilling, remedial and maintenance activities on the Waddell Ranch properties during the third quarter of 1999 totaled $60,000 as compared to $4.5 million for the third quarter of 1998. BROG has informed the Trustee that the 1999 capital expenditures budget has been revised to $1.318 million for the Waddell Ranch. The total amount of capital expenditures for 1998 was $15.9 million. Through the third quarter of 1999, capital expenditures of $577,000 have been expended. The Trustee has been advised that there were no wells completed or in progress during the three months ended September 30, 1999 on the Waddell Ranch properties. For the three months ended September 30, 1998, there were 9 gross (3.875 net) wells completed and there were 11 gross (5.125 net) wells in progress. Lease operating expense and property taxes totaled $2.3 million for the third quarter of 1999, compared to $3.9 million in the third quarter of 1998 on the Waddell Ranch properties. This decrease is primarily attributable to more efficient field operations on the Waddell Ranch properties. -10- NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 For the nine months ended September 30, 1999, royalty income received by the Trust amounted to $11,698,796 compared to royalty income of $9,258,812 for the nine months ended September 30, 1998. The increase in royalty income is primarily attributable to an increase in oil and gas prices during the months of April through October 1999, as well as a decrease in allocated capital expenditures in the first nine months of 1999. In the calculation of royalty income for the months of June through September 1998, costs exceeded revenues for the Waddell Ranch properties underlying the Waddell Ranch Net Overriding Royalty Conveyance by $908,510. Such excess costs were recovered from net proceeds of the underlying Waddell Ranch properties during the first quarter of 1999 and these properties are again contributing Trust royalty income. Included in the distributable income for March 1998 was approximately $1.1 million which represented the Trust's portion of an approximate $1.5 million severance tax refund received from the State of Texas by BROG, operator of record of the Waddell Ranch properties in Crane County, Texas. During the month of September 1998, the Trust received and recorded as royalty income $1,041,340 representing amounts that the Trustee had been advised had been previously held in suspense by BROG relating to the Texas Royalty properties. The Trustee had been advised that these amounts related to revenues received by BROG prior to conveyance of its interest in the Texas Royalty properties to Riverhill Energy in February 1997. This amount was included in the October 15, 1998 distribution to Unit holders of record on September 30, 1998. Subsequently, Riverhill Energy advised the Trustee that an overpayment to the Trust was made in September 1998 with regard to such suspended funds in the amount of $521,183. Pursuant to the provisions of the Texas Royalty Net Overriding Conveyance dated effective November 1, 1980, Riverhill Energy had offset the overpayment against royalty income attributable to the Texas Royalty properties for the month of October 1998 leaving a net amount due as a result of such overpayment of $172,648. Such amount was recovered from future net proceeds attributable to the underlying Texas Royalty properties before these properties could again contribute to the Trust royalty income. Interest income for the nine months ended September 30, 1999 was $14,822 compared to $19,910 during the nine months ended September 30, 1998. The decrease in interest income is attributable primarily to a decrease in funds available for investment. General and administrative expenses for the nine months ended September 30, 1999 were $308,975. During the nine months ended September 30, 1998, general and administrative expenses were $323,892. The decrease in general and administrative expenses is primarily attributable to timing differences in the receipt and payment of these expenses. These transactions resulted in distributable income for the nine months ended September 30, 1999 of $11,404,643 or $.244688 per Unit. For the nine months ended September 30, 1998, distributable income was $8,954,830 or $.192128 per Unit. -11- Royalty income for the Trust for the period ended September 30, 1999 is associated with actual oil and gas production for the period November 1998 through July 1999 from the properties from which the Royalties were carved. Oil and gas production attributable to the Royalties and the properties from which the Royalties were carved are as follows: First Nine Months ------------------------- 1999 1998 ROYALTIES: Oil sales (Bbls) 601,755 352,147 Gas sales (Mcf) 2,263,601 1,213,613 PROPERTIES FROM WHICH THE ROYALTIES WERE CARVED: Oil: Total oil sales (Bbls) 1,295,313 1,405,613 Average per day (Bbls) 4,745 5,149 Average price per Bbl $12.48 $13.23 Gas: Total gas sales (Mcf) 5,283,780 5,425,012 Average per day (Mcf) 19,355 19,872 Average price per Mcf $ 1.90 $ 2.22 The average price of oil decreased during the nine months ended September 30, 1999, compared to the same period in 1998, $12.48 per barrel as compared to $13.23 per barrel. The decrease in the average price of oil is primarily attributable to decreases in the posted price for oil during the first quarter of 1999. The decrease in the average price of gas from $2.22 per Mcf for the nine months ended September 30, 1998 to $1.90 per Mcf for the nine months ended September 30, 1999 is primarily attributable to a decrease in the spot prices of natural gas. Since the oil and gas sales attributable to the Royalties are based on an allocation formula that is dependent on such factors as price and cost (including capital expenditures), the production amounts in the Royalties section of the above table do not provide a meaningful comparison. The oil and gas sales from the properties from which the Royalties are carved decreased slightly for the applicable period of 1999 compared to 1998. The Trustee has been advised that 15 gross (6.51 net) productive oil wells on the Waddell Ranch properties were drilled and completed during the nine months ended September 30, 1999, and that 45 gross (17.495 net) productive oil wells on the Waddell Ranch properties were drilled and completed during the nine months ended September 30, 1998. Capital expenditures for the Waddell Ranch properties for the nine months ended September 30, 1999 totaled $577,000 compared to $12 million for the same period in 1998. BROG has previously advised the Trustee that the 1999 capital expenditures budget for the Waddell Ranch properties has been revised to $1.318 million. The total amount of capital expenditures for 1998 was $15.9 million. Lease operating expense and property taxes totaled $7.7 million in 1999 compared to $10.5 million in 1998. The decrease in lease operating expense is primarily attributable to more efficient field operations on the Waddell Ranch properties. -12- CALCULATION OF ROYALTY INCOME The Trust's royalty income is computed as a percentage of the net profit from the operation of the properties in which the Trust owns net overriding royalty interests. These percentages of net profits are 75% and 95% in the case of the Waddell Ranch properties and the Texas Royalty properties, respectively. Royalty income received by the Trust for the three months ended September 30, 1999 and 1998 respectively, were computed as shown in the table below: Three Months Ended September 30, ----------------------------------------------------------- 1999 1998 -------------------------- ------------------------------ Waddell Texas Waddell Texas Ranch Royalty Ranch Royalty Properties Properties Properties Properties Gross proceeds of sales from properties from which the net overriding royalties were carved: Oil proceeds $5,154,870 $1,463,948 $4,404,427 $1,248,627 Gas proceeds 3,320,747 497,155 3,383,255 455,023 Other revenues (a) 1,096,157 ---------- --------- --------- --------- Total 8,475,617 1,961,103 7,787,682 2,799,807 ---------- --------- --------- --------- Less: Severance tax: Oil 175,363 49,343 133,024 45,800 Gas 124,283 25,620 139,310 25,965 Lease operating expense and property tax: Oil and gas 2,299,375 180,270 3,679,622 195,124 Capital expenditures 59,892 4,519,057 Other expense 23,427 --------- --------- --------- ------- Total 2,682,340 255,233 8,471,013 266,889 --------- --------- --------- ------- Net profits 5,793,277 1,705,870 (683,331) 2,532,918 Net overriding royalty interests 75% 95% 75% 95% --------- --------- -------- --------- 4,344,958 1,620,577 (512,498) 2,406,272 Less: excess cost over revenues (b) 512,498 --------- --------- --------- ---------- Royalty income $4,344,958 $1,620,577 $ $2,406,272 ========== ========== ========== ========== <FN> -13- (a) The Trustee has been advised that in September 1998, Riverhill Energy received $1,096,157 representing amounts that had been previously held in suspense by BROG relating to the Texas Royalty properties. The Trustee has been further advised that these amounts relate to revenues received by BROG prior to conveyance of its interest in the Texas Royalty properties to Riverhill Energy in February 1998. (b) In calculating Trust royalty income for the months of July through September 1998, costs exceeded revenues by $512,498 for the Waddell Ranch properties underlying the Waddell Ranch Net Overriding Royalty Conveyance, dated November 1, 1980. Excess costs from one conveyance cannot reduce royalty income computed under another conveyance. Such excess costs were recovered from net proceeds of the underlying Waddell Ranch properties during the first quarter of 1999 and these properties are again contributing trust royalty income. </FN> ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. -14- PART II - OTHER INFORMATION Items 1 through 4. Not applicable Item 5 Other Information The Trustee has received a copy of a Schedule 13D filed August 6, 1999 with the Securities and Exchange Commission and Amendment 1 to Schedule 13D filed October 5, 1999 with the Securities and Exchange Commission, on behalf of Alpine Capital L.P., a Texas limited partnership, Robert W. Bruce III, Algenpar, Inc., a Texas corporation, and J. Taylor Crandall. As previously reported, the above-referenced Schedule 13D reported Alpine Capital, L.P.'s ownership of 2,409,000 Units of Beneficial Interest of the Trust ("Units"), which constituted approximately 5.2% of the outstanding Units. The source of funds for such acquisition, $11,729,410.84, was reported to be working capital of Alpine Capital, L.P. It was further reported that Alpine Capital, L.P. acquired 347,200 of such Units between June 8, 1999 and August 6, 1999, in open market transactions on the New York Stock Exchange. Amendment 1 to Schedule 13D ("Amendment") referenced above amends such Schedule 13D to report the acquisition by Alpine Capital L.P. of an additional 509,700 Units between August 9, 1999 and October 1, 1999, in open market transactions on the New York Stock Exchange. The Amendment reported Alpine Capital, L.P.'s ownership of a total of 2,918,700 Units (2,409,000 Units which had been previously reported plus the 509,700 Units that had been acquired since the original filing of such Schedule 13D), which constitutes approximately 6.3% of the outstanding Units. The source of funds for such acquisition of the 2,918,700 Units, $14,536,788.27, was reported to be working capital of Alpine Capital, L.P. It was also reported that Alpine Capital, L.P., acting through its two general partners identified below, has the sole power to vote or to direct the vote and to dispose or to direct the disposition of such Units. It is reported that such Units were acquired and continue to be held for investment purposes. It is additionally reported in such Schedule 13D that Robert W. Bruce, III and Algenpar, Inc. are the two general partners of Alpine Capital, L.P. and that J. Taylor Crandall is the President and sole stockholder of Algenpar, Inc. and because of such relationships may be deemed to be beneficial owners of the Units acquired by Alpine Capital, L.P. As the general partners of Alpine Capital, L.P., it is reported that Robert W. Bruce, III and Algenpar, Inc. have shared power to vote or to direct the vote and to dispose or to direct the disposition of such Units. As the President and sole stockholder of Algenpar Inc., it is reported that J. Taylor Crandall has shared power to vote or to direct the vote and to dispose or to direct the disposition of such Units. The Trustee has also received a copy of a Schedule 13G filed July 12, 1999 with the Securities and Exchange Commission, on behalf of McMorgan & Company, an investment adviser registered under the Investment Advisers Act of 1940, Thomas Allan Morton, and Terry Allen O'Toole. Such Schedule 13G reports that McMorgan & Company, Thomas Allan Morton, and Terry Allen O'Toole have beneficial ownership of 5,000,000 Units or approximately 10.73% of the outstanding Units. It is reported that McMorgan & Company, Thomas Allan Morton, and Terry Allen O'Toole have sole voting and sole dispositive power with regard to such 5,000,000 Units. Messrs. Morton and O'Toole are filing in their capacities as control persons of McMorgan & Company and disclaim beneficial ownership to the Units involved in such Schedule 13G. -15- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (4)(a) Permian Basin Royalty Trust Indenture dated November 3, 1980, between Southland Royalty Company (now Burlington Resources Oil & Gas Company) and The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, heretofore filed as Exhibit (4)(a) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980 is incorporated herein by reference. (4)(b) Net Overriding Royalty Conveyance (Permian Basin Royalty Trust) from Southland Royalty Company (now Burlington Resources Oil & Gas Company) to The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(b) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980 is incorporated herein by reference. (4)(c) Net Overriding Royalty Conveyance (Permian Basin Royalty Trust - Waddell Ranch) from Southland Royalty Company (now Burlington Resources Oil & Gas Company) to The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(c) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980 is incorporated herein by reference. (27) Financial Data Schedule (b) Reports on Form 8-K During the quarter ended September 30, 1999, there was one report on Form 8-K filed by the Trust. In such Form 8-K, the Trustee reported that the Trustee legally changed its name from NationsBank, N.A. to Bank of America, N.A. On July 23, 1999, Bank of America, N.A. (formerly known as NationsBank, N.A.) merged with and into Bank of America NT&SA, with the resulting entity being called Bank of America, N.A. As a result, immediately following the close of business on July 23, 1999, the remaining legal entity is Bank of America, N.A. As a result of such merger, the Trustee of the Trust is Bank of America, N.A., successor by merger to NationsBank, N.A. -16- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. BANK OF AMERICA, N.A. TRUSTEE FOR THE PERMIAN BASIN ROYALTY TRUST By /s/ Eric F. Hyden ----------------------------- Eric F. Hyden Vice President Date: November 12, 1999 (The Trust has no directors or executive officers.) -17- INDEX TO EXHIBITS Sequentially Exhibit Numbered Number Exhibit Page (4)(a) Permian Basin Royalty Trust Indenture dated November 3, 1980, between Southland Royalty Company (now Burlington Resources Oil & Gas Company) and The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, heretofore filed as Exhibit (4)(a) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980 is incorporated herein by reference.* (b) Net Overriding Royalty Conveyance (Permian Basin Royalty Trust) from Southland Royalty Company (now Burlington Resources Oil & Gas Company) to The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(b) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980 is incorporated herein by reference.* (c) Net Overriding Royalty Conveyance (Permian Basin Royalty Trust - Waddell Ranch) from Southland Royalty Company (now Burlington Resources Oil & Gas Company) to The First National Bank of Fort Worth (now Bank of America, N.A.), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed as Exhibit (4)(c) to the Trust's Annual Report on Form 10-K to the Securities and Exchange Commission for the fiscal year ended December 31, 1980 is incorporated herein by reference. * (27) Financial Data Schedule ** * A copy of this Exhibit is available to any Unit holder, at the actual cost of reproduction, upon written request to the Trustee, Bank of America, N.A., P.O. Box 1317, Fort Worth, Texas 76101. ** Filed herewith.