UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K/A

(Amendment No. 1)

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): October 13, 2020

 

 

SANDRIDGE PERMIAN TRUST

(Exact name of Registrant as specified in its charter)

 

 

Delaware   001-35274   45-6276683
(State or other jurisdiction of
incorporation or organization)
  (Commission
File Number)
  (I.R.S. Employer
Identification No.)

 

The Bank of New York Mellon Trust Company, N.A.

601 Travis Street, 16th Floor

Houston, Texas

77002
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (512) 236-6555

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

  

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

  

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-(b))

  

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

Explanatory Note

 

On October 14, 2020, SandRidge Permian Trust (the “Trust”) filed a Current Report on Form 8-K (the “Original Form 8-K”) that included, in a press release filed as an exhibit thereto and incorporated by reference into Item 8.01 thereof, information regarding the sale by Avalon Energy, LLC, the sponsor of the Trust, to Montare Resources I, LLC of assets associated with certain of Avalon’s interests in specified oil and natural gas properties located in Andrews County, Texas, unburdened by the applicable portion of the royalty interests held by the Trust, and the required release by the Trust of such portion of the royalty interests. The Trust is filing this amendment to the Original Form 8-K to report such release of a portion of the Trust’s royalty interests under Item 2.01.

 

ITEM 2.01. Completion of Acquisition or Disposition of Assets.

 

On October 13, 2020, Avalon Energy, LLC (“Avalon”) notified the Trust that on October 12, 2020, Avalon and Montare Resources I, LLC (“Montare”) entered into a Purchase and Sale Agreement, effective as of September 1, 2020, whereby Avalon sold wells and related assets associated with certain of its interests in specified oil and natural gas properties located in Andrews County, Texas (the “Underlying Properties”) to Montare, unburdened by the applicable portion of the royalty interests held by the Trust (the “Royalty Interests”), for approximately $4.9 million in accordance with Avalon’s contractual rights set forth in the Amended and Restated Trust Agreement governing the Trust (the “Trust Agreement”) and the conveyancing documents pursuant to which the Royalty Interests were conveyed to the Trust (the “Conveyances”) (the “Montare Sale”). Prior to the Montare Sale, Avalon engaged an independent petroleum engineering firm to determine the fair value of all wells burdened by Royalty Interests (the “Trust wells”). Avalon informed the Trust that Avalon then sold to Montare those Trust wells having a collective value of $4.9 million, leaving the 65 most valuable Trust wells burdened by Royalty Interests. The wells sold to Montare include 483 shut-in wells and 338 other wells with negative present value and 428 wells with positive present value. The Royalty Interests released by the Trust in connection with the Montare Sale represented approximately 32% of the fair value of the Royalty Interests at September 1, 2020, as determined by an appraisal prepared for Avalon by an independent petroleum engineering firm. The wells sold to Montare represented approximately 76% of production attributable to the Trust's Royalty Interests for the month ended August 31, 2020 (the most recent month for which production data is available). As required by the terms of the Trust Agreement, an officer of Avalon certified to the Trust that (i) the gross purchase price received by Avalon for the sale of the Underlying Properties was less than $5 million and (ii) the cash proceeds received by the Trust in respect of the Royalty Interests to be released in connection with such sale represents Fair Value (as defined in the Trust Agreement) to the Trust for such Royalty Interests. A copy of the independent petroleum engineering firm’s valuation report has been provided to the Trustee. The Montare Sale was completed on October 13, 2020, and all of the $4.9 million of proceeds that Avalon received from such sale have been paid to the Trust as fair value for the Royalty Interests required to be released by the Trustee in connection with the Montare Sale in accordance with Section 3.02 of the Trust Agreement. These proceeds will be distributed by the Trust, less any withholdings as determined by the Trustee, to Trust unitholders with the quarterly distribution, if any, for the three-month period ending December 31, 2020 (which primarily relates to production attributable to the Trust’s Royalty Interests from September 1, 2020 to November 30, 2020) in accordance with the terms of the Conveyances granting the Royalty Interests to the Trust. Such distribution is expected to occur in late February 2021.

 

The Trust is providing in this Current Report on Form 8-K pro forma financial information relating to the disposition of the Royalty Interests required to be released in connection with the Montare Sale. Such pro forma financial information is filed as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated by reference into this Item 2.01.

 

ITEM 8.01. Other Events.

 

On October 14, 2020, the Trust issued a press release with respect to (a) an unsolicited exchange offer made on October 13, 2020 by SRPT Acquisition, LLC, a wholly owned subsidiary of PEDEVCO Corp., and (b) the Montare Sale. A copy of the press release is attached as Exhibit 99.1 and incorporated herein by reference.

 

 

 

 

ITEM 9.01. Financial Statements and Exhibits.

 

(b) Pro Forma Financial Information.

 

Pro forma financial information as of September 30, 2020 and for the nine months ended September 30, 2020 and the year ended December 31, 2019, filed as Exhibit 99.2 to this Current Report on Form 8-K.

 

(d) Exhibits.

 

99.1*   Press Release dated October 14, 2020.
     
99.2   Pro Forma Financial Information.

 

 

*       Previously filed.

 

 

 

 

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.

 

  SANDRIDGE PERMIAN TRUST
     
  By: The Bank of New York Mellon Trust Company, N.A., as Trustee
     
    By:                      /s/    SARAH NEWELL
    Name:                  Sarah Newell
    Title:                    Vice President

 

Date: November 13, 2020

 

 

 

 

Exhibit 99.2

 

UNAUDITED PROFORMA FINANCIAL INFORMATION

 

SANDRIDGE PERMIAN TRUST

 

On October 13, 2020, Avalon Energy, LLC (“Avalon”) notified SandRidge Permian Trust (the “Trust”) that on October 12, 2020, Avalon and Montare Resources I, LLC (“Montare”) entered into a Purchase and Sale Agreement, effective as of September 1, 2020, whereby Avalon sold wells and related assets associated with certain of its interests in specified oil and natural gas properties located in Andrews County, Texas (the “Underlying Properties”) to Montare, unburdened by the applicable portion of the royalty interests held by the Trust (the “Royalty Interests”), for approximately $4.9 million in accordance with Avalon’s contractual rights set forth in the Amended and Restated Trust Agreement governing the Trust and the conveyancing documents pursuant to which the Royalty Interests were conveyed to the Trust (the “Conveyances”) (the “Montare Sale”).

 

The following unaudited proforma financial information reflects adjustments to the Trust’s historical financial results. The Trust financial statements differ from those prepared in accordance with accounting principles generally accepted in the United States (GAAP) as the Trust records revenues when cash is received (rather than when earned) and expenses when paid (rather than when incurred) and may also establish reserves for contingencies, which would not be accrued in financial statements prepared in accordance with GAAP. This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the United States Securities and Exchange Commission as specified by Staff Accounting Bulletin Topic 12: E, Financial Statements of Royalty Trusts. The unaudited proforma statement of assets and trust corpus at September 30, 2020 has been prepared with the assumption that the Montare Sale occurred effective September 30, 2020. The unaudited proforma statements of distributable income for the twelve months ended December 31, 2019 and the nine months ended September 30, 2020 have each been prepared with the assumption that the Montare Sale occurred effective January 1, 2019 (for production periods starting September 1, 2018).

 

The historical column in each of the unaudited proforma statement of assets and trust corpus and the unaudited proforma statements of distributable income reflect the Trust’s historical financial statements for the periods presented and do not reflect any adjustments related to the Montare Sale. Adjustments and estimates underlying the proforma adjustments column are described in the accompanying footnotes.

 

The unaudited proforma financial information does not purport to be indicative of the results of operations or the financial condition which would have actually resulted if the Montare Sale actually occurred on the dates presented or to project the Trust’s result of operations or financial position for any future period. The unaudited proforma financial information is not predictive of future results of operations or financial condition of the Trust, as the Trust’s future results of operation and financial condition may differ significantly from the proforma amounts reflected herein due to a variety of factors.

 

PROFORMA STATEMENTS OF ASSETS AND TRUST CORPUS (Unaudited)

(In thousands, except unit data)

 

    September 30,
2020
 
    Historical     Adjustment     Proforma  
ASSETS                  
Cash and cash equivalents (1)   $ 3,290     $ 4,874     $ 8,164  
Net investment in royalty interests (2)     15,304       (4,874 )     10,430  
Total assets   $ 18,594     $ ---     $ 18,594  
TRUST CORPUS                        
Trust corpus, 52,500,000 units issued and outstanding   $ 18,594     $ ---     $ 18,594  

 

(1) Cash from the Montare Sale will be distributed in the first quarter of 2021 in accordance with the terms of the Conveyances.
     
  (2) Book value of net investment in royalty interests was written down to fair value as of September 30, 2020.

 

 

 

 

STATEMENTS OF DISTRIBUTABLE INCOME (Unaudited)

(In thousands, except per unit data)

 

    Nine Months Ended
September 30, 2020
 
    Historical     Adjustments     Proforma  
Revenues                        
Royalty income (1)(2)   $ 6,956     $ (5,422 )   $ 1,534  
Total revenues     6,956       (5,422 )     1,534  
Expenses                        
Post-production expenses (2)     26       (21 )     5  
Production taxes (2)     334       (260 )     74  
Property taxes (3)     1,676       (534 )     1,142  
Franchise taxes     36             36  
Trust administrative expenses     1,462             1,462  
Cash reserves used for Trust expenses, net of amounts withheld     (1,443 )           (1,443 )
Total expenses     2,091       (815 )     1,276  
Distributable income available to unitholders   $ 4,865     $ (4,607 )   $ 258  
Distributable income per unit (52,500,000 units)   $ 0.092           $ 0.005  

 

    Twelve Months Ended
December 31, 2019
 
    Historical     Adjustments     Proforma  
Revenues                        
Royalty income (1)(2)   $ 22,442     $ (18,554 )   $ 3,888  
Total revenues     22,442       (18,554 )     3,888  
Expenses                        
Post-production expenses (2)     50       (42 )     8  
Production taxes (2)     1,061       (879 )     182  
Property taxes                  
Franchise taxes     47             47  
Trust administrative expenses     1,734             1,734  
Cash reserves withheld for Trust expenses, net of amounts used     2,261             2,261  
Total expenses     5,153       (921 )     4,232  
Distributable income available to unitholders   $ 17,289     $ (17,633 )   $ (344 )
Distributable income per unit (52,500,000 units)   $ 0.329           $ (0.007 )

 

(1) Total historical revenues for the seven calendar quarters from January 1, 2019 to September 30, 2020 were approximately $29.4 million. Total pro-forma revenues for the same period were approximately $5.4 million. Of the total difference in revenues of approximately $24.0 million, 41.7% is attributable to production declines resulting from mechanical and normal reservoir declines occurring prior to the Montare Sale.

 

(2) Pro forma adjustment based on actual, recorded royalty income and expenses associated with the royalty interests sold.
     
  (3) Pro forma adjustment based on decrease in fair value of the remaining properties in relation to the total fair value for the respective periods.