UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
July 31, 2024
Pacific Coast Oil Trust
(Exact name of registrant as specified in its charter)
| Delaware |
1-35532 |
80-6216242 |
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) |
|
The Bank of New York Mellon Trust Company, N.A.
601 Travis, Floor 16
Houston, Texas |
77002 |
| (Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including
area code: (512) 236-6555
Not applicable
(Former name or former address, 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. ¨
Item 2.02 Results of Operations and Financial Condition.
On July 31, 2024, Pacific Coast Oil Trust
issued a press release announcing there will be no distribution payable in July 2024. A copy of the press release is furnished as
Exhibit 99.1 hereto and is incorporated herein by reference.
Pursuant to General Instruction B.2 of Form 8-K
and Securities and Exchange Commission Release No. 33-8176, the press release attached as Exhibit 99.1 is not “filed”
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, is not subject to the liabilities of that section
and is not deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, but is instead furnished for purposes
of that instruction.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
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 hereunto duly authorized.
| | Pacific Coast Oil Trust |
| | | |
| By: | The Bank of New York Mellon Trust Company, N.A.,
as Trustee |
| | | |
| Date: July 31, 2024 | | By: |
/s/ Sarah Newell |
| | | |
Sarah Newell |
| | | |
Vice President |
Exhibit 99.1
Pacific Coast Oil Trust
Pacific Coast Oil Trust Announces There Will Be No July Cash
Distribution
Pacific Coast Oil Trust
The Bank of New York Mellon Trust Company, N.A., Trustee
News
Release
For Immediate Release
Houston, Texas – July 31, 2024 –
PACIFIC COAST OIL TRUST (OTC–ROYTL) (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 July 31,
2024 based on the Trust’s calculation of net profits generated during May 2024 (the “Current Month”) as provided
in the conveyance of net profits interests and overriding royalty interest (the “Conveyance”). As further described below
under “Update on Estimated Asset Retirement Obligations,” based on information from PCEC, any monthly payments that PCEC may
make to the Trust may not be sufficient to cover the Trust’s administrative expenses and outstanding debt to PCEC, and therefore
the likelihood of distributions to the unitholders in the foreseeable future is extremely remote. As further described below under “Status
of the Dissolution of the Trust,” because the annual cash proceeds received by the Trust from its net profits interests (the “Net
Profits Interests”) and 7.5% overriding royalty interest (the “Royalty Interest”) totaled less than $2.0 million
for each of 2020 and 2021, the amended and restated trust agreement governing the Trust (the “Trust Agreement”) provides that
the Trust is to be dissolved and wound-up. All financial and operational information in this press release has been provided to the Trustee
by PCEC.
The Current Month’s distribution calculation
for the Developed Properties reflected operating income of approximately $1.0 million, as revenues from the Developed Properties were
approximately $3.4 million, lease operating expenses including property taxes were approximately $2.4 million, and development costs were
approximately $42,000. The average realized price for the Developed Properties was $77.85 per Boe for the Current Month, as compared to
$83.05 per Boe in April 2024. Net profits were approximately $804 thousand. As a result of adjustments to the calculation of
PCEC and Trust legal fees included in the net profits interest calculation as further described below under “Status of the Dissolution
of the Trust—PCEC Arbitration”, the cumulative net profits deficit amount for the Developed Properties increased to approximately
$17.4 million from the $15.1 million net profits deficit in the prior month, as further discussed below under “Update on Estimated
Asset Retirement Obligations”.
As a result of adjustments to the calculation
of PCEC legal fees included in the net profits interest calculation as further described below under “Status of the Dissolution
of the Trust—PCEC Arbitration”, which resulted in the elimination of the remaining cumulative net profits deficit for the
Remaining Properties, the Trust received income from the 25% net profits interest instead of income from the 7.5% overriding royalty interest,
as provided under the Conveyance. Revenues from the Remaining Properties were approximately $1.0 million, lease operating expenses
including property taxes were approximately $620,000, and development costs were approximately $16,000. The average realized price for
the Remaining Properties was $75.95 per Boe for the Current Month, as compared to $80.86 per Boe in April 2024. Income from the net
profits interest for the Remaining Properties was approximately $75,000, which, after reflecting adjustments relating to an approximately
$513,000 credit for PCEC legal fees previously included in the net profits calculation for the Remaining Properties and after being offset
by the remaining and adjusted cumulative net profits deficit of approximately $508,000, resulted in a net amount of approximately $80,000
payable to the Trust.
The monthly operating and services fee of approximately
$113,000 payable to PCEC, together with Trust general and administrative expenses of approximately $150,000 exceeded the payment of approximately
$80,000 received from PCEC from the 25% net profits interest on the Remaining Properties, creating a shortfall of approximately $183,000.
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) | |
| 43,533 | | |
| 1,451 | | |
$ | 77.85 | |
| Remaining Properties (b) | |
| 13,276 | | |
| 443 | | |
$ | 75.95 | |
(a) Crude oil sales represented 98% of sales volumes
(b) Crude oil sales represented 100% of sales volumes
Update on Amounts Owed to PCEC by the Trust
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. As of March 31, 2021, the letter of credit has been fully drawn down. Further, the Trust
Agreement provides that if the Trust requires more than the $1 million under the letter of credit to pay administrative expenses, PCEC
will, upon written request of the Trustee, loan funds to the Trust in such amount as necessary to pay such expenses. Under the Trust Agreement,
the Trust may only use funds provided under the letter of credit or loaned by PCEC or another source to pay the Trust’s 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. As the Trust has fully drawn down the letter of credit, PCEC
has loaned funds to the Trust pursuant to a promissory note to pay shortfalls related to previous months and will be loaning funds to
the Trust to pay the expected shortfall of approximately $183,000 related to the Current Month.
As of the end of the Current Month, the Trust
owed PCEC approximately $6.5 million (which includes the amount drawn from the letter of credit, amounts borrowed under the promissory
note, and in each case, accrued interest).
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 $45,695,643, which is
approximately $10.0 million less than the undiscounted amount that was originally estimated before Moss Adams completed its analysis,
as previously disclosed in the Trust’s Current Report on Form 8-K filed on November 13, 2019. According to PCEC
and its third-party consultants, its estimated ARO, which reflected PCEC’s assessment of current market conditions as of December 31,
2019 and 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, or approximately $26.5 million and approximately $3.1 million net to the Trust, respectively, and
PCEC has reflected these amounts beginning with the calculation of the net profits generated during January 2020.
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 $5.1 million, net to the Trust’s interest, and an aggregate increase to the ARO accrual for the Remaining
Properties by approximately $288,000, net to the Trust’s interest. PCEC previously informed the Trustee that PCEC has recognized
additional asset retirement obligations for the year ended December 31, 2021, in the amount of approximately $1.2 million, of which
approximately $0.4 million relates to the Developed Properties, while approximately $0.8 million relates to the Remaining Properties.
Net to the Trust’s interests, this represents an upward ARO revision of approximately $0.3 million and approximately $0.2 million
for the Developed Properties and the Remaining Properties, respectively.
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 $13.7 million discounted to December 31, 2022, with a cumulative increase in the accretion for the first three
quarters of 2023 of approximately $1.0 million net to the Trust’s interests. The adjustment in the ARO values as of December 31,
2022, and accretion was recorded as a single adjustment during September for the calculated difference between the previously recorded
ARO values and the new value including accretion through September 2023. These adjustments were reflected in the net profits interest
calculations for September 2023.
After reflecting the adjustment to PCEC’s
legal fees and the deduction of the Trustee’s legal fees paid by PCEC in connection with the Evergreen proceedings as discussed
below in “Status of the Dissolution of the Trust—PCEC Arbitration,” the net profits deficit for the Developed Properties
increased from approximately $15.1 million for the prior month to approximately $17.4 million, while the net profits deficit for the Remaining
Properties, which was approximately $459,000 for the prior month, was eliminated in the Current Month. The net profits deficit must be
recouped from proceeds otherwise payable to the Trust from the Net Profits Interests. The Trust is not responsible for the payment of
the deficit, which will continue to be repaid out of the proceeds from the Net Profits Interests following the sale thereof in connection
with the dissolution of the Trust. Proceeds from such sale would be used to repay amounts drawn from the letter of credit and borrowed
from PCEC and to pay the expenses of the Trust, including any estimated future remaining expenses, with any remaining net proceeds to
be distributed to the Trust unitholders; sale proceeds will not be reflected in any monthly net profits interest calculation and therefore
would not be applied to repayment of any net profits deficit in existence at the time of such sale.
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, Martindale has completed its review of the estimated
ARO and on December 21, 2020, provided its analysis and recommendations to the Trustee. Based on Martindale’s recommendations
provided in its report to the Trust, as disclosed in the Trust’s Current Report on Form 8-K filed on December 29, 2020,
the Trustee requested that PCEC promptly make several adjustments to its calculations and methods of deducting ARO from the proceeds to
which the Trust is otherwise entitled pursuant to its Net Profits Interests. PCEC has responded to the Trustee, indicating PCEC’s
view that the adjustments would violate applicable contracts and accounting standards, and has therefore declined to make any adjustments
to the estimated ARO calculation based on those requests and the recommendations of the Martindale report. The Trustee has concluded that
it has taken all actions reasonably available to it under the Trust’s governing documents in connection with PCEC’s ARO calculation
and therefore has determined not to take further action at this time.
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 $2.0 million for each of any two consecutive calendar years. Because
of the cumulative net profits deficit—which PCEC contends is the result of the substantial reduction in commodity prices during
2020 due to the COVID-19 pandemic and PCEC’s deduction of estimated ARO beginning in the first quarter of 2020—the only cash
proceeds the Trust has received from March 2020 has been attributable to the Royalty Interest, other than the period from August 2022
through February 2023, when the net profits deficit with respect to the Remaining Properties had been eliminated. As a result, the
total proceeds received by the Trust in each of 2020 and 2021 were less than $2.0 million. Therefore, the Trust had been expected
to terminate by its terms at the end of 2021.
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 State of California for the County of Los Angeles (the “Court”).
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 California Superior Court confirmed that Partial Final Award.
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 December 31, 2023 and the reviews of the Trust’s quarterly financial statements for the years
2022, 2023 and 2024 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 $4.0 million of PCEC legal fees (plus approximately $0.4 million in interest),
or approximately $3.5 million net to the Trust’s 80% net profits interest, and approximately $1.8 million of PCEC legal fees (plus
approximately $159,000 in interest), or approximately $0.5 million net to the Trust’s 25% net profits interest, under the net profits
interest calculations for September 2023, which in each case reflected PCEC legal fees paid through September 30, 2023. Through
the end of the prior month, PCEC had further deducted a total of $0.3 million of PCEC legal fees, including adjustments, for the Developed
Properties, or approximately $0.2 million net to the Trust’s 80% net profits interest, and approximately $84,000 of PCEC legal fees,
including adjustments, for the Remaining Properties, or approximately $21,000 net to the Trust’s 25% net profits interest. PCEC
has informed the Trustee that the net profits interest calculation for the Developed Properties for the Current Month reflects the deduction
of approximately $1.8 million of the Trustee’s legal fees paid by PCEC in connection with the Evergreen proceedings, as permitted
by the Partial Final Award, or approximately $1.5 million net to the Trust’s 80% net profits interest. In addition, the Current
Month’s net profits interest calculations reflect a credit of approximately $513,000 for the Remaining Properties (net to the Trust’s
25% net profits interest), reflecting approximately $1.8 million of PCEC legal fees that should have been instead deducted from the
prior net profits interest calculations for the Developed Properties (consistent with the terms of the Partial Final Award), which, after
the corresponding deduction under the 80% net profits interest calculation, has resulted in an approximately $1.5 million increase in
the net profits deficit for the Developed Properties in the Current Month, while eliminating the cumulative net profits deficit for the
Remaining Properties. PCEC has indicated to the Trustee that PCEC continues to incur fees and expenses related to Evergreen’s appeal
of its loss in the litigation and arbitration and will continue to deduct those amounts under the monthly net profits interest calculation
as provided in the Conveyance, which could result in further increases to the net profits deficit. Meanwhile, the Trust expects to borrow
funds from PCEC sufficient to pay the legal fees of the Trustee incurred in connection with the PCEC arbitration.
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 Federal District Court having jurisdiction
in New Castle County, Delaware, upon the application of PCEC, any Trust unitholder, or the Trustee.
On September 11, 2023, PCEC filed a petition
with the Court of Chancery of the State of Delaware (the “Court”) seeking to appoint Province, LLC as successor trustee.
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 $100,000,000,
the Unitholder Petitioners requested that the Court modify the Trust Agreement to remove that requirement. Subsequently, the Unitholder
Petitioners elected not to proceed and filed a stipulated dismissal of their petition on October 17, 2023, which was signed by the
Court that day.
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 Orcutt, resulting in a decrease of 4,264 Bbls or (8%) for Orcutt in May 2024, as compared to December 2022,
the last full month of production prior to the termination of the Connection Agreement.
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 Orcutt in Santa Barbara, California, effective upon completion
of PCEC’s deliveries in December 2022. As a result of the cancellation, and the subsequent shutdown of the Santa Maria Refinery
on January 4, 2023, PCEC no longer has a pipeline interconnection between the Orcutt properties and the Santa Maria Refinery. This
pipeline was the sole means by which PCEC transported its crude oil from the Orcutt properties, which relates to approximately 86% and
91% of the production attributable to the Trust’s interests in 2021 and 2022, respectively.
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 Orcutt properties commencing on January 4,
2023, albeit at reduced volumes and with a higher differential compared to the terms previously achievable through the Phillips 66 Connection
Agreement. PCEC has confirmed to the Trustee that the short-term contract, which had been scheduled to expire at the end of 2023, has
been extended to April 30, 2024 and on a month-to-month basis thereafter. Termination of this contract could adversely affect PCEC’s
ability to transport oil from the Orcutt properties, as well as the revenues that may be payable to the Trust. PCEC continues to explore
alternative options for long-term transportation of oil from the Orcutt properties by other means.
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 https://royt.q4web.com/home/default.aspx.
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 Orcutt properties and the impact of an inability
to transport such oil on future payments to the Trust, expectations regarding PCEC’s ability to loan funds to the Trust, expectations
regarding future borrowing by the Trust and the impact such borrowing may have on any net proceeds available for distribution following
a sale of the Trust’s assets, future legal fees that may be deducted under the monthly net profits interest calculation, expectations
regarding the filing of the Trust’s comprehensive annual report on Form 10-K, statements regarding the expected winding down
of the Trust, 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 low commodity prices, which declined significantly
during 2020, could decline again and could remain low for an extended period of time as a result of a variety of factors that are beyond
the control of the Trust and PCEC. 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.
Contact:
Pacific Coast Oil Trust
The Bank of New York Mellon Trust Company,
N.A., as Trustee
Sarah Newell
1 (512) 236-6555
601 Travis Street, 16th Floor,
Houston, TX 77002
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