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):
November 1, 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 November 1, 2024,
Pacific Coast Oil Trust (the "Trust") issued a press release announcing the Trust's monthly net profits interest calculations. 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.
Exhibit 99.1 Pacific
Coast Oil Trust Press Release dated November 1, 2024.
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: November 1, 2024 | | By: |
/s/ Sarah Newell |
| | | |
Sarah Newell |
| | | |
Vice President |
Exhibit 99.1
Pacific Coast Oil
Trust
Pacific Coast Oil Trust Announces
Monthly Net Profits Interest Calculations
Pacific Coast
Oil Trust
The Bank of New York Mellon Trust
Company, N.A., Trustee
News
Release
For Immediate
Release
Houston, Texas
– November 1, 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 October 31, 2024 based on the Trust’s calculation of net profits generated during August 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.
On October 23, 2024, a severed employee of PCEC
filed a complaint, styled Brendan Potyondy v. Pacific Coast Energy Company, LP, in the U.S. District Court for the Central District
of California alleging that PCEC retaliated against him for engaging in protected whistleblowing activities in violation of federal and
state laws. The plaintiff alleges that he filed certain reports with several federal and state agencies alleging violations of law by
PCEC. Among the agencies plaintiff alleges to have contacted are the U.S. Securities and Exchange Commission (“SEC”), the
Occupational Safety and Health Administration (“OSHA”), the California Geologic Management Division, and the California Department
of Fish and Wildlife. In his complaint to the SEC, the plaintiff alleges, among other things, that PCEC had purposefully provided false
data to the Trustee and to the Trust’s independent registered public accounting firm regarding PCEC’s operations, including
the calculation of its asset retirement obligations. PCEC has represented to the Trustee that with the exception of a February 1, 2024
letter from OSHA acknowledging the receipt of safety and occupational complaints, PCEC has received no correspondence from any other government
agency regarding the alleged filings. PCEC has indicated to the Trustee that it maintains the plaintiff’s complaints are without
merit and that PCEC will defend against these allegations, is exploring potential counter claims and plans to seek reimbursement for all
legal costs and expenses in connection with the plaintiff’s complaint. The Trustee is reviewing the complaint and determining appropriate
next steps.
The Current Month’s
distribution calculation for the Developed Properties reflected operating income of approximately $1.5 million, as revenues from the
Developed Properties were approximately $3.3 million, lease operating expenses including property taxes were approximately $1.7 million,
and development costs were approximately $32,000. The average realized price for the Developed Properties was $75.31 per Boe for the
Current Month, as compared to $87.15 per Boe in July 2024 (the “Prior Month”). Net profits were approximately $1.2 million.
The cumulative net profits deficit for the Developed Properties decreased from approximately $18.4 million in the Prior Month to
$17.6 million in the Current Month, as further discussed below under “Update on Estimated Asset Retirement Obligations”.
The Current Month’s
calculation included approximately $69,000 from the 7.5% overriding royalty interest on the Remaining Properties from Orcutt Diatomite
and Orcutt Field. Average realized prices for the Remaining Properties were $73.41 per Boe for the Current Month, as compared to $77.71
per Boe for the Prior Month. The cumulative net profits deficit for the Remaining Properties decreased from approximately $79,000 in
the Prior Month to approximately $18,000 in the Current Month, as further discussed below under “Update on Estimated Asset Retirement
Obligations”.
The monthly operating
and services fee of approximately $113,000 payable to PCEC, together with Trust general and administrative expenses of approximately
$100,000, exceeded the payment of approximately $69,000 received from PCEC from the 7.5% overriding royalty interest on the Remaining
Properties, creating a shortfall of approximately $144,000.
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 | | |
| 1,404 | | |
$ | 75.31 | |
| Remaining Properties (b) | |
| 13,366 | | |
| 431 | | |
$ | 73.41 | |
| | |
| | | |
| | | |
| | |
| (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 $144,000 related to the Current Month.
As of the end of
the Current Month, the Trust owed PCEC approximately $8.8 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.
PCEC has informed
the Trustee that in the net profits calculation for the Current Month, PCEC has reflected upward adjustments in the ARO of approximately
$0.5 million for the Developed Properties ($0.4 million net to the Trust’s 80% net profits interest) and approximately $137,000
for the Remaining Properties ($34,000 net to the Trust’s 25% net profits interest) related to accumulated accretion on the ARO.
PCEC has informed the Trustee that it expects to continue to make these adjustments monthly going forward.
The net profits
deficit for the Developed Properties decreased from approximately $18.4 million in the Prior Month to approximately $17.6 million in
the Current Month, while the net profits deficit for the Remaining Properties decreased from approximately $79,000 in the Prior Month
to approximately $18,000 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, subject
to appropriate steps the Trustee will take in response to the whistleblower complaint against PCEC described above, 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, including as a result of appropriate steps the Trustee will take in response
to the whistleblower complaint against PCEC described above. 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, under the net profits interest
calculations for September 2023, which reflected PCEC legal fees paid through September 30, 2023. Through the end of the Current
Month, PCEC has further deducted a total of $2.1 million of PCEC legal fees, including adjustments, or approximately $2.9 million net
to the Trust’s 80% net profits interest, and a total of $1.8 million of the Trustee’s legal fees paid by PCEC in connection
with the Evergreen proceedings, or approximately $1.5 million net to the Trust’s 80% net profits interest. 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 for the Developed Properties.
The Trust has borrowed
funds from PCEC sufficient to pay the approximately $0.9 million of legal fees of the Trustee incurred in connection with the PCEC arbitration,
as well as approximately $59,000 representing the Trust’s share of the fees of the arbitration panel.
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 has borrowed
funds from PCEC sufficient to pay the approximately $0.3 million of legal fees of the Trustee incurred in connection with the proceedings
initiated by the Unitholder Petitioners, as well as approximately $42,000 representing the Trust’s share of court fees.
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 6,183 Bbls or (11%) for Orcutt in August 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, 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
Pacific Coast Oil (CE) (USOTC:ROYTL)
Historical Stock Chart
From Oct 2024 to Nov 2024
Pacific Coast Oil (CE) (USOTC:ROYTL)
Historical Stock Chart
From Nov 2023 to Nov 2024
