1. The PCEC acquisition
On 16 May 2019, the general partner of Pacific Coast Energy Company ("PCEC", the Trust's operator) entered into a merger agreement that would see PCEC come under new management.
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On 4 October 2019 PricewaterhouseCoopers ("PwC") resigned as the Trust's auditor, telling Bank of New York Mellon ("BNY", the Trustee) that they were "unwilling to be associated with the Trust's financial statements in the future" and that this unwillingness stemmed from PCEC's change in ownership.
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On 13 November 2019, BNY noted to Unitholders that one of PCEC's new owners might have been an executive officer of ERG Intermediate Holdings, LLC, which had previously gone bankrupt. BNY did not say why a previous bankruptcy was relevant, but it is noteworthy that in the ERG bankruptcy, debtors alleged that the named executive had engaged in "massive transfers of corporate assets" and "mismanagement and self-dealing".
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Also on 13 November 2019, BNY disclosed that PCEC's new management intended to begin deducting "estimated future plugging and abandonment costs from the amounts otherwise payable to the Trust". This announcement was significant, because for seven years following the Trust's 2012 IPO, PCEC had not deducted such cost estimates from distributions to the Trust. Indeed, the Trust's final IPO prospectus, to which BNY was a party, represented to Unitholders that so-called Asset Retirement Obligations ("ARO") would not be deducted from distributions.​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​
In the table above, showing historical PCEC financials, note the two costs recorded for 2011: $29.901M for "Development costs" and $5.321M for "Asset retirement costs--development". In the table below, showing pro forma distributions to the Trust, note that the identical $29.901M appears but that the $5.321M is absent. In other words, the ARO was to stay with PCEC.
Consistent with the absence of any ARO amount in the pro forma distribution table, the pro forma balance sheet also showed the ARO remaining with PCEC:
​In its 13 November 2019 Form 8-K to Unitholders, BNY disclosed that PCEC's initial estimate of ARO deductions was $56.7M. The next day, Trust Units fell 77% in trading on the New York Stock Exchange. BNY has never explained why, if the Conveyance Agreement allows deductions for ARO, the IPO prospectus showed no ARO deductions from pro forma distributions to the Trust. ​