##### 



EXHIBIT 13 ANNUAL REPORT TO SHAREHOLDERS [COVER PAGE] [PERMIAN BASIN ROYALTY TRUST LOGO] PERMIAN BASIN ROYALTY TRUST ANNUAL REPORT & FORM 10-K 2004 [MAP OF COUNTIES IN TEXAS] TEXAS ROYALTY PROPERTIES ARE LOCATED IN 35 TEXAS COUNTIES.
WADDELL RANCH PROPERTIES ARE LOCATED IN CRANE COUNTY.




---



##### 



The Trust The Permian Basin Royalty Trusts (the Trust) principal assets are comprised of a 75% net
overriding royalty interest carved out by Southland Royalty Company (Southland) from its fee
mineral interest in the Waddell Ranch properties in Crane County, Texas (Waddell Ranch
properties), and a 95% net overriding royalty interest carved out by Southland from its major
producing royalty properties in Texas (Texas Royalty properties). The interests out of which the
Trusts net overriding royalty interests were carved were in all cases less than 100%. The Trusts
net overriding royalty interests represent burdens against the properties in favor of the Trust
without regard to ownership of the properties from which the overriding royalty interests were
carved. The net overriding royalties above are collectively referred to as the Royalties. The
properties and interests from which the Royalties were carved and which the Royalties now burden
are collectively referred to as the Underlying Properties. The Trust has been advised that effective January 1, 1996, Southland was merged with and into
Meridian Oil Inc. (Meridian), a Delaware corporation, with Meridian being the surviving
corporation. Meridian succeeded to the ownership of all the assets, has the rights, powers, and
privileges, and assumed all of the liabilities and obligations of Southland. Effective July 11,
1996, Meridian changed its name to Burlington Resources Oil & Gas Company, now Burlington Resources
Oil & Gas Company LP (BROG). Any reference to BROG hereafter for periods prior to the occurrence
of the aforementioned name change or merger should, as applicable, be construed to be a reference
to Meridian or Southland. Further, BROG notified the Trust that, on February 14, 1997, the Texas
Royalty properties that are subject to the Net Overriding Royalty Conveyance dated November 1, 1980
(Texas Royalty Conveyance), were sold to Riverhill Energy Corporation (Riverhill Energy) of
Midland, Texas. Units of Beneficial Interest Units of Beneficial Interest (Units) of the Trust are traded on the New York Stock Exchange
with the symbol PBT. Quarterly high and low sales prices and the aggregate amount of monthly
distributions paid each quarter during the Trusts two most recent years were as follows: Sales Price
    
    
    Distributions2004
    
    High
    
    
    Low
    
    
    PaidFirst Quarter
    
    $
    9.45
    
    
    $
    7.00
    
    
    $
    0.193657Second Quarter
    
    
    9.32
    
    
    
    7.80
    
    
    
    0.191053Third Quarter
    
    
    11.87
    
    
    
    9.01
    
    
    
    0.248159Fourth Quarter
    
    
    15.29
    
    
    
    11.06
    
    
    
    0.322889Total for 2004
    
    
    
    
    
    
    
    
    
    $
    0.955758
 1




---



##### 



Sales Price
    
    
    Distributions2003
    
    High
    
    
    Low
    
    
    PaidFirst Quarter
    
    $
    7.45
    
    
    $
    5.20
    
    
    $
    .145240Second Quarter
    
    
    7.50
    
    
    
    5.45
    
    
    
    .180761Third Quarter
    
    
    8.79
    
    
    
    7.13
    
    
    
    .185029Fourth Quarter
    
    
    8.47
    
    
    
    7.66
    
    
    
    .177963Total for 2003
    
    
    
    
    
    
    
    
    
    $
    .688993
 Approximately 1,656 Unit holders of record held the 46,608,796 Units of the Trust at December
31, 2004. The Trust has no equity compensation plans and has not repurchased any Units during the period
covered by this report. To Unit Holders We are pleased to present the twenty-fourth Annual Report of the Trust. The report includes a
copy of the Trusts Annual Report on Form 10-K to the Securities and Exchange Commission for the
year ended December 31, 2004, without exhibits. Both the report and accompanying Form 10-K contain
important information concerning the Trusts properties, including the oil and gas reserves
attributable to the Royalties owned by the Trust. Production figures, drilling activity and
certain other information included in this report have been provided to the Trust by BROG (formerly
Meridian and Southland) and Riverhill. As more particularly explained in the Notes to the Financial Statements appearing in this
report and in Item 1 of the accompanying Form 10-K, Bank of America, N.A., as Trustee, has the
primary function under the Trust Indenture of collecting the monthly net proceeds attributable to
the Royalties and making monthly distributions to the Unit holders, after deducting Trust
administrative expenses and any amounts necessary for cash reserves. Royalty income received by the Trustee for the year ended December 31, 2004, was $45,016,670
and interest income earned for the same period was $19,883. General and administrative expenses
amounted to $489,810. A total of $44,546,743 or .955758 per Unit, was distributed to Unit holders
during 2004. A discussion of factors affecting the distributions for 2004 may be found in the
Trustees Discussion and Analysis section of this report and the accompanying Form 10-K. As of December 31, 2004, the Trusts proved reserves were estimated at 7,108,000 Bbls of oil
and 27,785,000 Mcf of gas. The estimated future net revenues from proved reserves at December 31,
2004 amount to $424,965,000 or $9.12 per Unit. The present value of estimated future net revenues
discounted at 10% at December 31, 2004 2




---



##### 



was $237,193 or $5.09 per Unit. The computation of future net revenues is made following
guidelines prescribed by the Financial Accounting Standards Board (explained in Item 2 of the
accompanying Form 10-K) based on year-end prices and costs. As has been previously reported, Southland advised the Trust that it became operator of record
of the Waddell Ranch properties on May 1, 1991. Meridian, as successor by merger, became the
operator of record effective January 1, 1996. Meridian changed its name to Burlington Resources
Oil & Gas Company in 1996 and again to Burlington Resources Oil & Gas Company LP in 2000. All
field, technical and accounting operations, however, have been carried out by Schlumberger
Technology Corporation (STC) under the direction of BROG, and by Riverhill Capital Corporation
(Riverhill Capital). As was previously reported, in February 1997, BROG sold its interest in the Texas Royalty
properties that are subject to the Texas Royalty Conveyance to Riverhill Energy, which at the time
was a wholly-owned subsidiary of Riverhill Capital and an affiliate of CMC. Subsequently, the
Trustee was advised that STC acquired all of the shares of Riverhill Capital. The Trustee has been
advised that, as part of this transaction, ownership of Riverhill Energys interests in the Texas
Royalty properties referenced above remain in Riverhill Energy, which was owned by the former
shareholders of Riverhill Capital. Riverhill will continue to perform all accounting operations
pertaining to the Texas Royalty properties. Percentage depletion is allowed on proven properties acquired after October 11, 1990. For
Units acquired after such date, Unit holders would normally compute both percentage depletion and
cost depletion from each property, and claim the larger amount as a deduction on their income tax
returns. The Trustee and its accountants have estimated the cost depletion for January through
December 2004, and it appears that percentage depletion will exceed cost depletion for all Unit
holders. Royalty income is generally considered portfolio income under the passive loss rules.
Therefore, in general, it appears that Unit holders should not consider the taxable income from the
Trust to be passive income in determining net passive income or loss. Unit holders should consult
their tax advisors for further information. Unit holders of record will continue to receive an individualized tax information letter for
each of the quarters ending March 31, June 30 and September 30, 2005, and for the year ending
December 31, 2005. Unit holders owning Units in nominee name may obtain monthly tax information
from the Trustee upon request. Bank of America, N.A., TrusteeBy:
    
    /s/
Ron E. HooperRon E. HooperSenior Vice President
 3




---



##### 



Description of the Properties The net overriding royalty interests held by the Trust are carved out of high-quality
producing oil and gas properties located primarily in West Texas. A production index for oil and
gas properties is the number of years derived by dividing remaining reserves by current production.
The production index for the Trust properties based on the reserve report prepared by independent
petroleum engineers as of December 31, 2004, is approximately 8.7 years. The net profits/overriding royalty interest in the Waddell Ranch properties is the largest
asset of the Trust. The mineral interests in the Waddell Ranch, from which such net royalty
interests are carved vary from 37.5% (Trust net interest) to 50% (Trust net interest) in 76,922
gross acres and 33,246 net acres, containing 776 gross (345 net) productive oil wells, 197 gross
(93 net) productive gas wells and 318 gross (138 net) injection wells. Six major fields on the Waddell Ranch properties account for more than 90% of the total
production. In the six fields, there are 12 producing zones ranging in depth from 2,800 to 10,600
feet. Most prolific of these zones are the Grayburg and San Andres, which produce from depths
between 2,800 and 3,400 feet. Productive from the San Andres are the Sand Hills (Judkins) gas
field and the Sand Hills (McKnight) oil field, the Dune (Grayburg/San Andreas) oil field, and the
Waddell (Grayburg/San Andreas) oil field. The Dune and Waddell oil fields are productive from both the Grayburg and San Andres
formations. The Sand Hills (Tubb) oil fields produce from the Tubb formation at depths averaging
4,300 feet, and the University Waddell (Devonian) oil field is productive from the Devonian
formation between 8,400 and 9,200 feet. All of the major oil fields on the Waddell Ranch properties are currently being water flooded.
Engineering studies and 3-D seismic evaluations on these fields indicate the potential for
increased production through infill drilling, modifications of existing water flood techniques,
installation of larger capacity pumping equipment. Capital expenditures for remedial and
maintenance activities during 2004 totaled approximately $13.2 million. The Texas Royalty properties, out of which the other net overriding royalty was carved, are
located in 33 counties across Texas. The Texas Royalty properties consist of approximately 125
separate royalty interests containing approximately 303,000 gross (51,000 net) producing acres.
Approximately 41% of the future net revenues discounted at 10% attributable to Texas Royalty
properties are located in the Wasson and Yates fields. BROG has informed the Trustee that the 2005 capital expenditures budget with regard to the
Waddell Ranch properties should total approximately $14.3 million gross of which $3.5 million gross
is attributable to drilling, $9.7 million gross to workovers and recompletions, and $1.1 million
gross to facilities. 4




---



##### 



Computation of Royalty Income Received by the Trust 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. The percentages of net
profits are 75% and 95% in the cases of the Waddell Ranch properties and the Texas Royalty
properties, respectively. Royalty income received by the Trust for the five years ended December
31, 2004, was computed as shown in the table on the next page. 5




---



##### 



Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Waddell
    
    
    Texas
    
    
    Waddell
    
    
    Texas
    
    
    Waddell
    
    
    Texas
    
    
    Waddell
    
    
    Texas
    
    
    Waddell
    
    
    TexasGross Proceeds of Sales
    
    Ranch
    
    
    Royalty
    
    
    Ranch
    
    
    Royalty
    
    
    Ranch
    
    
    Royalty
    
    
    Ranch
    
    
    Royalty
    
    
    Ranch
    
    
    RoyaltyFrom the Underlying Properties:
    
    Properties
    
    
    Properties
    
    
    Properties
    
    
    Properties
    
    
    Properties
    
    
    Properties
    
    
    Properties
    
    
    Properties
    
    
    Properties
    
    
    PropertiesOil Proceeds
    
    $
    32,078,721
    
    
    $
    12,296,982
    
    
    $
    24,418,227
    
    
    $
    9,454,914
    
    
    $
    20,543,224
    
    
    $
    7,785,749
    
    
    $
    26,477,679
    
    
    $
    9,524,586
    
    
    $
    31,289,829
    
    
    $
    9,770,732Gas Proceeds
    
    
    28,746,318
    
    
    
    3,970,231
    
    
    
    25,255,338
    
    
    
    3,606,615
    
    
    
    14,861,094
    
    
    
    2,245,648
    
    
    
    26,068,379
    
    
    
    3,771,184
    
    
    
    18,342,926
    
    
    
    2,701,298Total
    
    
    60,825,039
    
    
    
    16,267,213
    
    
    
    49,673,565
    
    
    
    13,061,529
    
    
    
    35,404,318
    
    
    
    10,031,398
    
    
    
    52,546,058
    
    
    
    13,295,770
    
    
    
    49,632,755
    

    
    
    12,472,030Less:Severance TaxOil
    
    
    1,366,942
    
    
    
    457,308
    
    
    
    1,045,413
    
    
    
    350,440
    
    
    
    863,299
    
    
    
    302,665
    
    
    
    1,108,968
    
    
    
    374,204
    
    
    
    1,288,522
    
    
    
    373,643Gas
    
    
    1,702,937
    
    
    
    262,673
    
    
    
    1,632,642
    
    
    
    228,928
    
    
    
    813,581
    
    
    
    159,431
    
    
    
    1,160,095
    
    
    
    239,337
    
    
    
    1,189,617
    
    
    
    146,512Other
    
    
    42,763
    
    
    
    252,906
    
    
    
    26,850
    
    
    
    
    
    
    
    72,396
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,991
    
    
    
    Lease Operating Expense and Property TaxOil and Gas
    
    
    9,391,083
    
    
    
    894,383
    
    
    
    10,540,850
    
    
    
    823,331
    
    
    
    9,424,724
    
    
    
    933,646
    
    
    
    9,086,468
    
    
    
    605,125
    
    
    
    9,318,915
    
    
    
    442,523Other Payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000Capital Expenditures
    
    
    6,539,015
    
    
    
    
    
    
    
    7,734,224
    
    
    
    
    
    
    
    3,394,674
    
    
    
    0
    
    
    
    3,350,003
    
    
    
    
    
    
    
    4,606,227
    
    
    
    Total
    
    
    19,042,740
    
    
    
    1,867,270
    
    
    
    20,979,979
    
    
    
    1,402,699
    
    
    
    14,568,674
    
    
    
    1,395,742
    
    
    
    14,755,534
    
    
    
    1,218,666
    
    
    
    16,430,272
    
    
    
    962,678Net Profits
    
    
    41,782,299
    
    
    
    14,399,943
    
    
    
    28,693,586
    
    
    
    11,688,830
    
    
    
    20,835,643
    
    
    
    8,635,655
    
    
    
    37,790,525
    
    
    
    12,077,104
    
    
    
    33,202,483
    
    
    
    11,509,352Net Overriding Royalty Interest
    
    
    75
    %
    
    
    95
    %
    
    
    75
    %
    
    
    95
    %
    
    
    75
    %
    
    
    95
    %
    
    
    75
    %
    
    
    95
    %
    
    
    75
    %
    
    
    95
    %Royalty Income
    
    
    31,336,724
    
    
    
    13,679,946
    
    
    
    21,520,190
    
    
    
    11,075,888
    
    
    
    15,626,732
    
    
    
    8,203,872
    
    
    
    28,342,893
    
    
    
    11,473,248
    
    
    
    24,901,862
    
    
    
    10,933,884Total Royalty Income for Distribution
    
    $
    31,336,724
    
    
    $
    13,679,946
    
    
    $
    21,520,190
    
    
    $
    11,075,888
    
    
    $
    15,626,732
    
    
    $
    8,203,872
    
    
    $
    28,342,893
    
    
    $
    11,473,248
    
    
    
    24,901,862
    
    
    
    10,933,884
 6




---



##### 



Discussion and Analysis Trustees Discussion and Analysis for the Three-Year Period Ended December 31, 2004 Critical Accounting Policies and Estimates The trusts financial statements reflect the selection and application of accounting policies
that require the Trust to make significant estimates and assumptions. The following are some of
the more critical judgment areas in the application of accounting policies that currently affect
the Trusts financial condition and results of operations. 1. Revenue Recognition Revenues from Royalty Interests are recognized in the period in which amounts are received by
the Trust. Royalty income received by the Trust in a given calendar year will generally reflect
the proceeds from natural gas produced for the twelve-month period ended October 31st in
that calendar year. 2. Reserve Recognition Independent petroleum engineers estimate the net proved reserves attributable to the Royalty
Interests. In accordance with Statement of Financial Standards No. 69, Disclosures About Oil and
Gas Producing Activities, estimates of future net revenues from proved reserves have been prepared
using year-end contractual gas prices. The reserves actually recovered and the timing of
production may be substantially different from the reserve estimates. and related costs. Numerous
uncertainties are inherent in estimating volumes and the value of proved reserves and in projecting
future production rates and the timing of development of non-producing reserves. Such reserve
estimates are subject to change as market conditions change. Detailed information concerning the number of wells on royalty properties is not generally
available to the owner of royalty interests. Consequently, the Registrant does not have
information that would be disclosed by a company with oil and gas operations, such as an accurate
account of the number of wells located on its royalty properties, the number of exploratory or
development wells drilled on its royalty properties during the periods presented by this report, or
the number of wells in process or other present activities on its royalty properties, and the
Registrant cannot readily obtain such information. 3. Contingencies Contingencies related to the Underlying Properties that are unfavorably resolved would
generally be reflected by the Trust as reductions to future royalty income payments to the Trust
with corresponding reductions to cash distributions to Unitholders. 7




---



##### 



Liquidity and Capital Resources As stipulated in the Trust Agreement, the Trust is intended to be passive in nature and the
Trustee does not have any control over or any responsibility relating to the operation of the
Underlying Properties. The Trustee has powers to collect and distribute proceeds received by the
Trust and pay Trust liabilities and expenses and its actions have been limited to those activities.
The Trust is a passive entity and other than the Trusts ability to periodically borrow money as
necessary to pay expenses, liabilities and obligations of the Trust that cannot be paid out of cash
held by the Trust, the Trust is prohibited from engaging in borrowing transactions. As a result,
other than such borrowings, if any, the Trust has no source of liquidity or capital resources other
than the Royalties. Results of Operations Royalty income received by the Trust for the three-year period ended December 31, 2004, is
reported in the following table: Year Ended December 31,Royalties
    
    2004
    
    
    2003
    
    
    2002Total Revenue
    
    $
    45,016,670
    
    
    $
    32,596,081
    
    
    $
    23,830,604100%
    
    
    
    100%
    
    
    
    100%Oil Revenue
    
    
    27,180,560
    
    
    
    17,927,843
    
    
    
    15,013,28060%
    
    
    
    55%
    
    
    
    63%Gas Revenue
    
    
    17,836,110
    
    
    
    14,668,235
    
    
    
    8,817,32440%
    
    
    
    45%
    
    
    
    37%Total Revenue/Unit
    
    $
    .965841
    
    
    $
    .69935
    
    
    $
    .511289
 Royalty income of the Trust for the calendar year is associated with actual oil and gas
production for the period November of the prior year through October of the current year. Oil and
gas sales for 2004, 2003 and 2002 for the Royalties and the Underlying Properties, excluding
portions attributable to the adjustments discussed hereafter, are presented in the following table: Year Ended December 31,Royalties
    
    2004
    
    
    2003
    
    
    2002Oil Sales (Bbls)
    
    
    779,052
    
    
    
    699,402
    
    
    
    728,313Gas Sales (Mcf)
    
    
    3,245,117
    
    
    
    3,160,921
    
    
    
    3,192,175Underlying PropertiesOilTotal Oil Sales (Bbls)
    
    
    1,222,579
    
    
    
    1,200,844
    
    
    
    1,272,923Average Per Day (Bbls)
    
    
    3,340
    
    
    
    3,290
    
    
    
    3,489Average Price/Bbl
    
    $
    36.30
    
    
    $
    28.21
    
    
    $
    22.31GasTotal Gas Sales (Mcf)
    
    
    5,975,867
    
    
    
    6,243,956
    
    
    
    6,189,015Average Per Day (Mcf)
    
    
    16,328
    
    
    
    17,107
    
    
    
    16,956Average Price/Mcf
    
    $
    5.47
    
    
    $
    4.62
    
    
    $
    2.74
 8




---



##### 



The average price of oil increased to $36.30 per barrel in 2004, up from $28.21 per barrel in
2003. In addition, the average price of gas increased from $4.62 per Mcf in 2003 to $5.47 per Mcf
in 2004. 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), production
amounts do not necessarily provide a meaningful comparison. Total oil production increased
approximately 11% from 2003 to 2004 primarily due to higher oil prices compared to previous years.
Total gas sales increased approximately 2.7% from 2003 to 2004 primarily due to an increase in
capital expenditures for gas wells. Total capital expenditures in 2004 used in the net overriding royalty calculation were
approximately $6.5 million compared to $7.7 million in 2003
and $3.4 million in 2002. During 2004,
there were 4 gross (2 net) wells drilled and completed on the Waddell Ranch properties. At
December 31, 2004, there were no wells in progress on the Waddell Ranch properties. In 2004, lease operating expense and property taxes on the Waddell Ranch properties amounted
to approximately $9.4 million, which amount was lower than 2003 by $1.1 million. The Trustee has been advised by BROG that for the period August 1, 1993, through November 1,
2005, the oil from the Waddell Ranch was and will be sold under a competitive bid to a third party. During 2004, the monthly royalty receipts were invested by the Trustee in U.S. Treasury
securities until the monthly distribution date, and earned interest
totaled $19,883. Interest
income for 2003 and 2002 was $13,937 and $17,140, respectively. General and administrative expenses in 2004 were $489,810 compared to $496,890 in 2003 and
$432,338 in 2002. Distributable income for 2004 was $44,546,743, or $.955758 per Unit. Distributable income for 2003 was $32,113,125, or $.688993 per Unit. Distributable income for 2002 was $23,415,406, or $.502382 per Unit. 9




---



##### 



Results of the Fourth Quarters of 2004 and 2003 Royalty income received by the Trust for the fourth quarter of 2004 amounted to $15,117,305 or
$.367255 per Unit. For the fourth quarter of 2003, the Trust received royalty income of $8,351,183
or $.179176 per Unit. Interest income for the fourth quarter of 2004 amounted to $9,045 compared
to $3,535 for the fourth quarter of 2003. The increase in interest income can be attributed
primarily to an increase in funds available for investment. General and administrative expenses
totaled $76,881 for the fourth quarter of 2004 compared to $60,111 for the fourth quarter of 2003. Royalty income for the Trust for the fourth quarter is associated with actual oil and gas
production during August through October from the Underlying Properties. Oil and gas sales
attributable to the Royalties and the Underlying Properties for the quarter and the comparable
period for 2003 are as follows: Fourth Quarter2004
    
    
    2003RoyaltiesOil Sales (Bbls)
    
    
    222,843
    
    
    
    180,921Gas Sales (Mcf)
    
    
    994,151
    
    
    
    854,626Underlying PropertiesTotal Oil Sales (Bbls)
    
    
    322,871
    
    
    
    291,467Average Per Day (Bbls)
    
    
    3,509
    
    
    
    3,168Average Price/Bbls
    
    $
    43.87
    
    
    $
    27.03Total Gas Sales (Mcf)
    
    
    1,530,758
    
    
    
    1,562,380Average Per Day (Mcf)
    
    
    16,639
    
    
    
    16,982Average Price/Mcf
    
    $
    6.18
    
    
    $
    4.49
 The posted price of oil increased for the fourth quarter of 2004 compared to the fourth
quarter of 2003, resulting in an average price per barrel of $43.87 compared to $27.03 in the same
period of 2003. The average price of gas increased for the fourth quarter of 2004 compared to the
same period in 2003, resulting in an average price per Mcf of $6.18 compared to $4.49 in the fourth
quarter of 2003. The Trustee has been advised that oil sales increased in 2004 compared to the same period in
2003 primarily due to higher capital expenditures in 2004 offsetting natural production declines.
Gas sales from the Underlying Properties increased in the fourth quarter of 2004 compared to the
same period in 2003 due to the same factors. The Trust has been advised that no well was drilled and completed during the three months
ended December 31, 2004, and there were no wells in progress. 10




---



##### 



Off-Balance Sheet Arrangements. As stipulated in the Trust Agreement, the Trust is intended to be passive in nature and the
Trustee does not have any control over or any responsibility relating to the operation of the
Underlying Properties. The Trustee has powers to collect and distribute proceeds received by the
Trust and pay Trust liabilities and expenses and its actions have been limited to those activities.
Therefore, the Trust has not engaged in any off-balance sheet arrangements. Tabular Disclosure of Contractual Obligations.  Payments Due by PeriodContractual
    
    
    
    
    
    
    
    Less than 1
    
    
    
    1 - 3
    
    
    
    
    
    
    
    
    More thanObligations
    
    
    Total
    
    
    
    Year
    
    
    
    Years
    
    
    
    3-5 Years
    
    
    
    5 YearsDistribution
payable to Unit
holders
    
    
    $
    5,429,145
    
    
    
    $
    5,429,145
    
    
    
    
    0
    
    
    
    
    0
    
    
    
    
    0Total
    
    
    $
    5,429,145
    
    
    
    $
    5,429,145
    
    
    
    
    0
    
    
    
    
    0
    
    
    
    
    0
 11




---



##### 



PERMIAN BASIN ROYALTY TRUST
FINANCIAL STATEMENTS STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
DECEMBER 31, 2004 AND 2003 2004
    
    
    2003ASSETSCash and Short-term Investments
    
    $
    5,429,145
    
    
    $
    2,873,975Net Overriding Royalty Interests in Producing Oil and
Gas Properties - Net (Notes 2 and 3)
    
    
    1,795,267
    
    
    
    1,991,594$
    7,224,412
    
    
    $
    4,865,569LIABILITIES AND TRUST CORPUSDistribution Payable to Unit Holders
    
    $
    5,429,145
    
    
    $
    2,873,975Trust Corpus
 46,608,796 Units of Beneficial Interest
Authorized and Outstanding
    
    
    1,795,267
    
    
    
    1,991,594$
    7,224,412
    
    
    $
    4,865,569
 STATEMENTS OF DISTRIBUTABLE INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 2004 2004
    
    
    2003
    
    
    2002Royalty Income (Notes 2 and 3)
    
    $
    45,016,670
    
    
    $
    32,596,078
    
    
    $
    23,830,604Interest Income
    
    
    19,883
    
    
    
    13,937
    
    
    
    17,14045,036,553
    
    
    
    32,610,015
    
    
    
    23,847,744Expenditures  General and
Administrative
    
    
    489,810
    
    
    
    496,890
    
    
    
    432,338Distributable Income
    
    $
    44,546,743
    
    
    $
    32,113,125
    
    
    $
    23,415,406Distributable Income per Unit
(46,608,796 Units)
    
    $
    .955758
    
    
    $
    .688993
    
    
    $
    .502382
 12




---



##### 



STATEMENTS OF CHANGES IN TRUST CORPUS
FOR THE THREE YEARS ENDED DECEMBER 31, 2004 2004
    
    
    2003
    
    
    2002Trust Corpus, Beginning of Period
    
    $
    1,991,594
    
    
    $
    2,172,393
    
    
    $
    2,371,187Amortization of Net Overriding
Royalty Interests
(Notes 2 and 3)
    
    
    (196,327
    )
    
    
    (180,799
    )
    
    
    (198,794
    )Distributable Income
    
    
    44,546,743
    
    
    
    32,113,125
    
    
    
    23,415,406Distributions Declared
    
    
    (44,546,743
    )
    
    
    (32,113,125
    )
    
    
    (23,415,406
    )Trust Corpus, End of Period
    
    $
    1,795,267
    
    
    $
    1,991,594
    
    
    $
    2,172,393
 The accompanying notes to financial statements are an integral part of these statements. 13




---



##### 



NOTES TO FINANCIAL STATEMENTS 1. Trust Organization and Provisions The Permian Basin Royalty Trust (Trust) was established as of November 1, 1980. Bank of
America, N.A. (Trustee) is Trustee for the Trust. Southland Royalty Company (Southland)
conveyed to the Trust (1) a 75% net overriding royalty in Southlands fee mineral interest in the
Waddell Ranch in Crane County, Texas (Waddell Ranch properties) and (2) a 95% net overriding
royalty carved out of Southlands major producing royalty properties in Texas (Texas Royalty
properties). The net overriding royalties above are collectively referred to as the Royalties. On November 3, 1980, Units of Beneficial Interest (Units) in the Trust were distributed to
the Trustee for the benefit of Southland shareholders of record as of November 3, 1980, who
received one Unit in the Trust for each share of Southland common stock held. The Units are traded
on the New York Stock Exchange. The terms of the Trust Indenture provide, among other things, that:  
    the Trust shall not engage in any business or commercial activity of any kind or
acquire any assets other than those initially conveyed to the Trust;
    the Trustee may not sell all or any part of the Royalties unless approved by
holders of 75% of all Units outstanding in which case the sale must be for cash and
the proceeds promptly distributed;
    the Trustee may establish a cash reserve for the payment of any liability which is
contingent or uncertain in amount;
    the Trustee is authorized to borrow funds to pay liabilities of the Trust; and
    the Trustee will make monthly cash distributions to Unit holders (see Note 2). 2. Net Overriding Royalty Interests and Distribution to Unit Holders The amounts to be distributed to Unit holders (Monthly Distribution Amounts) are determined
on a monthly basis. The Monthly Distribution Amount is an amount equal to the sum of cash received
by the Trustee during a calendar month attributable to the Royalties, any reduction in cash
reserves and any other cash receipts of the Trust, including interest, reduced by the sum of
liabilities paid and any increase in cash reserves. If the Monthly Distribution Amount for any
monthly period is a negative number, then the distribution will be zero for such month. To the
extent the distribution amount is a negative number, that amount will be carried forward and
deducted from future monthly distributions until the cumulative distribution calculation becomes a
positive number, at which time a distribution will be made. Unit holders of record will be
entitled to receive the calculated Monthly Distribution Amount for each month on or 14




---



##### 



before 10 business days after the monthly record date, which is generally the last business
day of each calendar month. The cash received by the Trustee consists of the amounts received by owners of the interest
burdened by the Royalties from the sale of production less the sum of applicable taxes, accrued
production costs, development and drilling costs, 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. The initial carrying value of the Royalties ($10,975,216) represented Southlands historical
net book value at the date of the transfer to the Trust. Accumulated amortization as of December
31, 2004 and 2003, aggregated $9,179,949 and $8,983,622, respectively. 3. Basis of Accounting The financial statements of the Trust are prepared on the following basis:  
    Royalty income recorded is the amount computed and paid by the working interest
owner to the Trustee on behalf of the Trust.
    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. The financial statements of the Trust differ from financial statements prepared in accordance
with accounting principles generally accepted in the United States of America (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 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. This comprehensive basis of accounting other than GAAP corresponds to the
accounting permitted for royalty trusts by the U.S. Securities and Exchange Commission as specified
by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts. 4. New Accounting Pronouncements SFAS No. 123R Accounting for Stock-Based Compensation was issued in December 2004 and
provides new implementation guidance for stock-based compensation accounting. This Statement is
effective for public entities that do not file as small business issuers-as of the beginning of the
first interim or annual reporting period that begins after June 15, 2005. The Trust has no options
or other stock-based instruments and accordingly, the impact of this new Standard will not be
material to the financial statements of the Trust. 15




---



##### 



5. Federal Income Tax 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 rather than 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. Royalty income generally is treated as portfolio income and does not
offset passive losses. Unit holders should consult their tax advisors for further information. 6. Significant Customers Information as to significant purchasers of oil and gas production attributable to the Trusts
economic interests is included in Item 2 of the Trusts Annual Report on Form 10-K which is
included in this report. 7. Proved Oil and Gas Reserves (Unaudited) Proved oil and gas reserve information is included in Item 2 of the Trusts Annual Report on
Form 10-K which is included in this report. 8. Quarterly Schedule of Distributable Income (Unaudited) The following is a summary of the unaudited quarterly schedule of distributable income for the
two years ended December 31, 2004 (in thousands, except per Unit amounts): DistributableIncome andRoyalty
    
    
    Distributable
    
    
    Distribution2004
    
    Income
    
    
    Income
    
    
    Per UnitFirst Quarter
    
    $
    9,207
    
    
    $
    9,026
    
    
    $
    .193657Second Quarter
    
    
    9,046
    
    
    
    8,905
    
    
    
    .191053Third Quarter
    
    
    11,647
    
    
    
    11,566
    
    
    
    .248159Fourth Quarter
    
    
    15,117
    
    
    
    15,050
    
    
    
    .322889Total
    
    $
    45,017
    
    
    $
    44,547
    
    
    $
    .955758
 16




---



##### 



DistributableIncome andRoyalty
    
    
    Distributable
    
    
    Distribution2003
    
    Income
    
    
    Income
    
    
    Per UnitFirst Quarter
    
    $
    6,983
    
    
    $
    6,769
    
    
    $
    .145240Second Quarter
    
    
    8,569
    
    
    
    8,425
    
    
    
    .180761Third Quarter
    
    
    8,692
    
    
    
    8,624
    
    
    
    .185029Fourth Quarter
    
    
    8,352
    
    
    
    8,295
    
    
    
    .177963Total
    
    $
    32,596
    
    
    $
    32,113
    
    
    $
    .688993
 17




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Unit Holders of Permian Basin Royalty Trust and Bank of America, N.A., Trustee: We have audited the accompanying statements of assets, liabilities and trust corpus of
Permian Basin Royalty Trust (the Trust) as of December 31, 2004 and 2003, and the related
statements of distributable income and changes in trust corpus for each of the three years in the
period ended December 31, 2004. These financial statements are the responsibility of the Trustee.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion. As
described in Note 3 to the financial statements, these financial statements have been
prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other
than accounting principles generally accepted in the United States of America. In our opinion, such financial statements present fairly, in all material respects, the
assets, liabilities and trust corpus of the Trust at December 31, 2004 and 2003, and the
distributable income and changes in trust corpus for each of the three years in the period ended
December 31, 2004, on the basis of accounting described in Note 3. /s/ Deloitte & Touche LLP Dallas, Texas
March 14, 2005




---



##### 



PERMIAN BASIN ROYALTY TRUST901 Main Street, Suite 1700P.O. Box 830650Dallas, Texas 75202Bank of America, N.A., TrusteeAUDITORSDeloitte & Touche LLPDallas, TexasLEGAL COUNSELThompson & Knight L.L.P.Dallas, TexasTAX COUNSELWinstead, Sechrest MinickHouston, TexasTRANSFER AGENTMellon Investor Services LLCRidgefield Park, New Jersey