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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period ended September 30, 2006
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission file number 1-8033
 PERMIAN BASIN ROYALTY TRUST
 (Exact Name of Registrant as Specified in the Permian Basin Royalty Trust Indenture)
 Texas
    
    75-6280532(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)
 
 
 þ o
  o þ o
 o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Trustees Discussion And AnalysisItem 3. Qualitative and Quantitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItems 1 through 5Item 6. Exhibits and Reports on Form 8-KSIGNATURESINDEX TO EXHIBITSCertification of Ron E. HooperCertificate by Bank of America    Table of Contents  PERMIAN BASIN ROYALTY TRUST
 
 PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
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##### Table of Contents



PERMIAN BASIN ROYALTY TRUST
 CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
 September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Unaudited)ASSETSCash and short-term investments
    
    $
    6,637,774
    
    
    $
    7,264,048Net overriding royalty interests in
producing oil and gas properties
(net of accumulated amortization of
$9,494,537 and $9,364,586 at
September 30, 2006 and December 31,
2005, respectively)
    
    
    1,480,679
    
    
    
    1,610,630TOTAL ASSETS
    
    $
    8,118,453
    
    
    $
    8,874,678LIABILITIES AND TRUST CORPUSDistribution payable to Unit holders
    
    $
    6,637,774
    
    
    $
    7,264,048Commitments and contingenciesTrust corpus  46,608,796 Units of
beneficial interest authorized and
outstanding
    
    
    1,480,679
    
    
    
    1,610,630TOTAL LIABILITIES AND TRUST CORPUS
    
    $
    8,118,453
    
    
    $
    8,874,678
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PERMIAN BASIN ROYALTY TRUST
 CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
 THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDSeptember 30
    
    
    September 302006
    
    
    2005
    
    
    2006
    
    
    2005Royalty income
    
    $
    18,697,269
    
    
    $
    15,989,323
    
    
    $
    51,655,740
    
    
    $
    42,266,409Interest income
    
    
    31,635
    
    
    
    13,777
    
    
    
    95,350
    
    
    
    36,82118,728,903
    
    
    
    16,003,100
    
    
    
    51,751,090
    
    
    
    42,303,230General and
administrative
expenditures
    
    
    (152,561
    )
    
    
    (112,337
    )
    
    
    (677,389
    )
    
    
    (648,236
    )Distributable income
    
    $
    18,576,342
    
    
    $
    15,890,763
    
    
    $
    51,073,701
    
    
    $
    41,654,994Distributable income per
Unit (46,608,796 Units)
    
    $
    .398559
    
    
    $
    .340939
    
    
    $
    1.095795
    
    
    $
    .893715
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PERMIAN BASIN ROYALTY TRUST
 CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
 THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDSeptember 30
    
    
    September 302006
    
    
    2005
    
    
    2006
    
    
    2005Trust corpus,
beginning of Period
    
    $
    1,527,299
    
    
    $
    1,705,706
    
    
    $
    1,610,630
    
    
    $
    1,795,267Amortization of net
overriding royalty
interests
    
    
    (46,620
    )
    
    
    (45,820
    )
    
    
    (129,951
    )
    
    
    (135,381
    )Distributable income
    
    
    18,576,342
    
    
    
    15,890,763
    
    
    
    51,073,701
    
    
    
    41,654,994Distributions declared
    
    
    (18,576,342
    )
    
    
    (15,890,763
    )
    
    
    (51,073,701
    )
    
    
    (41,654,994
    )Total Trust Corpus,
end of period
    
    $
    1,480,679
    
    
    $
    1,659,886
    
    
    $
    1,480,679
    
    
    $
    1,659,886Distributions per unit
    
    $
    .398559
    
    
    $
    .340939
    
    
    $
    1.095795
    
    
    $
    .893715
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PERMIAN BASIN ROYALTY TRUST
 NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
 1.
    
    BASIS OF ACCOUNTINGThe Permian Basin Royalty Trust (Trust) was established as of November 1, 1980. The net
overriding royalties conveyed to the Trust include: (1) a 75% net overriding royalty carved
out of Southland Royalty Companys fee mineral interests in the Waddell ranch in Crane
County, Texas (the Waddell Ranch properties); and (2) a 95% net overriding royalty carved
out of Southland Royalty Companys major producing royalty interests in Texas (the Texas
Royalty properties). The net overriding royalty for the Texas Royalty properties is
subject to the provisions of the lease agreements under which such royalties were created.
The financial statements of the Trust are prepared on the following basis:
 
    
    Royalty income recorded for a month is the amount computed and paid to Bank of
America, N.A. (Trustee) as Trustee for the Trust by the interest owners: Burlington
Resources Oil & Gas Company LP (BROG), a subsidiary of ConocoPhillips for the Waddell
Ranch properties and Riverhill Energy Corporation (Riverhill Energy), formerly a
wholly owned subsidiary of Riverhill Capital Corporation (Riverhill Capital) and
formerly an affiliate of Coastal Management Corporation (CMC), for the Texas Royalty
properties. Schlumberger Technology Corporation (STC) currently conducts all field,
technical and accounting operations on behalf of BROG with regard to the Waddell Ranch
properties. Riverhill Energy currently conducts the accounting operations for the
Texas Royalty properties. Royalty income consists of the amounts received by the owners
of the interests burdened by the net overriding royalty interests (Royalties) from
the sale of production less accrued production costs, development and drilling costs,
applicable taxes, 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.As was previously reported, in February 1997, BROG sold its interest in the Texas
Royalty properties to Riverhill Energy.The Trustee has been advised that in the first quarter of 1998, STC acquired all of
the shares of stock of Riverhill Capital. Prior to such acquisition by STC, CMC and
Riverhill Energy were wholly-owned subsidiaries of Riverhill Capital. The Trustee
has further been advised that in connection with STCs acquisition of Riverhill
Capital, the shareholders of Riverhill Capital acquired ownership of all of the
shares of stock of Riverhill Energy. Thus, the ownership in the Texas Royalty
properties referenced above remained in Riverhill Energy, the stock ownership of
which was acquired by the former shareholders of Riverhill Capital.
    
    Trust expenses recorded are based on liabilities paid and cash reserves established
out of cash received or borrowed funds for liabilities and contingencies.
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
    
    Distributions to Unit holders are recorded when declared by the Trustee.
    
    Royalty income is computed separately for each of the conveyances under which the
Royalties were conveyed to the Trust. If monthly costs exceed revenues for any
conveyance (excess costs), such excess cannot reduce royalty income from other
conveyances, but is carried forward with accrued interest to be recovered from future
net proceeds of that conveyance.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. 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.
 New Accounting Pronouncements
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Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106 and 132(R).
 Fair Value Measurements.
 2.
    
    FEDERAL INCOME TAXESFor 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 and not 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 from the Royalties 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.3.
    
    SUBSEQUENT EVENTSSubsequent to September 30, 2006, the Trust declared a distribution on October 21, 2006 of
$.110204 per unit payable on November 15, 2006, to Unit holders of record on October 31,
2006.4.
    
    STATE TAX CONSIDERATIONSAll revenues from the Trust are from sources within Texas, which has no individual income tax.
However, the franchise tax currently imposed by the state of Texas on corporations (the
definition of which generally includes limited liability companies) is partly based on federal
taxable income, which will include income from the Trust.
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The Texas legislature recently passed H.B. 3, 79th Leg., 3d C.S. (2006), which was signed into
law on May 18, 2006. H.B. 3 significantly reforms the Texas franchise tax system and replaces
it with a new Texas margin tax system. The margin tax expands the type of entities subject to
tax to generally include all active business entities, including corporations and limited
liability companies currently subject to the franchise tax. The new margin tax also will apply
to the following common entity types that are not currently subject to tax: general and limited
partnerships (unless otherwise exempt), limited liability partnerships, trusts (unless otherwise
exempt), business trusts, business associations, professional associations, joint stock
companies, holding companies, and joint ventures. The effective date of the margin tax is
January 1, 2008, but the tax generally will be imposed on gross revenues generated in 2007 and
thereafter.Trusts and partnerships that meet statutory requirements and receive at least 90% of their gross
income from designated sources, including royalties from mineral properties, and do not receive
more than 10% of their income from operating an active trade or business, are generally exempt
from the margin tax as passive entities. Virtually all of the income of the Trust consists of
income from net overriding royalty interests (or net profits interests) that are treated as
royalty income for federal income tax purposes, but, there is no legislative history making it
clear that the Trust will be treated as a passive entity for margin tax purposes.
Clarification by additional legislative action or the issuance of applicable administrative
rules promulgated by the Texas Comptroller, may be forthcoming prior to the effective date of
that Act.If the Trust is exempt from the margin tax at the trust level as a passive entity, each Unit
holder that is a business entity subject to the margin tax would generally include its share of
the Trusts revenues in its margin tax computation. If, however, the margin tax is imposed on
the Trust at the trust level, each such Unit holder would generally exclude its share of the
Trusts revenues from its margin tax calculation. Each Unit holder that is a business entity is
urged to consult his own tax advisor regarding the requirements for filing state income,
franchise and margin tax returns.
 
 Item 2. Trustees Discussion And Analysis
 Forward Looking Information
  10




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Three Months Ended September 30, 2006 Compared to Three Months Ended September 30, 2005
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Third Quarter2006
    
    2005Royalties:Oil sales (Bbls)
    
    
    198,283
    
    
    
    215,618Gas sales (Mcf)
    
    
    869,934
    
    
    
    957,711Properties From Which The Royalties Were Carved:Oil:Total oil sales (Bbls)
    
    
    308,150
    
    
    
    327,081Average per day (Bbls)
    
    
    3,349
    
    
    
    3,555Average price per Bbl
    
    $
    65.95
    
    
    $
    49.38Gas:Total gas sales (Mcf)
    
    
    1,539,034
    
    
    
    1,612,808Average per day (Mcf)
    
    
    16,729
    
    
    
    17,531Average price per Mcf
    
    $
    7.42
    
    
    $
    6.34
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Nine Months Ended September 30, 2006 and 2005
    First Nine Months2006
    
    2005Royalties:Oil sales (Bbls)
    
    
    574,593
    
    
    
    605,204Gas sales (Mcf)
    
    
    2,420,037
    
    
    
    2,617,686Properties From Which The Royalties Were
Carved:Oil:Total oil sales (Bbls)
    
    
    912,712
    
    
    
    948,727Average per day (Bbls)
    
    
    3,343
    
    
    
    3,475Average price per Bbl
    
    $
    59.43
    
    
    $
    45.47Gas:Total gas sales (Mcf)
    
    
    4,394,940
    
    
    
    4,632,853Average per day (Mcf)
    
    
    16,099
    
    
    
    16,970Average price per Mcf
    
    $
    8.05
    
    
    $
    6.38
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Calculation of Royalty Income
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THREE MONTHS ENDED SEPTEMBER 30,2006
    
    
    2005WADDELL
    
    
    TEXAS
    
    
    WADDELL
    
    
    TEXASRANCH
    
    
    ROYALTY
    
    
    RANCH
    
    
    ROYALTYPROPERTIES
    
    
    PROPERTIES
    
    
    PROPERTIES
    
    
    PROPERTIESGross proceeds of sales from
the Underlying PropertiesOil proceeds
    
    $
    14,384,090
    
    
    $
    5,937,295
    
    
    $
    11,783,550
    
    
    $
    4,369,141Gas proceeds
    
    
    10,074,892
    
    
    
    1,340,989
    
    
    
    9,047,274
    
    
    
    1,180,180Total
    
    
    24,458,982
    
    
    
    7,278,284
    
    
    
    20,830,824
    
    
    
    5,549,321Less:Severance tax:Oil
    
    
    626,555
    
    
    
    202,914
    
    
    
    483,590
    
    
    
    168,686Gas
    
    
    677,834
    
    
    
    90,410
    
    
    
    571,626
    
    
    
    76,621Lease operating expense and
property tax:Oil and gas
    
    
    3,379,091
    
    
    
    285,000
    
    
    
    3,100,383
    
    
    
    225,000Capital expenditures
    
    
    3,332,426
    
    
    
    
    
    
    
    1,789,545
    
    
    
    0Total
    
    
    8,015,906
    
    
    
    578,324
    
    
    
    5,945,144
    
    
    
    470,307Net profits
    
    
    16,443,076
    
    
    
    6,699,960
    
    
    
    14,885,680
    
    
    
    5,079,014Net overriding royalty interests
    
    
    75
    %
    
    
    95
    %
    
    
    75
    %
    
    
    95
    %Royalty income
    
    $
    12,332,307
    
    
    $
    6,364,962
    
    
    $
    11,164,260
    
    
    $
    4,825,063
 Critical Accounting Policies and Estimates
  Basis of Accounting
  
    
    Royalty income and interest income are recorded in the period in which amounts are
received by the Trust rather than in the period of production and accrual, respectively.
    
    General and administrative expenses recorded are based on liabilities paid and cash
reserves established out of cash received.
    
    Amortization of the royalty interests is calculated on a unit-of-production basis and
charged directly to trust corpus when revenues are received.
    
    Distributions to Unit holders are recorded when declared by the Trustee (see Note 1 to
the Financial Statements).
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New Accounting Pronouncements
    Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans an amendment of FASB Statements No. 87, 88, 106 and 132(R).
 16




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Fair Value Measurements.
 Revenue Recognition
  Reserve Disclosure
  Contingencies
  Use of Estimates
  
 Item 3. Qualitative and Quantitative Disclosures About Market Risk
  17




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Item 4. Controls and Procedures
  18




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PART II  OTHER INFORMATION
 
 Items 1 through 5.
  
 Item 6. Exhibits and Reports on Form 8-K
 4.1
    
    Permian Basin Royalty Trust Indenture dated November 3, 1980,
between Southland Royalty Company (now Burlington Resources Oil & Gas Company
LP) and The First National Bank of Fort Worth (now Bank of America, N.A.), as
Trustee, heretofore filed as Exhibit (4)(a) to the Trusts Annual Report on
Form 10-K to the Securities and Exchange Commission for the fiscal year ended
December 31, 1980 is incorporated herein by reference.4.2
    
    Net Overriding Royalty Conveyance (Permian Basin Royalty Trust)
from Southland Royalty Company (now Burlington Resources Oil & Gas Company LP)
to The First National Bank of Fort Worth (now Bank of America, N.A.), as
Trustee, dated November 3, 1980 (without Schedules), heretofore filed as
Exhibit (4)(b) to the Trusts Annual Report on Form 10-K to the Securities and
Exchange Commission for the fiscal year ended December 31, 1980 is incorporated
herein by reference.4.3
    
    Net Overriding Royalty Conveyance (Permian Basin Royalty Trust
  Waddell Ranch) from Southland Royalty Company (now Burlington Resources Oil &
Gas Company LP) to The First National Bank of Fort Worth (now Bank of America,
N.A.), as Trustee, dated November 3, 1980 (without Schedules), heretofore filed
as Exhibit (4)(c) to the Trusts Annual Report on Form 10-K to the Securities
and Exchange Commission for the fiscal year ended December 31, 1980 is
incorporated herein by reference.10.1
    
    Registration Rights Agreement dated as of July 21, 2004 by and
between Burlington Resources, Inc. and Bank of America, N.A., as trustee of
Permian Basin Royalty Trust, heretofore filed as Exhibit 10.1 to the Trusts
Quarterly Report on Form 10-Q to the Securities and Exchange Commission for the
quarterly period ended June 30, 2004 is incorporated herein by reference.10.2
    
    Underwriting Agreement dated December 15, 2005 among the
Permian Basin Royalty Trust, Burlington Resources, Inc., Burlington Resources
Oil & Gas L.P. and Lehman Brothers Inc. and Wachovia Capital Markets, LLC as
representatives of the several underwriters heretofore filed as Exhibit 10.1 to
the Trusts current report filed on Form 8-K to the Securities and Exchange
Commission filed on December 19, 2005 is incorporated herein by reference.
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10.3
    
    Underwriting Agreement dated August 2, 2005 among the Permian
Basin Royalty Trust, Burlington Resources, Inc., Burlington Resources Oil & Gas
L.P. and Goldman Sachs & Co. and Lehman Brothers Inc. as representatives of the
several underwriters, heretofore filed as Exhibit 10.1 to the Trusts current
report filed on Form 8-K to the Securities and Exchange Commission filed on
August 8, 2005, is incorporated herein by reference.31.1
    
    Certification by Ron E. Hooper, Senior Vice President and Trust
Administrator of Bank of America, Trustee of Permian Basin Royalty Trust, dated
November 7, 2006 and submitted pursuant to Rule 13a-14(a)/15d-14(a).32.1
    
    Certificate by Bank of America, Trustee of Permian Basin
Royalty Trust, dated November 7, 2006 and submitted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
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SIGNATURES
  BANK OF AMERICA, N.A.,
TRUSTEE FOR THE
PERMIAN BASIN ROYALTY TRUSTBy:
    /s/ RON E. HOOPERRon E. Hooper,Senior Vice President and Trust Administrator
Bank of America, N.A.   21




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INDEX TO EXHIBITS
 ExhibitNumber
    
    Exhibit4.1
    
    Permian Basin Royalty Trust Indenture dated November 3,
1980, between Southland Royalty Company (now Burlington
Resources Oil & Gas Company LP) and The First National Bank
of Fort Worth (now Bank of America, N.A.), as Trustee,
heretofore filed as Exhibit (4)(a) to the Trusts Annual
Report on Form 10-K to the Securities and Exchange
Commission for the fiscal year ended December 31, 1980 is
incorporated herein by reference.*4.2
    
    Net Overriding Royalty Conveyance (Permian Basin Royalty
Trust) from Southland Royalty Company (now Burlington
Resources Oil & Gas Company LP) to The First National Bank
of Fort Worth (now Bank of America, N.A.), as Trustee,
dated November 3, 1980 (without Schedules), heretofore
filed as Exhibit (4)(b) to the Trusts Annual Report on
Form 10-K to the Securities and Exchange Commission for the
fiscal year ended December 31, 1980 is incorporated herein
by reference.*4.3
    
    Net Overriding Royalty Conveyance (Permian Basin Royalty
Trust  Waddell Ranch) from Southland Royalty Company (now
Burlington Resources Oil & Gas Company LP) to The First
National Bank of Fort Worth (now Bank of America, N.A.), as
Trustee, dated November 3, 1980 (without Schedules),
heretofore filed as Exhibit (4)(c) to the Trusts Annual
Report on Form 10-K to the Securities and Exchange
Commission for the fiscal year ended December 31, 1980 is
incorporated herein by reference.*10.1
    
    Registration Rights Agreement dated as of July 21, 2004 by
and between Burlington Resources, Inc. and Bank of America,
N.A., as trustee of Permian Basin Royalty Trust, heretofore
filed as Exhibit 10.1 to the Trusts Quarterly Report on
Form 10-Q to the Securities and Exchange Commission for the
quarterly period ended June 30, 2004 is incorporated herein
by reference.10.2
    
    Underwriting Agreement dated December 15, 2005 among the
Permian Basin Royalty Trust, Burlington Resources, Inc.,
Burlington Resources Oil & Gas L.P. and Lehman Brothers
Inc. and Wachovia Capital Markets, LLC as representatives
of the several underwriters heretofore filed as Exhibit
10.1 to the Trusts current report filed on Form 8-K to the
Securities and Exchange Commission filed on December 19,
2005 is incorporated herein by reference.10.3
    
    Underwriting Agreement dated August 2, 2005 among the
Permian Basin Royalty Trust, Burlington Resources, Inc.,
Burlington Resources Oil & Gas L.P. and Goldman Sachs & Co.
and Lehman Brothers Inc. as representatives of the several
underwriters, heretofore filed as Exhibit 10.1 to the
Trusts current report filed on Form 8-K to the Securities
and Exchange Commission filed on August 8, 2005, is
incorporated herein by reference.31.1
    
    Certification by Ron E. Hooper, Senior Vice President and
Trust Administrator of Bank of America, Trustee of Permian
Basin Royalty Trust, dated November 7, 2006 and submitted
pursuant to Rule 13a-14(a)/15d-14(a).32.1
    
    Certificate by Bank of America, Trustee of Permian Basin
Royalty Trust, dated November 7, 2006 and submitted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    A copy of this Exhibit is available to any Unit holder, at the actual cost of
reproduction, upon written request to the Trustee, Bank of America, N.A., 901
Main Street, Dallas, Texas 75202. 22