-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C2NpQs3z+6ncm0z39+xW2lLiwcQ2cxpnHksmbHnwu4DOmT0WiiFIzcL0DRtrnZol MNhNM3r1651LrdY3hL1/QQ== 0000950115-98-001781.txt : 19981118 0000950115-98-001781.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950115-98-001781 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BP PRUDHOE BAY ROYALTY TRUST CENTRAL INDEX KEY: 0000850033 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 136943724 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10243 FILM NUMBER: 98751221 BUSINESS ADDRESS: STREET 1: C/O BANKOF NEW YORK STREET 2: 101 BARCLAY ST., 21ST FLOOR WEST CITY: NEW YORK STATE: NY ZIP: 10286 BUSINESS PHONE: 2128155084 10-Q 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ------------------ OR [ ] 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 1-10243 ------- BP PRUDHOE BAY ROYALTY TRUST ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-6943724 --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) THE BANK OF NEW YORK 101 Barclay Street New York, New York 10286 ---------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 815-5092 Not applicable -------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of August 14, 1998 21,400,000 Units of Beneficial Interest were outstanding. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BP PRUDHOE BAY ROYALTY TRUST Financial Statements September 30, 1998 (Unaudited) BP PRUDHOE BAY ROYALTY TRUST Statements of Assets, Liabilities and Trust Corpus (In thousands, except unit data) September 30, 1998 December 31, Assets (Unaudited) 1997 ------ ----------- ---- Royalty Interest (notes 1 and 2) $ 535,000 535,000 Less: accumulated amortization (325,191) (291,976) --------- --------- Total assets $ 209,809 243,024 ========= ========= Liabilities and Trust Corpus Accrued expenses 109 195 Trust corpus (40,000,000 units of beneficial interest authorized, 21,400,000 units issued and outstanding) 209,700 242,829 --------- --------- Total liabilities and Trust corpus $ 209,809 243,024 ========= ========= See accompanying notes to financial statements. BP PRUDHOE BAY ROYALTY TRUST Statements of Cash Earnings and Distributions (In thousands, except unit data) (Unaudited)
Three months ended Nine months ended September 30, September 30, -------------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Royalty revenues $ 1,773 8,770 13,863 35,960 Interest income -- -- 17 -- Refund of overpayment of expenses -- -- 141 -- Less: trust administrative expenses (303) (221) (640) (585) ------------ ------------ ------------ ------------ Cash earnings $ 1,470 8,549 13,381 35,375 ============ ============ ============ ============ Cash distributions $ 1,470 8,549 13,381 35,375 ============ ============ ============ ============ Cash distributions per unit $ .069 .399 .626 1.653 ============ ============ ============ ============ Units outstanding 21,400,000 21,400,000 21,400,000 21,400,000 ============ ============ ============ ============
See accompanying notes to financial statements. BP PRUDHOE BAY ROYALTY TRUST Statements of Changes in Trust Corpus (In thousands) (Unaudited)
Three months ended Nine months ended September 30, September 30, -------------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Trust corpus at beginning of period $ 220,672 255,949 242,829 268,940 Cash earnings 1,470 8,549 13,381 35,375 Increase in prepaid expenses -- 141 -- 141 Decrease/(increase) in accrued expenses 222 85 86 (10) Cash distributions (1,470) (8,549) (13,381) (35,375) Amortization of Royalty Interest (11,194) (6,555) (33,215) (19,451) --------- --------- --------- --------- Trust corpus at end of period $ 209,700 249,620 209,700 249,620 ========= ========= ========= =========
See accompanying notes to financial statements. BP PRUDHOE BAY ROYALTY TRUST Notes to Financial Statements September 30, 1998 (Unaudited) (1) Formation of the Trust and Organization --------------------------------------- BP Prudhoe Bay Royalty Trust (the "Trust") was formed pursuant to a Trust Agreement, dated February 28, 1989 among The Standard Oil Company ("Standard Oil"), BP Exploration (Alaska) Inc. (the "Company"), The Bank of New York (the "Trustee"), and The Bank of New York (Delaware), as co-trustee. Standard Oil and the Company are indirect wholly owned subsidiaries of The British Petroleum Company p.l.c. ("BP"). On February 28, 1989, Standard Oil conveyed an overriding royalty interest (the "Royalty Interest") to the Trust. The Trust was formed for the sole purpose of owning and administering the Royalty Interest. The Royalty Interest represents the right to receive, effective February 28, 1989, a per barrel royalty (the "Per Barrel Royalty") on 16.4246% of the lesser of (a) the first 90,000 barrels of the average actual daily net production of oil and condensate per quarter or (b) the average actual daily net production of oil and condensate per quarter from the Company's working interest in the Prudhoe Bay Field as of February 28, 1989, located on the North Slope of Alaska. Trust Unit Holders will remain subject at all times to the risk that production will be interrupted or discontinued or fall, on average, below 90,000 barrels per day in any quarter. BP has guaranteed performance by the Company of its payment obligations with respect to the Royalty Interest. The Trust is passive, with the Trustee having only such powers as are necessary for the collection and distribution of revenues, the payment of Trust liabilities and the protection of the Royalty Interest. (2) Basis of Accounting ------------------- The financial statements of the Trust are prepared on a modified cash basis and reflect the Trust's assets, liabilities and trust corpus and cash earnings and distributions as follows: (a) Revenues are recorded when received (generally within 15 days of the end of the preceding quarter) and distributions to Trust Unit holders are recorded when paid. (b) Trust expenses (which generally include accounting, engineering, legal, and other professional fees, trustees' fees and out-of-pocket expenses) are recorded on an accrual basis. (Continued) 2 BP PRUDHOE BAY ROYALTY TRUST Notes to Financial Statements (Unaudited) (2) Basis of Accounting, Continued ------------------- (c) Amortization of the Royalty Interest is calculated based on the units-of-production attributable to the Trust over the production of estimated proved reserves attributable to the Trust at the beginning of the fiscal year (approximately 65,000,000 barrels and 111,000,000 barrels of estimated proved reserves were used to calculate the amortization of the Royalty Interest for the nine-month period ended September 30, 1998 and year ended December 31, 1997, respectively). Such amortization is charged directly to the Trust corpus, and does not affect cash earnings. The daily rate for amortization per net equivalent barrel of oil was $8.23 for the three and nine months ended September 30, 1998 and $4.82 for the three and nine months ended September 30, 1997. The remaining unamortized balance of the net overriding Royalty Interest at September 30, 1998 is not necessarily indicative of the fair market value of the interest held by the Trust. While these statements differ from financial statements prepared in accordance with generally accepted accounting principles, the cash basis of reporting revenues and distributions is considered to be the most meaningful because quarterly distributions to the Unit holders are based on net cash receipts. The accompanying modified cash basis financial statements contain all adjustments necessary to present fairly the assets, liabilities and Trust corpus of the Trust as of September 30, 1998 and December 31, 1997 and the modified cash earnings and distributions and changes in Trust corpus for the three and nine months ended September 30, 1998 and 1997. The adjustments are of a normal recurring nature and are, in the opinion of management, necessary to fairly present the results of operations for the period. The financial statements should be read in conjunction with the financial statements and related notes in the Trust's 1997 Annual Report on Form 10-K. The cash earnings and distributions for the interim period presented are not necessarily indicative of the results to be expected for the full year. (Continued) 3 BP PRUDHOE BAY ROYALTY TRUST Notes to Financial Statements (Unaudited) (3) Income Taxes ------------ The Trust files its federal tax return as a grantor trust subject to the provisions of subpart E of Part I of Subchapter J of the Internal Revenue Code of 1986, as amended rather than an association taxable as a corporation. The Unit holders are treated as the owners of Trust income and corpus, and the entire taxable income of the Trust will be reported by the Unit Holders on their respective tax returns. If the Trust were determined to be an association taxable as a corporation, it would be treated as an entity taxable as a corporation on the taxable income from the Royalty Interest, the Trust Unit holders would be treated as shareholders, and distributions to Trust Unit holders would not be deductible in computing the Trust's tax liability as an association. ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Trust is a passive entity, and the Trustee's activities are limited to collecting and distributing the revenues from the Royalty Interest and paying liabilities and expenses of the Trust. The Trust has no source of liquidity and no capital resources other than the revenue attributable to the Royalty Interest that it receives from time to time. See Note 1 of Notes to Financial Statements in Part I, Item 1, and the discussion under "THE PRUDHOE BAY UNIT - Reserve Estimates" and "INDEPENDENT OIL AND GAS CONSULTANTS' REPORT" in Item 1 of the Trust's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 for information concerning the estimated future net revenues of the Trust. Results of Operations Royalty revenues are generally received on the Quarterly Record Date (generally the fifteenth day of the month) following the end of the calendar quarter in which the related Royalty Production occurred. The Trustee, to the extent possible, pays all expenses of the Trust for each quarter on the Quarterly Record Date on which the revenues for the quarter are received. Both revenues and Trust expenses are recorded on a cash basis for purposes of distributions to Unit holders and, as a result, royalties paid to the Trust and distributions to Unit holders in the quarter ended September 30 of each year are attributable to the Company's operations during the quarter ended June 30 of that year, while royalties paid to the Trust and distributions to Unit holders in the nine month period ended September 30 of each year are attributable to the Company's operations during the first six months of such year and the last three months of the preceding year. The following table shows the factors employed to compute the Per Barrel Royalty received by the Trust (see Note 1 of Notes to Financial Statements in Part I, Item 1). The information in the table has been furnished by the Company.
Quarter Ended Quarter Ended --------------------------------- --------------------------------- 6/30/98 3/31/98 12/31/97 6/30/97 3/31/97 12/31/96 ------- ------- -------- ------- ------- -------- Average WTI Price $ 14.58 15.96 19.94 19.91 22.86 24.71 ------ ------ ------ ------ ------ ------ Chargeable Costs $ 9.30 9.30 8.85 8.85 8.85 8.50 Cost Adjustment Factor 1.2797 1.2797 1.2797 1.2686 1.2647 1.2568 ------ ------ ------ ------ ------ ------ Adjusted Chargeable Costs $ 11.90 11.90 11.33 11.23 11.19 10.68 Production Taxes 1.36 1.56 2.16 2.16 2.61 2.89 ------ ------ ------ ------ ------ ------ $ 13.26 13.46 13.49 13.39 13.80 13.57 ------ ------ ------ ------ ------ ------ Per Barrel Royalty $ 1.32 2.49 6.45 6.52 9.06 11.13 ====== ====== ====== ====== ====== ======
As long as the Company's average daily net production from the Prudhoe Bay Unit exceeds 90,000 barrels, which the Company currently projects will continue until the year 2009, the only factors affecting the Trust's revenues and distributions to Unit holders are changes in WTI Prices, scheduled annual increases in Chargeable Costs, changes in the Consumer Price Index, changes in Production Taxes and changes in the expenses of the Trust. As a result of the severe drop in world oil prices during 1998, the royalty revenues and cash distributions of the Trust have been significantly reduced during the year. After giving effect to the Chargeable Costs, Cost Adjustment Factor and Production Taxes, on any trading day during 1998 on which the WTI Price is less than approximately $13.03 per barrel, no Per Barrel royalty is payable with respect to that day's Royalty Production. The WTI Price has fallen below this level a number of times during 1998. As a consequence, the payment received from the Company on October 15, 1998 with respect to the quarter ended September 30, 1998 was, and the Trustee anticipates that the payment by the Company on or about January 15, 1999 of royalties with respect to the quarter ending December 31, 1998 will continue to remain, historically low. Furthermore, given that the calculation of the total Royalty Production for any given quarter is comprised of the sum of the product of the Royalty Production for each day in such quarter, positive days of Royalty Production (after deducting for the Chargeable Costs, Cost Adjustment Factor and Production Taxes) will be offset by negative days of Royalty Production (as long as the sum for the entire quarter does not equal less than zero). Accordingly, if the WTI Price on any particular day in a quarter is less than $13.03 per barrel, any subsequent increase in the WTI Price during such quarter will be offset by the cumulative effect of days during such quarter on which WTI Prices were less than $13.03 per barrel. Scheduled increases in Chargeable Costs in 1999 and future years will also have an increasingly adverse effect on royalty payments to the Trust should world oil prices remain at current or lower levels. Three and Nine Months Ended September 30, 1998 Compared to Three and Nine Months Ended September 30, 1997 The Trust's royalty revenues in the quarter ended September 30, 1998 decreased approximately 80 percent over revenues in the quarter ended September 30, 1997, principally as a result of the decrease in the Average WTI Price for the quarter ended June 30, 1998, which was lower than the Average WTI Price for the quarter ended June 30, 1997 by $5.33 (a decrease of approximately 27 percent). Revenues in the nine-month period ended September 30, 1998 decreased by approximately 61% over the comparable period ended September 30, 1997 due primarily to the decrease in the Average WTI Price. Total deductions from the Average WTI Price (consisting of Adjusted Chargeable Costs and Production Taxes) decreased by $0.13 (approximately 1.0 percent) from the second quarter of 1997 to the second quarter of 1998. Cash earnings and distributions for the three months and nine months ended September 30, 1998 decreased by approximately 83 percent and 62 percent, respectively, from the comparable periods of 1997 due primarily to a decrease in the Average WTI Price for the quarter ended June 30, 1998. Year 2000 Problem Given that the Trust is passive, with the Trustee having only such powers as are necessary for the collection and distribution of revenues, the payment of Trust liabilities and the protection of the Royalty Interest, the Trustee believes that there are not any Year 2000 issues or consequences which are likely to have a material effect on the Trust's business, results of operations or financial condition, or to involve any material costs and expenses to be borne by the Trust. However, the Trust's ability to perform properly is also dependent upon The Bank of New York in its capacity as Trustee of the Trust, and the Depository Trust Company ("DTC") in its capacity as clearing agent. To the extent that there are any material Year 2000 issues or consequences for The Bank of New York in its capacity as Trustee of the Trust, those issues and consequences, if any, are addressed in The Bank of New York Company, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and Quarterly Report on Form 10-Q for the period ending September 30, 1998 (Commission File No. 1-6152). To the extent that there are any material Year 2000 issues or consequences for DTC, DTC has provided the following information: "DTC management is aware that some computer applications, systems, and the like for processing data ("Systems") that are dependent upon calendar dates, including dates before, on, and after January 1, 2000, may encounter "Year 2000 Problems." DTC has informed its Participants and other members of the financial community (the "Industry") that it believes that it has developed and is implementing a program so that its Systems, as the same relate to the timely payment of distributions (including principal and income payments) to securityholders, book-entry deliveries, and settlement of trades within DTC ("DTC Services"), will continue to function appropriately. This program includes a technical assessment and remediation plan, each of which is complete. Additionally, DTC's plan includes a testing phase which is expected to be completed within appropriate time frames." "However, DTC's ability to perform properly its services is also dependent upon other parties, including but not limited to issuers and their agents, as well as third-party vendors on whom DTC relies for information or the provision of services, including telecommunication and electrical utility service providers, among others. DTC has informed the Industry that it is contacting (and will continue to contact) third party vendors from whom DTC acquires services to: (i) impress upon them the importance of such services being Year 2000 compliant; and (ii) determine the extent of their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In addition, DTC is in the process of developing such contingency plans as it deems appropriate." "According to DTC, the foregoing information with respect to DTC has been provided to the Industry for informational purposes only and is not intended to serve as a representation, warranty, or contract modification of any kind." Although the Trust believes it is adequately addressing its Year 2000 issues, if the Trust were to encounter a material Year 2000 problem, such problem could materially and adversely result in an interruption in, or a failure of, the Trustee's exercising its powers on behalf of the Trust as described above. The information presented with respect to Year 2000 compliance is forward looking information. As such it is subject to risks and uncertainties that could cause actual results to differ materially from the projected results discussed in this report. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION On October 15, 1998, the Trust received a cash distribution of $1,299,679 from the Company with respect to the period July 1, 1998 to September 30, 1998 and, after adding investment income of $186 and deducting expenses of $115,692, distributed $1,184,173 or approximately $0.055 per Unit, to Unit holders of record on October 20, 1998. ITEM 6. EXHIBITS AND REPORTS ON 8-K (a) Exhibits 4.1 BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The Standard Oil Company, BP Exploration (Alaska) Inc., The Bank of New York, Trustee, and F. James Hutchinson, Co-Trustee. 4.2 Overriding Royalty Conveyance dated February 27, 1989 between BP Exploration (Alaska) Inc. and The Standard Oil Company. 4.3 Trust Conveyance dated February 28, 1989 between The Standard Oil Company and BP Prudhoe Bay Royalty Trust. 4.4 Support Agreement dated as of February 28, 1989 among The British Petroleum Company p.l.c., BP Exploration (Alaska) Inc., The standard Oil Company and BP Prudhoe Bay Royalty Trust. 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1998. 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, thereunto duly authorized. BP PRUDHOE BAY ROYALTY TRUST BY: THE BANK OF NEW YORK, as Trustee By: /s/ Marie Trimboli ------------------------------ Marie Trimboli Assistant Treasurer Date: November 13, 1998 The registrant is a trust and has no officers or persons performing similar functions. No additional signatures are available and none have been provided. INDEX TO EXHIBITS Exhibit Exhibit No. Description - ------- ----------- *4.1 BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The Standard Oil Company, BP Exploration (Alaska) Inc., The Bank of New York, Trustee, and F. James Hutchinson, Co-Trustee. *4.2 Overriding Royalty Conveyance dated February 27, 1989 between BP Exploration (Alaska) Inc. and The Standard Oil Company. *4.3 Trust Conveyance dated February 28, 1989 between The Standard Oil Company and BP Prudhoe Bay Royalty Trust. *4.4 Support Agreement dated as of February 28, 1989 among The British Petroleum Company p.l.c., BP Exploration (Alaska) Inc., The standard Oil Company and BP Prudhoe Bay Royalty Trust. **27. Financial Data Schedule. - --------- * Incorporated by reference to the correspondingly numbered exhibit to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 1-10243). ** Filed herewith. EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the unaudited financial statements of BP Prudhoe Bay Royalty Trust as of and for the fiscal quarter ended September 30, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS 9-MOS DEC-31-1998 DEC-31-1998 SEP-30-1998 SEP-30-1998 0 0 0 0 0 0 0 0 0 0 0 0 535,000 535,000 (325,191) (325,191) 209,809 209,809 109 109 0 0 0 0 0 0 209,700 209,700 0 0 209,809 209,809 0 0 1,773 13,863 0 0 0 0 303 640 0 0 0 0 1,470 13,381 0 0 1,470 13,381 0 0 0 0 0 0 1,470 13,381 0.069 0.626 0.069 0.626
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