SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
[X]/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 1999
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Commission file number 1-10243
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BP PRUDHOE BAY ROYALTY TRUST
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-6943724
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(State or Other Jurisdiction (I.R.S. Employer
of incorporation or Organization) Identification No.)
The Bank of New York, 101 Barclay Street, New York, NY 10286
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(Address of Principal Executive Office of Trustee) (Zip Code)
Trustee's Telephone Number, Including Area Code: (212) 815-5092
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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]/x/ No [ ]/ /
As of AugustNovember 10, 1999, 21,400,000 Units of Beneficial Interest were
outstanding.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
BP PRUDHOE BAY ROYALTY TRUST
Statements of Assets, Liabilities and Trust Corpus
(In thousands, except unit data)
JuneSeptember 30,
1999 December 31,
(Unaudited) 1998
----------- ----
Assets
Royalty Interest, net (notes 1, 2 and 3) $ 23,851$23,223 25,098
Cash 250 13
13
------------ ------------------- -------
Total assets $ 23,864$23,473 25,111
============ =================== =======
Liabilities and Trust Corpus
Accrued expenses $ 889479 103
Trust Corpus (40,000,000 units of beneficial
interest authorized, 21,400,000 units issued
and outstanding) 22,97522,994 25,008
------------ ------------------- -------
Total liabilities and Trust Corpus $ 23,864$23,473 25,111
============ =================== =======
See accompanying notes to financial statements.
-1-1
BP PRUDHOE BAY ROYALTY TRUST
Statements of Cash Earnings and Distributions
(In thousands, except unit data)
(Unaudited)
Three months ended SixNine months ended
JuneSeptember 30, JuneSeptember 30,
1999 1998 1999 1998
---- ---- ---- ---------------- ------------ ------------ ------------
Royalty revenues $ 0 3,317 0 12,0904,427 1,773 4,427 13,863
Interest Income 0 12 013 -- 13 17
Refund of overpayment of expenses 0 - 0-- -- -- 141
Less: Trust administrative expenses 0 (234) 0 (337)
---------- ---------- ---------- ----------(625) (303) (625) (640)
Expense reserve (250) -- (250) --
------------ ------------ ------------ ------------
Cash earnings $ 0 3,095 0 11,911
========== ========== ========== ==========3,565 1,470 3,565 13,381
============ ============ ============ ============
Cash distributions $ 0 3,095 0 11,911
========== ========== ========== ==========3,565 1,470 3,565 13,381
============ ============ ============ ============
Cash distributions per unit $ 0 0.145 0 0.557
========== ========== ========== ==========0.167 0.069 0.167 0.626
============ ============ ============ ============
Units outstanding 21,400,000 21,400,000 21,400,000 21,400,000
========== ========== ========== ====================== ============ ============ ============
See accompanying notes to financial statements.
-2-2
BP PRUDHOE BAY ROYALTY TRUST
Statements of Changes in Trust Corpus
(In thousands)
(Unaudited)
Three months ended SixNine months ended
JuneSeptember 30, JuneSeptember 30,
1999 1998 1999 1998
---- ---- ---- ------------ -------- -------- --------
Trust Corpus at beginning of period $ 23,739 231,85122,975 220,672 25,008 242,829
Change in cash balance 237 -- 237 --
Cash earnings 0 3,095 0 11,911
Increase3,565 1,470 3,565 13,381
Decrease /(Increase) in accrued expenses (136) (107) (786) (136)410 222 (376) 86
Cash distributions 0 (3,095) 0 (11,911)(3,565) (1,470) (3,565) (13,381)
Amortization of Royalty Interest (628) (11,072) (1,247) (22,021)
----------(11,194) (1,875) (33,215)
-------- --------------- -------- --------
Trust Corpus at end of period $ 22,975 20,672 22,975 220,672
==========22,994 209,700 22,994 209,700
======== =============== ======== ========
See accompanying notes to financial statements.
-3-3
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements
JuneSeptember 30, 1999
(Unaudited)
(1) Formation of the Trust and Organization
BP Prudhoe Bay Royalty Trust (the "Trust"), a grantor trust, was
created as a Delaware business trust 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 BP
AmocoBritish
Petroleum Company p.l.c. ("BP").
During the fourth quarter of 1998, British Petroleum Company p.l.c.
merged with Amoco Corporation to form BP Amoco. This transaction should
not have a material effect on the Trust's operations.
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 (the "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 the performance by the Company of its payment
obligations with respect to the Royalty Interest.
The trustees of the Trust are The Bank of New York, a New York
corporation authorized to do a banking business, and The Bank of New York
(Delaware), a Delaware banking corporation. The Bank of New York
(Delaware) serves as co-trustee in order to satisfy certain requirements
of the Delaware Trust Act. The Bank of New York alone is able to exercise
the rights and powers granted to the Trustee in the Trust Agreement.
The Per Barrel Royalty in effect for any day is equal to the price
of West Texas Intermediate crude oil (the "WTI Price") for that day less
scheduled Chargeable Costs (adjusted in certain situations for inflation)
and Production Taxes (based on statutory rates then in existence). For
years subsequent to 2001, Chargeable Costs will be reduced up to a maximum
amount of $1.20 per barrel in each year if additions to the Field's proved
reserves do not meet certain specific levels.
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, subject to certain conditions, is obligated to establish cash
reserves and borrow funds to pay liabilities of the Trust when they become
due. The Trustee may sell Trust properties only (a) as authorized by a
vote of the Trust Unit holders, (b) when necessary to provide for the
payment of specific liabilities of the Trust then due (subject to certain
conditions) or (c) upon termination of the Trust. Each Trust Unit issued
and outstanding represents an equal undivided share of beneficial interest
in the Trust. Royalty payments are received by the Trust and distributed
to Trust Unit holders, net of Trust expenses, in the month succeeding the
end of each calendar quarter. The Trust will terminate upon the first to
occur of the following events:
(a) On or prior to December 31, 2010: upon a vote of Trust Unit holders
of not less than 70% of the outstanding Trust Units.
-4-4
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements (Continued)
(1), Continued
(b) After December 31, 2010: (i) upon a vote of Trust Unit holders of
not less than 60% of the outstanding Trust Units, or (ii) at such
time the net revenues from the Royalty Interest for two successive
years commencing after 2010 are less than $1,000,000 per year
(unless the net revenues during such period are materially and
adversely affected by certain events).
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. As a result of the severe drop in world oil prices
during 1998 and early 1999, the quarterly royalty revenues and cash
distributions of the Trust have been significantly reduced. The royalty
revenue for the fourth quarter of 1998 that was to be received and
recorded in the first quarter of 1999 was zero. The royalty revenue for
the first quarter of 1999 that was to be received and recorded in the
second quarter of 1999 was also zero. Do to an increase in oil prices in
the second quarter, the Trust earned royalty revenue which will bethat was recorded in
the third quarter. The royalty revenue for the third quarter of 1999 will
be received and recorded in the fourth quarter. In order to ensure the
Trust has the ability to pay future expenses, the Trust is establishing a
cash reserve account over the next several quarters sufficient to pay
approximately one year's current and expected liabilities and expenses of
the Trust.
(2) Basis of Accounting
The financial statements of the Trust are prepared on a modified
cash basis and reflect the Trust's assets, liabilities, Corpus, 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 include accounting, engineering, legal, and
other professional fees, trustees' fees and out-of-pocket expenses)
are recorded on an accrual basis.
(c) Amortization of the Royalty Interest is calculated using the units
of production method. 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 $0.47 and $8.23
for the sixnine months ended JuneSeptember 30, 1999 and 1998, respectively.
The Trust evaluates impairment of the Royalty Interest by comparing
the undiscounted cash flows expected to be realized from the Royalty
Interest to the carrying value, pursuant to Statement of Financial
Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of". If the expected future undiscounted cash flows are
less than the carrying value, the Trust recognizes an impairment
loss for the difference between the carrying value and the estimated
fair value of the Royalty Interest.
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 JuneSeptember 30, 1999 and
December 31, 1998 and the modified cash earnings and distributions and
changes in Trust corpus for the three and sixnine month periods ended
March
31 and JuneSeptember 30, 1999 and 1998. The adjustments are of a normal recurring
nature and are, in the opinion of management, necessary to fairly present
the results of operations.
-5-5
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements (Continued)
(2), Continued
Estimates and assumptions are required to be made regarding assets,
liabilities and changes in Trust Corpus resulting from operations when
financial statements are prepared. Changes in the economic environment,
financial markets and any other parameters used in determining these
estimates could cause actual results to differ.
The financial statements should be read in conjunction with the
financial statements and related notes in the Trust's 1998 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.
(3) Royalty Interest
The Royalty Interest is comprised of the following at JuneSeptember 30,
1999 (in thousands):
RoyalRoyalty Interest $ 535,000
Less: Accumulated Amortization (337,631)amortization (338,259)
Impairment writedown (173,518)
-------------------
$ 23,851
==========23,223
=========
(4) 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 as 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.
-6-6
Item 2. Trustee's Discussion and Analysis of Financial Condition and Results of
Operations.
CAUTIONARY STATEMENTCautionary Statement
The Trustee, its officers or its agents on behalf of the Trustee may, from
time to time, make forward looking statements. To the extent that any forward
looking statements are made, the Trustee is unable to predict future changes in
oil prices, oil production levels, economic activity, legislation and
regulation, and certain changes in expenses of the Trust. In addition, the
Trust's future results of operations and other forward looking statements
contained in this item and elsewhere in this report involve a number of risks
and uncertainties. As a result of variations in such factors, actual results may
differ materially from any forward looking statements. Some of these factors are
described below. The Trustee disclaims any obligation to update forward looking
statements.
LIQUIDITY AND CAPITAL RESOURCESLiquidity 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. Generally, 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 the discussion under
"THE ROYALTY INTEREST" for a description of the calculation of the Per Barrel
Royalty, and the discussion under "THE PRUDHOE BAY UNIT - Reserve Estimates" and
"INDEPENDENT OIL AND GAS CONSULTANTS' REPORT" in Part I, Item 1 of the Trust's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the
"Annual Report") for information concerning the estimated future net revenues of
the Trust. However, the Trustee does have a limited power to borrow, establish a
cash reserve, or dispose of all or part of the Trust Estate, under limited
circumstances pursuant to the terms of the Trust Agreement. See the discussion
under "THE TRUST" in Part I, Item 1 of the Annual Report.
The decline in WTI Prices during the fourth quarter of 1998 and the
historically low WTI Prices during the first quarter of 1999 resulted in the
Trust not receiving quarterly distributions for the first and second quarters of
1999. The Trustee, therefore, determined to exercise certain of its limited
powers under the Trust Agreement to obtain liquidity in order to meet the
Trust's accrued and future liabilities and expenses.
-7-
As of the date of this report, the Trustee has determined not to enter
into a credit facility in order to pay recurring and non-recurring Trust
expenses. Rather, dueDue to the recent increaseincreases in the WTI Price in the second quarter of 1999, the
Trustee has established a cash reserve in order to provide liquidity to the
Trust during those periods in which the Trust does not receive a distribution in
the future. Given that the Trust did not receive a cash distribution for the
first and second quarters of 1999, the Trustee has determined that future
political and economic conditions affecting world oil prices may make it
impractical from time to time in the future to pay liabilities of the Trust out
of quarterly royalty distributions. Accordingly,
7
in July 1999, the Trustee established a cash reserve account. The Trustee
anticipates setting aside and adding to such cash reserve account, out of any
quarterly distributions received by the Trust, an amount equal to approximately
one year's expected liabilities and expenses of the Trust, which the Trustee
estimates to be approximately $1,000,000. Such amount would be set aside over
the course of at least four quarters, with up to one quarter of such amount
being set aside each quarter, assuming the availability of funds from quarterly
distributions. The Trustee has set aside $250,000 from the July 15, 1999
distribution and an additional $250,000 from the October 15, 1999 distribution
for the establishment of thesuch cash reserve. The Trustee will draw funds from the cash reserve account
during any quarter in which the quarterly distribution received by the Trust
does not exceed the liabilities and expenses of the Trust, and will replenish
the reserve from future quarterly distributions, if any.
Pursuant to the Trust Agreement, amounts set aside for the cash reserve
are being invested in U.S. government or agency securities secured by the full
faith and credit of the United States. Any such obligation will mature on the
next succeeding Quarterly Record Date and will be held to maturity unless there
is an earlier default. The Trustee has determined to distribute any interest
received from the investment to the holders of Units upon maturity on that next
Quarterly Record Date. Should the Trustee not draw upon any or all of the cash
reserve to meet the Trust's liabilities and expenses for any given quarter, then
the Trustee will re-invest the remaining principal, together with any additional
funds set aside that quarter for the cash reserve, in U.S. government securities
maturing on the next succeeding Quarterly Record Date. The Trustee anticipates
that it will keep this cash reserve program in place until termination of the
Trust.
In order to establish a cash reserve, certain conditions imposed by the
Trust Agreement must be met. See "THE TRUST-DutiesTRUST - Duties and Limited Powers of the
Trustee" in Part I, Item 1 in the Annual Report. These conditions include the
requirement that the Trustee make certain determinations with respect to the
effect on the Trust Estate of the failure to take such action, and the receipt
by the Trustee of certain opinions of counsel. At the time of filing this
report,establishing the
cash reserve, the Trustee has satisfied the requisite conditions imposed by the
Trust Agreement. Namely, the Trustee has determined that the Trust Estate is subject
to the risk of loss or diminution in value should the Trust fail to pay certain
future liabilities should WTI Prices decline again in the future. Given the
unpredictability of WTI Prices and that the Trust only receives quarterly
distributions, the Trustee has determined that a cash reserve is necessary to cover
any such future liabilities which may exceed those quarterly distributions
received by drawing upon the cash reserve. The Trustee has received an opinion
of counsel relating to certain tax matters as they pertain to the establishment
of the cash reserve.
-8-
Amounts set aside for a cash reserve must be invested in U.S.
government or agency securities secured by the full faith and credit of the
United States, or certain repurchase agreements with respect to such U.S.
government or agency securities.
As discussed under CERTAIN TAX CONSIDERATIONS in the Annual Report,
amounts received by the Trust as quarterly distributions are income to the
holders of the Units, (as will be any earning on investment of the cash reserve)
and must be reported by the holders of the Units, even if such amounts are used
to repay borrowings or establish a cash reserve and are not received by the
holders of the Units.
8
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. For
the statement of cash earnings and distributions, revenues and Trust expenses
are recorded on a cash basis and, as a result, royalties paid to the Trust and
distributions to Unit holders in the quarters ended JuneSeptember 30, 1999 and 1998
are attributable to the Company's operations during the three-month periodsquarters ended March 31,June 30,
1999 and 1998, respectively. -9-
Accordingly, 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 during the quarters ended JuneSeptember 30, 1999 and
1998 (see Note 1 of Notes to Financial Statements in Part I, Item 1):
Quarter Ended
March 31,
--------------------
1999 1998
---- ----
Average WTI Price $13.08 $15.96
------ -------
Chargeable Costs $ 9.80 $ 9.30
Cost Adjustment Factor 1.2797 1.2797
------ -------
Adjusted Chargeable Costs 12.54 11.90
Production Taxes 1.13 1.56
------ -------
13.67 13.46
------ -------
Per Barrel Royalty $(0.59)* $ 2.49
====== =======. The
information in the table has been furnished by the Company.
Quarter Ended Quarter Ended
6/30/99 3/31/99 12/31/98 6/30/98 3/31/98 12/31/97
-------- -------- -------- -------- -------- --------
Average WTI Price $ 17.44 13.08 12.80 14.58 15.96 19.94
-------- -------- -------- -------- -------- --------
Chargeable Costs $ 9.80 9.80 9.30 9.30 9.30 8.85
Cost Adjustment Factor 1.2797 1.2797 1.2797 1.2797 1.2797 1.2797
-------- -------- -------- -------- -------- --------
Adjusted Chargeable Costs $ 12.54 12.54 11.90 11.90 11.90 11.33
Production Taxes 1.79 1.13 1.09 1.36 1.56 2.16
-------- -------- -------- -------- -------- --------
$ 14.33 13.67 12.99 13.26 13.46 13.49
-------- -------- -------- -------- -------- --------
Per Barrel Royalty $ 3.11 (0.59)* (0.19)* 1.32 2.49 6.45
======== ======== ======== ======== ======== ========
- ----------
* Pursuant to the Conveyance, the payment under the Royalty Interest for any
calendar quarter shall not be less than zero. Accordingly, the Per Barrel
royalty for the first quarter of 1999 is effectively zero.
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
9
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 decline in the WTI Price during 1998 and the
first quarter of 1999 (see "INDUSTRY CONDITIONS" in Part I, Item 1 of the Annual
Report), the royalty revenues and cash distributions of the Trust declined
significantly throughout 1998 and the first half of 1999. The average daily WTI
Price decreased below the level necessary for the Trust to receive a
distribution for the fourth quarter of 1998 and the first quarter of 1999.
Accordingly, no distribution was made to holders of Units for such quarters.
After giving effect to the 1999 increase in Chargeable Costs, the Trust will not
be entitled to a quarterly distribution for any quarter during 1999 in which the
average daily
-10-
WTI Price is less than approximately $13.78 (the "break-even
point").
From the latter part of March 1999 up to the time of this report, however,
the WTI Price has risen and has been above the break-even point and the Trust
did receive a distribution for the third quarter of 1999. Although industry
experts generally predict that WTI Prices should remain above those historically
low levels witnessed in the latter part of 1998 and early 1999, no such
assurance can be given.
Whether the Trust will be entitled to a quarterly distribution during for
the fourth quarter of 1999 depends on WTI Prices prevailing during the remainder
of the year. Even if the average daily WTI Price each quarter were to remain
above the $13.78 break-even point, there may not be distributions to holders of
Units. Quarterly distributions received by the Trust must,shall, under the terms of
the Trust Agreement, first be applied to satisfy the outstanding fees and
expenses of the Trust as of each Quarterly Record Date.
Due to the fact that none of the fees nor expenses of the Trust incurred
since Septemberfrom October 1, 1998 through June 30, 1998 have1999 had been paid, the Trustee paid
approximately $625,000 for the July 1999 Quarterly Record Date to satisfy such
accumulated fees and expenses out of the distribution received from the Company
on July 15, 1999.
As noted above, a $250,000 contributions to aUpon paying the Trust's fees and expenses accrued from July 1, 1999
through September 30, 1999 out of the distribution received from the Company on
October 15, 1999 and from the interest received on the cash reserve was also made which further reduced distributionsfor the
prior quarter, the Trustee set aside an additional $250,000 contribution to the
cash reserve prior to making the distribution to holders of Units.
QuarterThree and Nine Months Ended JuneSeptember 30, 1999 Compared to
QuarterThree and Nine Months Ended June 30, 1998September 30,1998
The Trust's royalty revenues in the quarter ended JuneSeptember 30, 1999
were
effectively zero ($0.00) as compared withincreased approximately $3,317,000250% over revenues in the quarter ended JuneSeptember 30,
1998, principallyprimarily as a result
10
of the decreaseincrease in the Average WTI Price for the quarter ended March 31,June 30, 1999,
which was lowerhigher than the Average WTI Price for the quarter ended March 31,June 30, 1998
by $2.88$2.86 (a decreaseincrease of approximately 18 percent)20%). Revenues in the nine-month period
ended September 30, 1999 decreased by approximately 68% over the comparable
period ended September 30, 1998 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) increased by only
$0.21$1.07 (approximately 1.6 percent)8.1%)
from the firstsecond quarter of 1998 to the firstsecond quarter of 1999.
Cash earnings and distributions for the second quarter ofthree months ended September 30,
1999 were
zero ($0.00) as compared withincreased by approximately $3,095,000 for243% from the second quarter ofthree months ended September 30,
1998 due primarily to the decreasea increase in the Average WTI Price for the quarter ended
March 31,June 30, 1999. Cash earnings and distributions for the nine months ended
September 30, 1999, however, decreased 73% from the comparable period of 1998
due primarily to a decrease in the Average WTI Prices during the respective
periods. These large quarterly fluctuations in cash earnings and distributions
have been a result of the highly volatile WTI Prices experienced over the past
two years.
The Trust Corpus at JuneSeptember 30, 1999 decreased by approximately 90%89% from
JuneSeptember 30, 1998, primarily as a result of an impairment losswritedown of
approximately $174,000,000, which was calculated as the
-11-
difference between the
carrying value and the estimated fair value of the Royalty Interest. The
estimated fair value was calculated by projecting future cash flows and
discounting them at a current rate that considered the risk inherent in the cash
flows.
Trust administrative expenses accrued and paid during the quarter ended
JuneSeptember 30, 1999 as compared to the quarter ended JuneSeptember 30, 1998 increased
by approximately $29,000,$322,000, or 27%206%. The increase is due primarily to the facts
that (i) the Trustee paid the Trust's fees and expenses which had accrued over a
period of three quarters, and (ii) such fees and expenses were unusually high
given the increased legal and accounting fees which were unusually highincurred given the Trust's
liquidity concerns described above.
YEARYear 2000 PROBLEMProblem
The Trustee has established a Year 2000 compliance program consisting of,
among other things, updating major proprietary application systems and
evaluating the Year 2000 compliance efforts of vendors of major vendor-supplied
systems and certain other business partners. The Trustee believes that its Year
2000 compliance program is currently on schedule to meet the needs of its
customers and the compliance deadlines defined by its regulators. As of December
31, 1998, testing and renovation of the proprietary application systems that the
Trustee deems "mission critical" were substantially completed and these systems
are currently being used by the Trustee. In addition, all vendor supplied
software systems that the Trustee deems mission critical have been tested and,
based upon such testing, the Trustee believes that such systems will not be
adversely affected in a material way by the date change to the Year 2000.
11
Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of suppliers,
customers and other business partners, the Trustee is unable to determine at
this time whether the consequences of Year 2000 failures will have a material
impact on the Trustee and its ability to perform its obligations under the Trust
Agreement. The Year 2000 compliance program is intended to reduce significantly
the Trustee's level of uncertainty about the Year 2000 problem and, in
particular, the Year 2000 compliance and readiness of the Trustee and its
material business partners. The Trustee believes that, with completion of its
Year 2000 compliance program as scheduled, the possibility of significant
interruption of normal operations should be reduced. However, because of the
unprecedented nature of the Year 2000 problem, there can be no certainty as to
its impact.
-12-
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
-13-12
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On JulyOctober 15, 1999, the Trust received a cash distribution of
$4,427,338.41$9,015,384.71 from the Company with respect to the quarter ended JuneSeptember 30,
1999 and, after adding interest income of $13,287,$46,598, deducting expenses of
$612,141$172,623 and setting aside an additional $250,000 for the establishment of a cash reserve,
distributed $3,565,197$8,639,360 or approximately $0.1666$0.4037 per Unit, to UnitholdersUnit holders of
record on July
15,October 20, 1999.
-14-13
Item 6. Exhibits and Reports on Form 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 June 30, 1999.
-15-14
SIGNATURE
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:By: THE BANK OF NEW YORK,
as Trustee
By: /s/ Marie E. Trimboli
----------------------------------------------------------
Marie E. Trimboli
Assistant Treasurer
Date: August 13,November 12, 1999
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.