UNITED STATES
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, 1996March 31, 1997
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: 1-12058
BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST
(Exact name of registrant as specified in its charter)
Delaware 76-6088828
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street, Suite 1200
Dallas, Texas 75202
(Address of principal executive offices)
(Zip code)
(214) 508-2304
(Registrant's telephone number, including area code)
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
----- -----
Number of units of beneficial interest outstanding at NovemberMay 1, 1996:1997:
8,800,000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed financial statements included herein have been prepared by
NationsBank of Texas, N.A., as Trustee (the "Trustee") of Burlington Resources
Coal Seam Gas Royalty Trust (the "Trust"), pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements have been condensed
or omitted pursuant to such rules and regulations, although the Trustee believes
that the disclosures are adequate to make the information presented not
misleading. The condensed financial statements of the Trust presented herein
are unaudited, except for balances as of December 31, 1995,1996, and therefore are
subject to year-end adjustments. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and notes
thereto in the Trust's Annual Report on Form 10-K for the year ended December
31, 1995.1996. The December 31, 19951996 balance sheet is derived from the audited
balance sheet of that date. In the opinion of the Trustee, all adjustments
consisting only of normal recurring adjustments, necessary to present fairly the assets, liabilities and trust corpus of the
Trust as of September 30, 1996,March 31, 1997, the distributable income for the three month and nine month periods ended September
30, 1996 and 1995, and the changes in trust
corpus for the ninethree month periods ended September 30,March 31, 1997 and 1996, and 1995, have been
included. The distributable income for such interim periods is not necessarily
indicative of the distributable income for the full year.
The condensed financial statements as of September 30, 1996March 31, 1997 and for the three-month and nine-monththree-
month periods ended September 30,March 31, 1997 and 1996, and 1995, included herein, have been reviewed
by Deloitte & Touche LLP, independent certified public accountants, as stated in their
report appearing herein.
2
Independent Accountants' Review Report
NationsBank of Texas, N.A.,
as Trustee of Burlington Resources
Coal Seam Gas Royalty Trust
We have reviewed the accompanying condensed statement of assets, liabilities and
trust corpus of the Burlington Resources Coal Seam Gas Royalty Trust as of September
30, 1996,March
31, 1997, and the related condensed statements of distributable income for the
three-month and nine-month periods ended September 30, 1996 and 1995, and
changes in trust corpus for the nine-monththree-month periods ended September 30, 1996March 31, 1997 and
1995.1996. These condensed financial statements are the responsibility of the
Trustee.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
As described in Note 2 to the condensed financial statements, these condensed
financial statements have been prepared on a modified cash basis of accounting,
which is a comprehensive basis of accounting other than generally accepted
accounting principles.
Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity with
the basis of accounting described in Note 2.
We have previously audited, in accordance with generally accepted auditing
standards, the statement of assets, liabilities and trust corpus of Burlington
Resources Coal Seam Gas Royalty Trust as of December 31, 1995,1996, and the related
statements of distributable income and changes in trust corpus for the year then
ended (not presented herein); and in our report dated March 19, 1996,21, 1997, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying condensed statement of assets,
liabilities and trust corpus as of December 31, 1995,1996, is fairly stated, in all
material respects, in relation to the statement of assets, liabilities and trust
corpus from which it has been derived.
/s/ Deloitte & Touche LLP
Dallas, Texas
November 8, 1996May 9, 1997
3
BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST
CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
- --------------------------------------------------------------------------------------------------------------------------------------------
September 30,March 31, December 31,
1997 1996
1995
--------------------------- ------------
(unaudited)
ASSETS
Cash and cash equivalents $ 90,64075,217 $ 31,260158,251
Royalty interests in gas
properties (less accumulated
amortization of $71,804,621$77,144,032
at September 30, 1996March 31, 1997 and $56,796,300$73,028,120
at December 31, 1995) 108,595,379 123,603,7001996) 103,255,968 107,371,880
------------ ------------
TOTAL ASSETS $108,686,019 $123,634,960$103,331,185 $107,530,131
============ ============
LIABILITIES AND TRUST CORPUS
Trust expenses payable $ 99,969140,274 $ 100,220201,966
Trust corpus -
8,800,000 units of beneficial
interest authorized, issued and
outstanding 108,586,050 123,534,740103,190,911 107,328,165
------------ ------------
TOTAL LIABILITIES
AND TRUST CORPUS $108,686,019 $123,634,960$103,331,185 $107,530,131
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
4
BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------------------------
FOR FOR
THE THREE THE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
FOR FOR
THE THREE THE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------- ----------------------
Royalty income $2,423,156 $3,527,726$ 1,471,920 $ 3,101,139
Interest income 6,676 9,267
---------- ----------
2,429,832 3,536,9933,678 8,008
------------ ------------
1,475,598 3,109,147
General and administrative
expenses (121,255) (138,836)
---------- ----------( 196,286) (189,378)
------------ ------------
Distributable income $2,308,577 $3,398,157
========== ==========$ 1,279,312 $ 2,919,769
============ ============
Distributable income per
unit (8,800,000 units) $ .26.15 $ .39
========== ==========.33
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
5
BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOMECHANGES IN TRUST CORPUS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------------------
FOR FOR
THE THREE THE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
FOR FOR
THE NINE THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------- ----------------------
Royalty income $8,376,309 $10,647,614
Interest income 22,184 29,021
---------- -----------
8,398,493 10,676,635
General and administrative
expenses (532,286) (587,167)
---------- -----------Trust corpus, beginning
of period $ 107,328,165 $ 123,534,740
Amortization of royalty
interest (4,115,912) (5,304,096)
Distributable income $7,866,207 $10,089,468
========== ===========
Distributable income1,279,312 2,919,769
Distributions to
unitholders (1,300,654) (2,929,358)
------------- -------------
Trust corpus, end
of period $ 103,190,911 $ 118,221,055
============= =============
Distributions per unit
(8,800,000 units) $ .89.15 $ 1.15
========== ===========.33
============= =============
The accompanying notes are an integral part of these condensed financial
statements.
6
BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR FOR
THE THREE THE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
-------------------- ----------------------
Trust corpus, beginning
of period $123,534,740 $147,459,837
Amortization of royalty
interest (15,008,321) (17,702,361)
Distributable income 7,866,207 10,089,468
Distributions to
unitholders (7,806,576) (10,114,324)
------------ ------------
Trust corpus, end
of period $108,586,050 $129,732,620
============ ============
Distributions per unit
(8,800,000 units) $ .89 $ 1.15
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
7
BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------------
1. TRUST ORGANIZATION AND PROVISIONS
Burlington Resources Coal Seam Gas Royalty Trust (the "Trust") was formed
as a Delaware business trust pursuant to the terms of the Trust Agreement of
Burlington Resources Coal Seam Gas Royalty Trust (the "Trust Agreement") entered
into effective as of May 1, 1993 by and among Meridian Oil Production Inc., a
Delaware corporation ("MOPI"), as trustor, Burlington Resources Inc., a Delaware
corporation ("Burlington Resources"), and NationsBank of Texas, N.A., a national
banking association (the "Trustee"), and Mellon Bank (DE) National Association,
a national banking association (the "Delaware Trustee"), as trustees. The
trustees are independent financial institutions. Effective January 1, 1996,
MOPI was merged with and into Meridian Oil Inc. ("MOI"), a wholly-owned
subsidiary of Burlington Resources. Accordingly, references in this Form 10-Q
to MOPI refer to MOI after the effective date of such merger. Effective July 11, 1996, MOI changed its
name to Burlington Resources Oil & Gas Company ("BROG") and Meridian Oil Trading
Inc. ("MOTI") and Meridian Oil Gathering Inc. ("MOGI"), an affiliateboth affiliates of MOPI,MOI,
changed its nametheir names to Burlington Resources Trading Inc. ("BRTI") and Burlington
Resources Gathering Inc. ("BRGI"), respectively. Accordingly, references in
this Form 10-Q to MOPI refer to BROG, references to MOTI refer to BRTI and
references to MOGI refer to BRGI.
The Trust is a grantor trust formed to acquire and hold certain net profits
interests (the "Royalty Interests") in MOPI's interest in the Fruitland coal
formation underlying the Northeast Blanco Unit in the San Juan Basin of New
Mexico (the "Underlying Properties"). The Trust was initially created by the
filing of a Certificate of Trust with the Secretary of State of Delaware on May
5, 1993. In accordance with the Trust Agreement, MOPI contributed $1,000 as the
initial trust corpus of the Trust. On June 17, 1993, the Royalty Interests were
conveyed to the Trust by MOPI pursuant to the Net Profits Interest Conveyance
(the "Conveyance") dated effective as of May 1, 1993, in consideration for all
8,800,000 authorized units of beneficial interest ("Units") in the Trust. MOPI
transferred its Units by dividend to its parent, Meridian Oil Holding Inc.,
which transferred such Units by dividend to its parent, Burlington Resources,
which sold such Units to the public at $20.50 per Unit through various
underwriters in June 1993 (the "Public Offering") . All of the production
attributable to the Underlying Properties is from the Fruitland coal formation
and currently constitutes "coal seam" gas that entitles the owners of such
production, provided certain requirements are met, to tax credits pursuant to
Section 29 of the Internal Revenue Code of 1986, as amended.
Royalty income to the Trust is attributable to the sale of depleting
assets. All of the Underlying Properties burdened by the NPI (as hereinafter
defined) consist of producing properties. Accordingly, the proved reserves
attributable to MOPI's interest in the Underlying Properties are expected to
decline substantially during the term of the Trust and a portion of each cash
distribution made by the Trust will, therefore, be analogous to a return of
capital. Accordingly, cash yields attributable to the Units are expected to
decline over the term of the Trust.
7
The Trustee has all powers to collect and distribute proceeds received by
the Trust and to pay Trust liabilities and expenses. The Delaware Trustee has
only such powers as are set forth in the Trust Agreement or are required by law
and is not empowered to otherwise manage 8
or take part in the business of the
Trust. The Royalty Interests are passive in nature and neither the Delaware
Trustee nor the Trustee has any control over or any responsibility relating to
the operation of the Underlying Properties or MOPI's interest therein.
Production attributable to MOPI's interest in the Underlying Properties is
generally sold pursuant to a gas purchase contract between MOPI and MOTI. The
gas purchase contract provides certain protections for MOTI in the form of price
credits and for Unitholders when the applicable Blanco Hub Spot Price falls
below $1.65 per MMBtu and provides certain benefits for MOTI when the Blanco Hub
Spot Price exceeds $2.10 per MMBtu. The gas purchase contract also provides
that the price paid for gas by MOTI is reduced by the amount of gathering and/or
transportation charges, taxes, treating and processing costs and all other costs
payable in connection with such services from the central gathering point to
main line delivery paid by MOTI.
The Blanco Hub Spot Price was below $1.65 per MMBtu in each month of
production relating to revenue received by the Trust during all of 1995 and the
first seven months of 1996. In August 1996, the price exceeded the $1.65
minimum. However, pursuant to the terms of the gas purchase contract, MOTI
continued to purchase gas attributable to MOPI's interest in the Underlying
Properties at the $1.60 minimum purchase price, less deductible costs paid by
MOTI, established by the gas purchase contract. MOTI received a price credit
from MOPI for each MMBtu of natural gas so purchased by MOTI equal to the
difference between the $1.60 minimum purchase price and the applicable index
price (which price is equal to 97 percent of the applicable Blanco Hub Spot
Price). MOTI estimates that, as of September 30, 1996, MOTI had aggregate price
credits of approximately $9.9 million of which the Trust's 95 percent interest
was approximately $9.4 million. The Blanco Hub Spot Price was also below $1.65
per MMBtu in September and October 1996. This balance was partially offset by a
recoupment of price credits in August, 1996 of $229,698 for MOTI's interest and
$218,213 for the Trust's interest.
The entitlement of MOTI to recoup the price credits means that if and when
the applicable Blanco Hub Spot Price rises above $1.65 per MMBtu, future royalty
income paid to the Trust will be reduced until such time as such price credits
have been fully recouped. Corresponding cash distributions to Unitholders would
also be reduced.
The Trust will terminate no later than December 31, 2012, subject to
earlier termination under certain circumstances described in the Trust Agreement
(the "Termination Date"). Cancellation of the Trust will occur on or following
the Termination Date when all Trust assets have been sold and the net proceeds
thereof are distributed to the holders of the Units ("Unitholders").
The only assets of the Trust, other than cash and cash equivalents being
held for the payment of expenses and liabilities and for distribution to
Unitholders, are the Royalty Interests. The Royalty Interests consist primarily
of a net profits interest (the "NPI") in MOPI's interest in the Underlying
Properties. The NPI generally entitles the Trust to receive 95 percent of the
NPI Net Proceeds, as defined below. The Royalty Interests also include a 20
percent interest in the Infill Net Proceeds, as defined below, from the sale of
production if well spacing rules are effectively modified and additional wells
are drilled on producing drilling blocks in the Northeast Blanco Unit ("Infill
Wells") during the term of the Trust. With respect to the NPI,
9
the term "NPI
Net Proceeds" generally means the aggregate proceeds attributable to MOPI's net
revenue interest in the Underlying Properties (excluding the proceeds, if any,
from Infill Wells) calculated at the price paid by MOTI at any one of four
central delivery points in the Northeast Blanco Unit gathering system or either
of two wellhead delivery points (collectively, the "Central Gathering Point")
for the entitled volume of gas produced and sold from MOPI's interest in the
Underlying Properties less MOPI's working interest share of (i) property,
production and related taxes (including severance taxes); (ii) lease operating
expenses; (iii) capital costs (if paid after January 1, 1994); (iv) royalties,
if any, required to be paid that are based on the value of Section 29 tax
credits attributable to such working interest share; and (v) interest on the
unrecovered portion, if any, of the foregoing costs at a rate equal to the base
rate (compounded quarterly) as announced from time to time by Citibank, N.A.
("Citibank's Base Rate"). The term "Infill Net Proceeds" generally means the
aggregate proceeds attributable to MOPI's net revenue interest calculated at the
price paid by MOTI at the Central Gathering Point for the entitled volume of gas
produced and sold from MOPI's interest in any Infill Wells less MOPI's working
interest share of (a) property, production and related taxes (including
severance taxes) on such Infill Wells; (b) lease operating expenses with respect
to such Infill Wells; (c) capital costs with respect to such Infill Wells; and
(d) interest on the unrecovered portion, if any, of the foregoing costs at
Citibank's Base Rate. The complete definitions of NPI Net Proceeds and Infill
Net Proceeds are set forth in the Conveyance. The definitions, formulas and
accounting procedures and other terms governing the computation of the Royalty
Interests are set forth in the Conveyance.
Because of the passive nature of the Trust and the restrictions and
limitations on the powers and activities of the Trustee contained in the Trust
Agreement, the Trustee does not consider any of the officers and employees of
the Trustee to be "officers" or "executive officers" of the Trust as such terms
are defined under the applicable rules and regulations adopted under the
Securities Exchange Act of 1934.
8
2. BASIS OF ACCOUNTING
The financial statements of the Trust are prepared on a modified cash basis
and are not intended to present financial position and results of operations in
conformity with generally accepted accounting principles ("GAAP"). Preparation
of the Trust's financial statements on such basis includes the following:
- - Royalty income and interest income are recorded in the period in which
amounts are received by the Trust rather than in the months of production.
- - 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 Unitholders are recorded when declared by the Trustee (see
Note 4).
10
The financial statements of the Trust differ from financial statements
prepared in accordance with GAAP because royalty income is not accrued in the
period of production, general and administrative expenses recorded are based on
liabilities paid and cash reserves established rather than on an accrual basis,
and amortization of the Royalty Interests is not charged against operating
results.
The net amount of royalty interests in gas properties is limited to the sum
of the future net cash flows attributable to the Trust's gas reserves at year
end using current unescalated product prices plus the estimated future Section
29 credits for federal income tax purposes. If the net cost of royalty
interests in gas properties exceeds this amount, an impairment provision will be
recorded and charged to the trust corpus.
3. FEDERAL INCOME TAXES
The Trust is a grantor trust for Federal income tax purposes. As a grantor
trust, the Trust will not be required to pay Federal or state income taxes.
Accordingly, no provision for income taxes has been made in these condensed
financial statements.
Because the Trust will be treated as a grantor trust, and because a
Unitholder will be treated as directly owning an interest in the Royalty
Interests, each Unitholder will be taxed directly on his per Unit share of
income attributable to the Royalty Interests consistent with the Unitholder's
method of accounting and without regard to the taxable year or accounting method
employed by the Trust.
Production from coal seam gas wells drilled after December 31, 1979 and
prior to January 1, 1993, qualifies for the Federal income tax credit for
producing nonconventional fuels under Section 29 of the Internal Revenue Code.
This tax credit is calculated annually based on each year's qualified production
through the year 2002. Such credit, based on the Unitholder's pro rata share of
qualifying production, may not reduce his regular tax liability (after the
foreign
9
tax credit and certain other non-refundable credits) below his alternative
minimum tax. Any part of the Section 29 credit not allowed for the tax year
solely because of this limitation is subject to certain carryover provisions.
Each Unitholder should consult his tax advisor regarding Trust tax compliance
matters.
4. DISTRIBUTIONS TO UNITHOLDERS
The Trustee determines for each quarter the amount of cash available for
distribution to Unitholders. Such amount (the "Quarterly Distribution Amount")
is an amount equal to the excess, if any, of the cash received by the Trust, on
or before the last business day before the 50th day following the end of each
calendar quarter from the Royalty Interests attributable to production during
such quarter, plus, with certain exceptions, any other cash receipts of the
Trust during such quarter, over the liabilities of the Trust paid during such
quarter, subject to adjustments for changes made by the Trustee during such
quarter in any cash reserves established for the payment of contingent or future
obligations of the Trust.
The Quarterly Distribution Amount for each quarter is payable to
Unitholders of record on the 63rd day following the end of such calendar quarter
unless such day is not a business day
11
in which case the record date is the next
business day thereafter. The Trustee distributes the Quarterly Distribution
Amount on or prior to the 75th day after the end of each calendar quarter to
each person who was a Unitholder of record on the associated record date,
together with interest estimated to be earned on such amount from the date of
receipt thereof by the Trustee to the payment date.
The Royalty Interests may be sold under certain circumstances and will be
sold following termination of the Trust. A special distribution will be made of
undistributed net sales proceeds and other amounts received by the Trust
aggregating in excess of $10,000,000 (a "Special Distribution Amount"). The
record date for a Special Distribution Amount will be the 15th day following
receipt of amounts aggregating a Special Distribution Amount by the Trust
(unless such day is not a business day in which case the record date will be the
next business day thereafter) unless such day is within 10 days prior to the
record date for a Quarterly Distribution Amount in which case the record date
will be the date as is established for the next Quarterly Distribution Amount.
Distribution to Unitholders of a Special Distribution Amount will be made no
later than 15 days after the Special Distribution Amount record date.
125. The Trust is a defendant in a lawsuit incurred in the ordinary course of
its business. It is the opinion of the Trust that the outcome of the suit now
pending will not have a material adverse effect on the operational cash flow or
financial position of the Trust.
10
Item 2. Trustee's Discussion and Analysis of Financial Condition and Results
of Operations
The Trust makes quarterly cash distributions to holders of units of
beneficial interest ("Units") in the Trust ("Unitholders"). The only assets of
the Trust, other than cash and cash equivalents being held for the payment of
expenses and liabilities and for distribution to Unitholders, are certain net
profits interests (the "Royalty Interests") in certain proved coal seam gas
properties located in the Fruitland coal formation underlying the Northeast
Blanco Unit in the San Juan Basin of New Mexico (the "Underlying Properties").
The Royalty Interests owned by the Trust burden the net revenue interest in the
Underlying Properties that is owned by Meridian Oil Production Inc. ("MOPI") and
not the Trust. Effective January 1, 1996, MOPI was merged with and into
Meridian Oil Inc. ("MOI"), a wholly-owned subsidiary of Burlington Resources.
Accordingly, references in this Form 10-Q to MOPI refer to MOI after the
effective date of such merger. Effective July 11, 1996, MOI changed its name to Burlington Resources Oil & Gas
Company ("BROG") and Meridian Oil Trading Inc. ("MOTI") and Meridian Oil
Gathering Inc. ("MOGI"), an affiliateboth affiliates of MOPI,MOI, changed its nametheir names to
Burlington Resources Trading Inc. ("BRTI") and Burlington Resources Gathering
Inc. ("BRGI"), respectively. Accordingly, references in this Form 10-Q to MOPI
refer to BROG, references to MOTI refer to BRTI and references to MOGI refer to
BRGI.
Distributable income of the Trust consists of the excess of royalty income
plus interest income over the general and administrative expenses of the Trust.
Upon receipt by the Trust, royalty income is invested in short-term investments
in accordance with the Trust Agreement (as defined in Note 1 to the condensed
financial statements of the Trust appearing elsewhere in this Form 10-Q ("Note
1")) until its subsequent distribution to Unitholders.
The amount of distributable income of the Trust for any quarter may differ
from the amount of cash available for distribution to Unitholders in such
quarter due to differences in the treatment of the expenses of the Trust in the
determination of those amounts. The condensed financial statements of the Trust
are prepared on a modified cash basis pursuant to which the expenses of the
Trust are recognized when paid or reserves are established for them.
Consequently, the reported distributable income of the Trust for any quarter is
determined by deducting from the income received by the Trust the amount of
expenses paid by the Trust during such quarter. The amount of cash available
for distribution to Unitholders, however, is determined in accordance with the
provisions of the Trust Agreement and reflects the income actually received by
the Trust less the amount of expenses actually paid by the Trust and adjustment
for changes in reserves for unpaid liabilities. See Note 4 to the condensed
financial statements of the Trust appearing elsewhere in this Form 10-Q for
additional information regarding the determination of the amount of cash
available for distribution to Unitholders.
Three Months and Nine Months Ended September 30, 1996March 31, 1997 Compared to Three Months Ended March 31, 1996
- ------------------------------------------------------------------------------
and Nine Months Ended September 30, 1995
- -----------------------------------------------------------------------------------------------------------------------
Royalty income received by the Trust in a given calendar quarter generally
consists of 95% of the NPI Net Proceeds (as defined in Note 1) during the
preceding calendar quarter. Royalty income for the thirdfirst quarter of 19961997
amounted to $2,423,156$1,471,920 as compared to $3,527,726$3,101,139 for the same quarter in 1995.
For the nine months ended September 30, 1996, royalty income received by the
Trust amounted to $8,376,309 as compared to $10,647,614 received for the same
period in 1995.1996.
Gas production related to the royalty income received by the Trust in the thirdfirst
quarter of 19961997 was 2.92.7 Bcf compared to 3.53.3 Bcf for the same quarter in 13
1995.1996.
The lower gas production, and the corresponding decrease in royalty
income, in the thirdfirst quarter of 19961997 as compared to the same
11
period in 1995 is
primarily due to1996 reflects the natural decline of production from the coal seam
formation. In addition, the decrease in income to the Trust in the first quarter
of 1997 as compared to the same period in 1996 also reflects both the
aforementioned decline in production and the recoupment of price credits as
described herein below. The average net price for gas after consideration of
costs in the thirdfirst quarter of 19961997 was $1.06/$.99/Mcf compared to $1.08/Mcf in the
thirdfirst quarter of 1995.1996.
Costs deducted to determine the net proceeds received include production
taxes, which are calculated on gross proceeds, operating costs and certain
capital costs. Production tax fluctuations are in correlation to changes in
royalty proceeds and operating costs and have remained relatively stable.
During the quarter ended September 30, 1996,March 31, 1997, approximately $365,000$823,000 was charged
against the gross proceeds of the Trust relating to the expansion of the current
gas gathering system. Capital costs of this nature are allowed under the
Conveyance Agreement.
Interest income for the quarter ended September 30, 1996March 31, 1997 was $6,676$3,678 as compared
to $9,267$8,008 for the same quarter in 1995. Interest income for the nine
months ended September 30, 1996 was $22,184 as compared to $29,021 for the same
period in 1995.1996. General and administrative expenses are
primarily related to administrative services provided to the Trust. The general
and administrative expenses during the quarter ended September 30, 1996March 31, 1997 amounted to
$121,255$196,286 compared to $138,836$189,378 for the same quarter in 1995. General and administrative
expenses for the nine months ended September 30, 1996 was $532,286 as compared
to $587,167 for the same period in 1995.1996.
Distributable income for the quarter ended September 30, 1996March 31, 1997 was $2,308,577$1,279,312 or
$.26$.15 per Unit compared to $3,398,157$2,919,769 or $.39$.33 per Unit for the thirdfirst quarter of
1995. Distributable income for the nine months ended September
30, 1996 was $7,866,207 or $.89 per Unit compared to $10,089,468 or $1.15 per
Unit for the same period in 1995.1996. The Trust made a distribution on September
13, 1996March 14, 1997 of $.255385$.147801 per Unit to
Unitholders of record on September 3, 1996.March 4, 1997.
Royalty income to the Trust is attributable to the sale of depleting
assets. All of the Underlying Properties burdened by the NPI consist of
producing properties. Accordingly, the proved reserves attributable to MOPI's
interest in the Underlying Properties are expected to decline substantially
during the term of the Trust and a portion of each cash distribution made by the
Trust will, therefore, be analogous to a return of capital. Accordingly, cash
yields attributable to the Units are expected to decline over the term of the
Trust.
Royalty income received by the Trust in a given calendar quarter will
generally reflect the proceeds from the sale of gas produced from the Underlying
Properties during the preceding quarter. Accordingly, the royalty income
included in distributable income for the quarter ended September 30, 1996March 31, 1997 was based
on production volumes and natural gas prices for the period AprilOctober 1 through
June 30,December 31, 1996 in accordance with the terms of the conveyance of the Royalty
Interests to the Trust, as shown in the table below. The production volumes
included in the table below are actual net production volumes from MOPI's
interest in the Underlying Properties, and not for production attributable to
the Trust's Royalty Interests.
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For the For the
Three Months Three Months
Ended Ended
June 30,December 31, 1996 June 30,December 31, 1995
------------- ------------------------------ -----------------
Production (Bcf)(1)........... 3.081 3.7352.890 3.458
Production (Trillion Btu)(2).. 2.780 3.3732.571 3.123
Average Inside FERC Price
-----------
($/MMBtu)(3)................ $1.138 $1.142$ 2.51 $ 1.28
MOPI Average Entitled Price
Received ($/MMBtu)(4)....... $1.175 $1.198$ 1.11 $ 1.20
(1) Billion Cubic Feet of natural gas.
(2) Trillion British Thermal Units.
(3) The posted index price (Inside FERC) of spot gas delivered to pipelines.
-----------
(4) Average Inside FERC Price less allowable deductions.
-----------
Production attributable to MOPI's interest in the Underlying Properties is
generally sold pursuant to a gas purchase contract between MOPI and MOTI. The
gas purchase contract provides certain protections for MOTI in the form of price
credits and for Unitholders when the applicable Blanco Hub Spot Price falls
below $1.65 per MMBtu and provides certain benefits for MOTI when the Blanco Hub
Spot Price exceeds $2.10 per MMBtu. The gas purchase contract also provides
that the price paid for gas by MOTI is reduced by the amount of gathering and/or
transportation charges, taxes, treating and processing costs and all other costs
payable in connection with such services from the central gathering point to
main line delivery paid by MOTI.
The Blanco Hub Spot Price was below $1.65 per MMBtu in each month of
production relating to revenue received by the Trustfor all months during
all of 19951996 and the first seven monthsquarter of 1996. In1997 except August, November and December of 1996
the price exceeded the $1.65
minimum.and January and February of 1997. However, pursuant to the terms of the gas
purchase contract, in those months in which such price was below $1.65 per
MMBtu, MOTI continued to purchase gas attributable to MOPI's interest in the
Underlying Properties at the $1.60 per MMBtu minimum purchase price, less
deductible costs paid by MOTI, established by the gas purchase contract, resulting in a net average gas
price received for the third quarter of 1996 of $1.17 per MMBtu.contract; and
MOTI received a price credit from MOPI for each MMBtu of natural gas so
purchased by MOTI equal to the difference between the $1.60 minimumper MMBtu purchase
price and the applicable index price (which price is equal to 97 percent of the
applicable Blanco Hub Spot Price). MOTI estimates that as of September 30, 1996,March 31, 1997,
MOTI had aggregate price credits of approximately $9.9$8.0 million of which the
Trust's 95 percent interest was approximately $9.4$7.6 million. TheWith the Blanco Hub
Spot Price was
also belowabove $1.65 per MMBtu in Septemberduring November and October 1996. This balanceDecember of 1996, royalty
income otherwise receivable by the Trust during the first quarter of 1997 was
partially offset by areduced due to partial recoupment of the aggregate price credits. Approximately
$930,000 of price credits were recouped by MOTI due to the higher Blanco Hub
Spot Prices in August, 1996November and December of $229,698
for MOTI's and $218,213 for the Trust interest.1996.
The entitlement of MOTI to recoup the price credits means that if and when
the applicable Blanco Hub Spot Price risesis above $1.65 per MMBtu, future royalty
income paid to the Trust will be reduced until such time as suchall accrued and
unrecouped price credits have been fully recouped.recovered by MOTI. Corresponding cash
distributions to Unitholders would also be reduced. 15As is the case in the first
quarter of 1997, reduced royalty income to the Trust correspondingly reduces
cash distributions to Unitholders.
13
The information in this Form 10-Q concerning production and prices relating
to MOPI's interest in the Underlying Properties is based on information prepared
and furnished by MOPI to the Trustee. The Trustee has no control over and no
responsibility relating to the operation of the Underlying Properties.
This report on Form 10-Q includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this Form 10-Q, including,
without limitation, statements contained in this "Trustee's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the Trust's
financial position and industry conditions, are forward-looking statements.
Although the Trustee believes that the expectations reflected in such forward-
looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the quarter for which this
report is filed.
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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.
BURLINGTON RESOURCES COAL SEAM GAS
ROYALTY TRUST
By: NATIONSBANK OF TEXAS, N.A., Trustee
By: /s/ Ron Hooper
------------------------------------------------------------------------
Ron Hooper
Vice President
Date: NovemberMay 13, 19961997
(The Trust has no directors or executive officers.)
1715