1
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 June 30, 1997March 31, 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: 1-12058
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 1700
Dallas, Texas 75202
(Address of principal executive offices)
(Zip code)
(214) 508-2304508-2400
(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 June 30, 1997:May 1, 1998:
8,800,000
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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, 1996,1997, 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, 1996.1997. The December 31, 19961997 balance sheet is derived
from the audited balance sheet of that date. In the opinion of the Trustee, all
adjustments consisting of normal recurring adjustments necessary to present
fairly the assets, liabilities and trust corpus of the Trust as of June 30, 1997,March 31,
1998, the distributable income for the three month and six
month periods ended June 30, 1997 and 1996 and the changes in trust corpus for the sixthree
month periods ended June 30,March 31, 1998 and 1997, and 1996, 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 June 30, 1997March 31, 1998 and for the
three month and six month periods ended June 30,March 31, 1998 and 1997, and 1996, included herein, have been
reviewed by Deloitte & Touche LLP, independent certified public accountants, as
stated in their report appearing herein.
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Independent Accountants' 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 June
30, 1997,March
31, 1998, and the related condensed statements of distributable income for the
three month and six month periods ended June 30, 1997 and 1996 and
changes in trust corpus for the sixthree month periods ended June 30, 1997March 31, 1998 and
1996.1997. 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, 1996,1997, 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 21, 1997,27, 1998, 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, 1996,1997, 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
August 8, 1997May 11, 1998
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BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST
CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
- ------------------------------------------------------------
June 30,March 31,
1998 December 31,
(unaudited) 1997
1996
----------- ------------
(unaudited)
ASSETS-----------
ASSETS
Cash and cash equivalents $ 27,80545,213 $ 158,25150,819
Royalty interests in gas
properties (less accumulated
amortization of $81,058,629$91,329,036
at June 30, 1997March 31, 1998 and $73,028,120$86,861,742
at December 31, 1996) 99,341,371 107,371,8801997) 89,070,964 93,538,258
----------- -----------------------
TOTAL ASSETS $99,369,176 $107,530,131$89,116,177 $93,589,077
=========== =======================
LIABILITIES AND TRUST CORPUS
Trust expenses payable $ 107,118116,405 $ 201,966104,149
Trust corpus -
8,800,000 units of beneficial
interest authorized, issued and
outstanding 99,262,058 107,328,16588,999,772 93,484,928
----------- -----------------------
TOTAL LIABILITIES
AND TRUST CORPUS $99,369,176 $107,530,131$89,116,177 $93,589,077
=========== =======================
The accompanying notes are an integral part of these
condensed financial statements.
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BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
- --------------------------------------------------------
FOR FOR
THE THREE THE THREE
MONTHS ENDED MONTHS ENDED
June 30,MARCH 31, 1998 MARCH 31, 1997
June 30, 1996
------------- --------------------------- --------------
Royalty income $1,618,799 $2,852,014$ 1,424,354 $ 1,471,920
Interest income 3,912 7,500
---------- ----------
1,622,711 2,859,5144,448 3,678
----------- -----------
1,428,802 1,475,598
General and administrative
expenses (222,234) (221,653)
---------- ----------(186,193) (196,286)
----------- -----------
Distributable income $1,400,477 $2,637,861
========== ==========$ 1,242,609 $ 1,279,312
=========== ===========
Distributable income per
unit (8,800,000 units) $ .16.14 $ .30
========== ==========.15
=========== ===========
The accompanying notes are an integral part of these
condensed financial statements.
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BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST
CONDENSED STATEMENTS OF DISTRIBUTABLE INCOMECHANGES IN TRUST CORPUS (UNAUDITED)
- --------------------------------------------------------
FOR FOR
THE SIXTHREE THE SIXTHREE
MONTHS ENDED MONTHS ENDED
June 30,MARCH 31, 1998 MARCH 31, 1997 June 30, 1996
------------- -------------
Royalty income $3,090,719 $5,953,153
Interest income 7,589 15,508
---------- ----------
3,098,308 5,968,661
General and administrative
expenses (418,520) (411,031)
---------- ----------Trust corpus, beginning
of period $ 93,484,928 $ 107,328,165
Amortization of royalty
interest (4,467,294) (4,115,912)
Distributable income $2,679,788 $5,557,630
========== ==========
Distributable income1,242,609 1,279,312
Distributions to
unitholders (1,260,471) (1,300,654)
------------- -------------
Trust corpus, end
of period $ 88,999,772 $ 103,190,911
============= =============
Distributions per unit
(8,800,000 units) $ .30.14 $ .63
========== ==========.15
============= =============
The accompanying notes are an integral part of these
condensed financial statements.
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BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST
CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
- -----------------------------------------------------------
FOR FOR
THE SIX THE SIX
MONTHS ENDED MONTHS ENDED
June 30, 1997 June 30, 1996
------------- -------------
Trust corpus, beginning
of period $107,328,165 $123,534,740
Amortization of royalty
interest (8,030,508) (10,282,606)
Distributable income 2,679,788 5,557,630
Distributions to
unitholders (2,715,387) (5,559,182)
------------ ------------
Trust corpus, end
of period $ 99,262,058 $113,250,582
============ ============
Distributions per unit
(8,800,000 units) $ .31 $ .63
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
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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 MeridianBurlington Resources Oil Production Inc.,&
Gas Company, a Delaware corporation ("MOPI"BROG"), 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, MOPIMeridian Oil Production Inc. ("MOPI") was merged with and into
Meridian Oil Inc. ("MOI"), a wholly-owned subsidiary of Burlington Resources.
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"), both affiliates of MOI, changed their names to Burlington Resources
Trading Inc. ("BRTI") and Burlington Resources Gathering Inc. ("BRGI"),
respectively. Accordingly, with regard to the period prior to the date of such
name changes, references in this Form 10-Q to MOPIBROG refer to BROG,MOPI, references to
MOTIBRTI refer to BRTIMOTI and references to MOGIBRGI refer to BRGI.MOGI.
The Trust is a grantor trust formed to acquire and hold certain net
profits interests (the "Royalty Interests") in MOPI'sBROG'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, MOPIBROG contributed $1,000 as the
initial trust corpus of the Trust. On June 17, 1993, the Royalty Interests were
conveyed to the Trust by MOPIBROG 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. MOPIBROG
transferred its Units by dividend to its parent, Meridian Oil HoldingBurlington Resources, 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'sBROG'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.
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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 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'sBROG's interest therein.
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'sBROG'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, the term "NPI Net
Proceeds" generally means the aggregate proceeds attributable to MOPI'sBROG's net
revenue interest in the Underlying Properties (excluding the proceeds, if any,
from Infill Wells) calculated at the price paid by MOTIBRTI 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'sBROG's interest in the
Underlying Properties less MOPI'sBROG'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'sBROG's net revenue interest calculated at the
price paid by MOTIBRTI at the Central Gathering Point for the entitled volume of gas
produced and sold from MOPI'sBROG's interest in any Infill Wells less MOPI'sBROG'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 9
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.
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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:
- -o 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.
- -o General and administrative expenses recorded are based on
liabilities paid and cash reserves established out of cash
received.
- -o Amortization of the Royalty Interests is calculated on a
unit-of-production basis and charged directly to trust corpus
when revenues are received.
- -o Distributions to Unitholders are recorded when declared by the
Trustee (see Note 4).
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.
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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
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10
qualifying production, may not reduce his regular tax liability (after the
foreign 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 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.
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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 MeridianBurlington Resources Oil Production Inc.& Gas Company
("MOPI"BROG") and not the Trust. Effective January 1, 1996, MOPIMeridian Oil Production
Inc. ("MOPI") was merged with and into Meridian Oil Inc. ("MOI"), a wholly-owned
subsidiary of Burlington Resources. 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"), both affiliates of MOI,
changed their names to Burlington Resources Trading Inc. ("BRTI") and Burlington
Resources Gathering Inc. ("BRGI"), respectively. Accordingly, with regard to the
period prior to the date of such name changes, references in this Form 10-Q to
MOPIBROG refer to BROG,MOPI, references to MOTIBRTI refer to BRTIMOTI and references to MOGIBRGI
refer to BRGI.MOGI.
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 Six Months Ended June 30, 1997March 31, 1998 Compared to Three Months and Six
- --------------------------------------------------------------------------------
Months Ended June 30, 1996
- --------------------------March 31, 1997
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 secondfirst quarter of 19971998
amounted to $1,618,799$1,424,354 as compared to 12
$2,852,014$1,471,920 for the same quarter in 1996.1997.
Gas production related to the royalty income received by the Trust in the secondfirst
quarter of 19971998 was 2.62.9 Bcf compared to 3.12.7 Bcf for the same quarter in 1996.1997.
The lower gas production in
the second quarter of 1997 as compared to the same period in 1996 reflects the
natural decline of production from the coal seam formation. In addition, the decrease in
royalty income11
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revenue to the Trust was the result of slightly lower prices than in the secondfirst
quarter of 1997 as
compared to the same period in 1996 reflects both the aforementioned decline in
production and the recoupment of price credits as described herein below.1997. The average net price for gas after consideration of costs in
the secondfirst quarter of 19971998 was $1.00/$.95/Mcf compared to $1.07/$.99/Mcf in the secondfirst quarter
of 1996. For the
six months ended June 30, 1997, royalty income received by the Trust amounted to
$3,090,719 as compared to $5,953,153 received for the same period in 1996. Gas
production related to the royalty income received by the Trust for the six month
period ended June 30, 1997 was 5.3 Bcf compared to 6.4 Bcf for the same period
in 1996. The average net price for gas after consideration of costs in the six
month period ended June 30, 1997 was $.99/Mcf compared to $1.07/Mcf in the same
period in 1996. These declines for the six month periods are attributed to the
reasons stated above.1997.
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 three and six monthsquarter ended June 30, 1997,March 31, 1998, approximately $192,000 and
$1,015,000, respectively,$561,000 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 June 30, 1997March 31, 1998 was $3,912$4,448 as
compared to $7,500$3,678 for the same quarter in 1996. Interest income for the six months ended
June 30, 1997 was $7,589 as compared to $15,508 for the same period for 1996.
This decrease in interest income is primarily the result of less funds available
for investment.1997. General and administrative
expenses are primarily related to administrative services provided to the Trust.
The general and administrative expenses during the quarter ended June 30, 1997March 31, 1998
amounted to $222,234$186,193 compared to $221,653$196,286 for the same quarter in 1996. General and administrative expenses for
the six month period ended June 30, 1997 were $418,520 as compared to $411,031
for the same period for 1996.1997.
Distributable income for the quarter ended June 30, 1997March 31, 1998 was
$1,400,477$1,242,609 or $.16$.14 per Unit compared to $2,637,861$1,279,312 or $.30$.15 per Unit for the
secondfirst quarter of 1996. Distributable income for the six month period ended June 30, 1997 was
$2,679,788 as compared to $5,557,630 for the same period for 1996.1997. The Trust made a distribution on June 13, 1997March 16, 1998 of
$.160766$.143235 per Unit to Unitholders of record on June 2, 1997.March 4, 1998.
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'sBROG'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 June 30, 1997March 31, 1998 was based
on production volumes and natural gas prices for the period January
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October 1 1997 through
MarchDecember 31, 1997 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'sBROG'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
MarchDecember 31, 1997 MarchDecember 31, 1996
-------------- ------------------------------- -----------------
Production (Bcf)(1)........... 2.749 3.245.................................. 3,051 2.890
Production (Trillion Btu)(2).. 2.477 2.925......................... 2,742 2.571
Average Inside FERC Price
($/MMBtu)(3)...................................................... $ 2.712.69 $ 1.28
MOPI2.51
BROG Average Entitled Price
Received ($/MMBtu)(4).................................... $ 1.091.07 $ 1.191.11
(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.
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Production attributable to MOPI'sBROG's interest in the Underlying Properties
is generally sold pursuant to a gas purchase contract between MOPIBROG and MOTI.BRTI. The
gas purchase contract provides certain protections for MOTIBRTI 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 MOTIBRTI when the Blanco Hub
Spot Price exceeds $2.10 per MMBtu. The gas purchase contract also provides that
the price paid for gas by MOTIBRTI 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.BRTI.
The Blanco Hub Spot Price was below $1.65 per MMBtu for all months
during 1996 except August, November and December of 1996. The Blanco Hub Spot Price
was above $1.65 per MMBtu throughout the first and second quarter ofduring 1997 except for March and April of 1997. It1997, and
was also above such price during the first quarter of 1998. The price remained
above $1.65 per MMBtu for July 1997.April 1998. However, pursuant to the terms of the gas
purchase contract, in those months in which such price was below $1.65 per
MMBtu, MOTIBRTI continued to purchase gas attributable to MOPI'sBROG's interest in the
Underlying Properties at the $1.60 per MMBtu minimum purchase price, less
deductible costs paid by MOTI,BRTI, established by the gas purchase contract; and
MOTIBRTI received a price credit from MOPIBROG for each MMBtu of natural gas so
purchased by MOTIBRTI equal to the difference between the $1.60 per 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 June 30, 1997, MOTI had aggregate price credits of approximately $7.7
million of which the Trust's 95 percent interest was approximately $7.3 million.
With the Blanco Hub Spot Price above $1.65
per MMBtu 14
during JanuaryOctober, November and February ofDecember 1997, royalty income otherwise
receivable by the Trust during the secondfirst quarter of 19971998 was reduced due to partial
recoupment of the aggregate price credits. Approximately $1,044,896$1.3 million of price
credits were recouped by MOTIBRTI due to the higher Blanco Hub Spot Prices in
JanuaryOctober, November and FebruaryDecember of 1997. BRTI estimates that as of March 31,
1998, BRTI had aggregate price credits of approximately $5 million of which the
Trust's 95 percent interest was approximately $4.7 million.
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14
The entitlement of MOTIBRTI to recoup the price credits means that if and
when the applicable Blanco Hub Spot Price is above $1.65 per MMBtu, future
royalty income paid to the Trust will be reduced until such time as all accrued
and unrecouped price credits have been recovered by MOTI.BRTI. As was the case in the
secondfirst quarter of 1997,1998, reduced royalty income correspondingly reduces cash
distributions to Unitholders.
The information in this Form 10-Q concerning production and prices
relating to MOPI'sBROG's interest in the Underlying Properties is based on information
prepared and furnished by MOPIBROG to the Trustee. The Trustee has no control over
and no responsibility relating to the operation of the Underlying Properties.
Year 2000
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Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects virtually all companies and
organizations. If a company or organization does not successfully address its
Year 2000 issues, it may face material adverse consequences.
The Trust is reliant on the performance of BROG and third party
vendors for the receipt of Royalty income, payment of expenses and disbursement
of distributable income. The Trustee can provide no assurance as to whether
BROG and third party vendors will successfully address the Year 2000 issue. Any
failure by BROG or any of the third party vendors to successfully address the
Year 2000 issue could have a material adverse impact on the Trust and its
Unitholders.
Forward-Looking Statements
- --------------------------
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-
lookingforward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Inapplicable
PART II - OTHER INFORMATION
Item 5. Other Matters
On January 20, 1998, those certain parties listed in the Security
Ownership of Certain Beneficial Owners table (the "Ownership Table") set forth
in Item 12 of the Trust's Annual Report on Form 10-K for the year ended
December 31, 1997 (the "1997 Form 10-K")(such parties, collectively, "San
Juan") filed a Schedule 14D-1 with the Securities and Exchange Commission (the
"Commission") in connection with a tender offer to purchase exactly (and not
less than) 5,446,860 Units. The tender offer expired pursuant to its terms on
February 17, 1998.
According to Schedule 13D filings made by San Juan with the
Commission, following the expiration of its tender offer, San Juan has acquired
through a series of open market transactions additional Units resulting in
total holdings as of May 7, 1998, of 4,780,140 Units, representing
approximately 54.32% of all outstanding Units. According to the Offer to
Purchase filed by San Juan as an exhibit to its Schedule 14D-1, the purpose of
San Juan's tender offer was to acquire 67% of the outstanding Units so that it
could affect a vote to terminate the Trust, causing a liquidation of the
Trust's assets and a resulting distribution to Unitholders. Unitholders are
advised to consult the 1997 Form 10-K, particularly "Item 1--Description of the
Trust--Termination and Liquidation" for additional information in this regard.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No. Description
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27 Financial Data Schedule
(b) Reports on Form 8-K.
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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
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Ron Hooper
Vice President
Date: August 14, 1997May 12, 1998
(The Trust has no directors or executive officers.)
15
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INDEX TO EXHIBITS
Exhibit No. Description
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27 Financial Data Schedule