Ll&e Royalty Trust 10Q 2008 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


[ü]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008


[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-8518

LL&E ROYALTY TRUST

(Exact name of registrant as specified in its charter)


Texas		76-6007940
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

The Bank of New York Mellon Trust Company, N.A.,		78701 (Zip Code)
Trustee Global Corporate Trust 919 Congress Avenue Austin, Texas (Address of principal executive offices)

Registrant’s telephone number, including area code:(800) 852-1422

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 ü No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check one):


Large accelerated filer	Accelerated filer


Non-accelerated filer	Smaller reporting company ü

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes No ü

At January 29, 2009, 18,991,304 Units of Beneficial Interest in the registrant were outstanding.

TABLE OF CONTENTS


	Page

Part I. Financial Information		2
Item 1. Financial Statements:		2
Presentation of Financial Information		2
Statements of Cash Earnings and Distributions		3
Statements of Assets, Liabilities and Trust Corpus		3
Statements of Changes in Trust Corpus		3
Notes to Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3. Quantitative and Qualitative Disclosures about Market Risk		28
Item 4. Controls and Procedures		28
Part II. Other Information		30
Item 1A. Risk Factors		30
Item 6. Exhibits		30
Signature		31
EX-31
EX-32

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PART I


Item 1.	*Financial Statements.*

LL&E ROYALTY TRUST

Presentation of Financial Information

The accompanying unaudited financial statements of LL&E Royalty Trust (the “Trust”) have been prepared in accordance with the instructions toForm 10-Q. The financial statements were prepared on the basis of cash receipts and disbursements and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America. The information reflects all adjustments which, in the opinion of the Trustee, are necessary for a fair presentation of the results for the interim periods presented. The financial information should be read in conjunction with the financial statements and notes thereto included in the Trust’s Annual Report onForm 10-K for the year ended December 31, 2007. The cash earnings and distributions for the three and nine months ended September 30, 2008 are not necessarily indicative of the results to be expected for the year 2008.

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LL&E ROYALTY TRUST

Statements of Cash Earnings and Distributions

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007

Royalty revenues	$	82,854		$	163,563		$	632,268		$	1,132,523
Trust administrative expenses		(298,209	)		(330,507	)		(904,678	)		(1,002,811	)

Cash earnings (deficit)		(215,355	)		(166,944	)		(272,410	)		129,712
Changes in undistributed cash		215,355			166,944			272,410			386,020

Cash distributions	$	—		$	—		$	—		$	515,732

Cash distributions per Unit	$	—		$	—		$	—		$	.02716

Units outstanding		18,991,304			18,991,304			18,991,304			18,991,304

Statements of Assets, Liabilities and Trust Corpus


	September 30,			December 31,
	2008			2007
	(Unaudited)

ASSETS
Cash	$	59,573		$	331,983
Net overriding royalty interests in productive oil and gas properties and 3% royalty interests in fee lands (notes 2, 5 and 6)		76,282,000			76,282,000
Less: accumulated amortization (note 2)		(74,576,900	)		(74,576,900	)

Total assets	$	1,764,673		$	2,037,083


LIABILITIES AND TRUST CORPUS
Trust Corpus (18,991,304 Units of Beneficial Interest authorized, issued and outstanding)	$	1,764,673		$	2,037,083

Contingencies (note 7)
Total liabilities and trust corpus	$	1,764,673		$	2,037,083

Statements of Changes in Trust Corpus

(Unaudited)


	Nine Months Ended
	September 30,
	2008			2007

Trust Corpus, beginning of period (note 2)	$	2,037,083		$	2,616,186
Cash earnings (deficit)		(272,410	)		129,712
Cash distributions		—			(515,732	)
Amortization of royalty interest (note 2)		—			(13,000	)

Trust Corpus, end of period	$	1,764,673		$	2,217,166

The accompanying notes are an integral part of these financial statements.

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LL&E ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS

September 30, 2008


(1)	Formation of the Trust

On June 28, 1983, The Louisiana Land and Exploration Company (herein Working Interest Owner or Company) created the LL&E Royalty Trust (the “Trust”) and distributed Units of Beneficial Interest (Units) in the Trust to the holders of record of capital stock of the Company on the basis of one Unit for each two shares of capital stock held on June 22, 1983. On October 22, 1997, the shareholders of the Company approved a definitive agreement to merge with Burlington Resources Inc. (“BR”). Effective on that date, the Company became a wholly owned subsidiary of BR. On March 31, 2006, ConocoPhillips acquired BR via merger into Cello Acquisition Corp., a wholly owned subsidiary of ConocoPhillips. The surviving entity of the merger was Cello Acquisition Corp., which changed its name to Burlington Resources Inc. “New BR”. Consequently, “New BR” is a wholly owned subsidiary of ConocoPhillips. The merger has had no significant effects on the Trust. In December 2006, ConocoPhillips, as working interest owner, and ExxonMobil, as the operator of the Jay Field, sold their respective interests in the Jay Field properties located in Florida and Alabama to Quantum Resource Management (“Quantum”). Quantum began operating the Jay Field properties in April 2007. As used in this report, the terms “Working Interest Owner” and “Working Interest Owners” refer to ConocoPhillips for the South Pass 89 and Offshore Louisiana properties and, after its December 2006 acquisition of the Jay Field interest, Quantum, for the Jay Field properties.

Upon creation of the Trust, the Company conveyed to the Trust (a) net overriding royalty interests (Overriding Royalties), which are equivalent to net profits interests, in certain productive oil and gas properties located in Alabama, Florida, Texas and in federal waters offshore Louisiana (Productive Properties) and (b) 3% royalty interests (Fee Lands Royalties) in certain of the Company’s then unleased, undeveloped south Louisiana fee lands (Fee Lands). The Overriding Royalties and the Fee Lands Royalties are referred to collectively as the “Royalties.” Title to the Royalties is held by a partnership (Partnership) of which the Trust and the Company are the only partners, holding 99% and 1% interests, respectively.

The Trust is passive, with The Bank of New York Mellon Trust Company, N.A., (the Trustee), having only such powers as are necessary for the collection and distribution of revenues resulting from the Royalties, the payment of Trust liabilities and the conservation and protection of the Trust estate. The Units are listed on the New York Stock Exchange (NYSE symbol — LRT).

Status of the Trust

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LL&E ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS — (Continued)

pursuant to the Conveyances (the Trust’s pro rata portion of escrowed amounts relating to the future dismantlement of platforms are included in the net revenue calculation for this purpose).

Net revenues to the Trust for the years ended December 31, 2007 and 2006 calculated as described above, were approximately $1,600,000 and $2,100,000, respectively. Consequently, the Trust terminated effective December 31, 2007, and is in the process of selling the Royalties and liquidating the assets of the Trust.

As a result of the termination of the Trust, the Trustee will sell the assets of the Trust for cash (unless authorized by the holders of a majority of the Units to sell such assets for non-cash consideration consisting of personal property) upon such terms as the Trustee, in its sole discretion, deems to be in the best interest of the Unit holders. After paying or making provision for all actual and contingent liabilities of the Trust, including fees of the Trustee, the Trustee will distribute all remaining cash as promptly as practicable. Despite the termination of the Trust, the Trustee will continue to act as Trustee for purposes of liquidating and winding up the affairs of the Trust. The Trustee does not expect to make any further monthly distributions to Unit holders in the interim period prior to the distribution of the proceeds of the sale of the Trust’s assets.

The Trustee has retained Stifel, Nicolaus & Company, Incorporated (“Stifel Nicolaus”), a nationally recognized investment banking firm, to market the Trust’s assets. However, as announced by the Trustee on October 22, 2008, the Trustee has determined that, in light of market conditions, it is in the best interests of the Trust unit holders to postpone the sale of the Trust’s assets for an indefinite period of time. The Trustee anticipates that the postponement may be for up to six months; however, the postponement could be shorter or longer. The Trustee intends to review market conditions frequently, and intends to recommence the marketing process as soon as practicable. If any asset required to be sold has not been sold within three years after the termination of the Trust, the Trustee will cause the asset to be sold at public auction to the highest cash bidder, and will mail notice of any such public auction to all Unit holders at least 30 days prior to any such auction. Except in connection with any proposed non-cash sale, no approval of the Unit holders will be required in connection with the sale of the Trust’s assets.

As of September 30, 2008, the Trust had $59,573 in cash reserved for Trust expenses. Based on current general and administrative expenditures, in the absence of Royalty Revenues the Trustee expects that it will be required to borrow money in accordance with the Trust Agreement to fund future Trust expenses. However, no assurance can be given that the Trustee will be able to borrow money on terms the Trustee considers reasonable or at all. The Trust Agreement permits, but does not require, The Bank of New York Mellon Trust Company, N.A. or an affiliate to lend funds to the Trustee. In the event any loans are made to the Trust, the Trust Agreement will prohibit the Trustee from making any distributions to unitholders until those loans are repaid in full.

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LL&E ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS — (Continued)

approximately $437,000 as a result of a review conducted by an independent oil and gas accounting firm retained by the Trustee to review the Working Interest Owner’s calculation of amounts relevant to the determination of the net proceeds properly payable to the Trust under the Conveyances.

During 2005, Hurricanes Katrina and Rita affected the operational status of properties included in the Offshore Louisiana and South Pass 89 groups of properties, and Hurricane Dennis and Tropical Storm Cindy affected the operational status of the gas plant at Jay Field. The gas plant at Jay Field returned to full operating status on April 13, 2006. However, distributions to the Trust will be reduced significantly for a period of time as a result of the damage from these storms to the production facilities for properties in which the Trust has an interest. As a result of the uncertainty of future proceeds from these properties, the Trustee as of September 30, 2008 has reserved $59,573 that otherwise would have been distributed to the unitholders for the payment of the Trust’s likely expenses in the foreseeable future. The Trustee intends to hold these funds for use in the payment of future Trust expenses until it becomes reasonably clear that they are no longer necessary.

Following is a description of the damage caused by Hurricanes Katrina and Rita to production facilities and other matters related to properties in which the Trust has an interest. This information is based on assessments of damage the Working Interest Owner has received regarding damage from Hurricanes Katrina and Rita to the Offshore Louisiana and South Pass 89 properties. All of the information in this Report onForm 10-Q relating to the operational status of the properties was provided to the Working Interest Owner by the various operators of the properties in which the Trust has an interest, and was provided to the Trust by the Working Interest Owner. The Working Interest Owner is not the operator of any of these properties, and relies on the various operators for information regarding the operational status of the various properties. Consequently, all of the information provided herein is based on preliminary and sometimes informal information provided by the operators of the Properties. The information provided herein is based on the respective operators’ preliminary assessments of the damage to the production facilities. The Trustee has been informed that the assessments are ongoing, and that the assessments of damages, the predictions of the likelihood of repairs and time necessary to complete such repairs, the decisions to repair or abandon facilities, and all other estimates and predictions, are subject to change.

South Pass 89

Repairs due to Hurricane Katrina damage (August 2005) were completed in the fourth quarter of 2006 and the field was substantially restored to production in December 2006. The operator, Marathon Oil Company, had provided a cost estimate of $6,000,000 ($1,500,000 net to the Trust) to repair the South Pass 89 “B” platform, however the operator has indicated the actual cost to date is estimated at $6,500,000 ($1,600,000 net to the Trust).

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LL&E ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS — (Continued)

Offshore Louisiana Properties:

East Cameron 336

The Working Interest Owner had previously elected not to participate in proposed wellwork and remained responsible only for field abandonment costs. The lease expired in 2007 and the operator, Apache, informed the Working Interest Owner that it had abandoned the wells in the first half of 2008. The platform has not been abandoned yet and no cost estimates or actual costs have been received to date.

East Cameron 195

The East Cameron 195 platform was heavily damaged during Hurricane Rita; however, it was not a significant producer, had been shut in by the operator, Maritech, and had been approved for abandonment prior to Hurricane Rita. The operator’s early estimate of the wells-only abandonment for East Cameron 195 was $27,000,000 ($9,100,000 net to the Trust), however costs to date are estimated at $31,000,000 ($10,300,000 net to the Trust). These costs are for well abandonment only and do not include platform abandonment and debris removal costs. Well abandonment work began in February 2006 and was substantially finished in December 2006 (7 wells were plugged and abandoned and 3 wells have remaining plugging work that will be completed as part of the platform and debris removal process). Platform abandonment and debris removal work has not commenced and the Working Interest Owner has not received an estimated cost for such work from the operator.

South Marsh Island 76

The South Marsh Island 76 platform was heavily damaged during Hurricane Rita in 2005. The operator, Mariner, abandoned the wells in 2008 for a cost of $4,485,953 ($403,736 net to the Trust). No cost estimates have been received for the final platform debris removal and site clearance.

Jay Field:

In December 2006, the Working Interest Owner and ExxonMobil, as the operator of the Jay Field, sold their respective interests in the field to Quantum Resource Management LLC (Quantum). Quantum became the operator in April 2007 and informed the Trustee that it planned to evaluate alternative development strategies for Jay Field.

As a result of a review by an independent oil and gas accounting firm retained by the Trustee to review the Working Interest Owner’s calculation of amounts relevant to the determination of the net proceeds properly payable to the Trust under the Conveyances, the Trustee and the Working Interest Owner concluded that the Working Interest Owner had inadvertently included sulfur extraction processing costs at the Jay and Little Escambia Creek Field Unit desulfurization plant in the calculation of Jay Field Gross Proceeds. Because neither the Trustee nor the Working Interest Owner was able to quantify the amount of the sulfur extraction costs inadvertently included, the Trustee requested that the Working Interest Owner pay to the Trust royalties on the revenue generated by the sale of the sulfur in lieu of refunding the amount charged to the Trust’s interest. The Working Interest Owner agreed to do

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LL&E ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS — (Continued)

so, and made a single payment of approximately $437,000 to the Trust on March 7, 2008 to settle all issues relating to the inclusion of the sulfur extraction costs in the calculation of Jay Field Gross Proceeds through December 31, 2007. After December 31, 2007, the Working Interest Owner will address sulfur extraction costs in accordance with the terms of the Conveyances.

Other

The Working Interest Owner has advised the Trustee that the Working Interest Owner has completed its analysis of the scope and applicability of the insurance policies carried by the Working Interest Owner to the damages that resulted from Hurricanes Katrina and Rita to properties in which the Trust has an interest. The Working Interest Owner has advised the Trustee that, except as noted below, the Working Interest Owner believes it has received all of the insurance reimbursements it will receive for damages to the South Pass 89 and Offshore Louisiana properties, and has reported the amounts (net to the working interest owner’s interest) to the Trustee as follows:


Reimbursements received by the Working Interest Owner due to lost production (which will be reported as Other Revenue) as follows:
Offshore Louisiana Property
South Marsh Island 76 (Hurricane Rita)	$	1,275,000
Reimbursements received by the Working Interest Owner for operating costs (which will be reported as a reduction to lease operating expense) as follows:
South Pass 89
SP 89B (Hurricane Katrina)	$	816,088
SP 86C (Hurricane Katrina)	$	111,725
Offshore Louisiana Property
East Cameron 195 (Hurricane Rita)	$	6,525,937
South Marsh Island 76 (Hurricane Rita)	$	2,328,915
Eugene Island 261 (Hurricane Rita)	$	52,160
Vermillion 331 (Hurricane Rita)	$	206,259

The figures given above relate to the Working Interest Owner’s interest in the properties. The Trust’s interest in these amounts is 50% with respect to South Pass 89 and 90% with respect to Offshore Louisiana. The exception noted above relates to several making well safe claims for certain properties which have been denied by the Working Interest Owner’s insurers. The Working Interest Owner is evaluating the denials.

The Working Interest Owner further informed the Trustee that the insurance proceeds received will be applied, to the extent permitted by the Trust’s governing documents, to offset existing Excess Production Costs and to fund the Special Cost Escrows for Offshore Louisiana and South Pass 89.

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LL&E ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS — (Continued)

Because the existing Excess Production Costs at Offshore Louisiana through the June 2008 production month were approximately $10.9 million, the Trustee anticipates that all of the approximately $10.4 million allocable to Offshore Louisiana will be applied to reduce those Excess Production Costs, and that any balance would then be escrowed by the Working Interest Owner. Because the South Pass 89 Special Cost Escrow was fully funded (based on current estimates) as of the June production month, the Trustee anticipates that the approximately $928,000 allocable to South Pass 89 would be applied first to the approximately $488,000 of South Pass 89 Excess Production Costs existing as of the June 2008 production month, then to any additional Excess Production Costs relating to the subsequent production months, and finally to a cash distribution (in accordance with the Trust’s 50% interest) to the Trust. However, even if the Trust does receive a cash distribution relating to South Pass 89, because the Trust has unpaid expenses that are required to be paid prior to any distribution to the Unitholders, the Trustee does not anticipate that the allocation of the insurance proceeds will result in any distribution to Unitholders.

The Working Interest Owner has further informed the Trustee that although the work to secure and repair or replace damaged equipment and restore production at properties the operators have determined to repair has now been completed, work nevertheless remains ongoing to secure, plug, abandon and dismantle other properties in which the Trust has an interest and that the operators have determined to abandon. In particular, the work and expenses to plug, abandon and dismantle the facilities at South Marsh Island 76 and East Cameron 195 are expected to extend into 2009 or longer. The Working Interest Owner has informed the Trustee that these ongoing expenses are not insured.

The abandonment and repair costs estimated by the Working Interest Owner have had and are expected to have a material adverse effect on royalties payable from the South Pass 89 and Offshore Louisiana properties to the Trust, and from the Trust to Unit holders. As previously disclosed, the Working Interest Owner began escrowing funds otherwise distributable to the Trust from the South Pass 89 property and Offshore Louisiana properties, beginning with the April 2006 monthly distribution. Consequently, distributions from the Trust to the Unit holders have been eliminated for a period of time. The Trustee does not expect to make any further distribution prior to a final liquidating distribution after the sale of the Trust’s interests.


(2)	Basis of Presentation

The financial statements were prepared on the basis of cash receipts and distributions and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America that may require a liquidation basis of accounting. The cash basis of reporting revenues and expenses is considered to be the most meaningful because monthly distributions to the unit holders are based on net cash receipts.

The financial statements of the Trust do not include any adjustments as a result of the termination of the Trust as described in notes 1 and 3 and are prepared on the following basis:

(a) Royalties are recorded on a cash basis and are generally received by the Trustee in the third month following the month of production of oil and gas attributable to the Trust’s interest.

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LL&E ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS — (Continued)

(b) Trust expenses, which include accounting, engineering, legal and other professional fees, Trustee’s fees and out-of-pocket expenses, are recorded on a cash basis.

(c) Amortization of the net overriding royalty interests in productive oil and gas properties and the 3% royalty interest in Fee Lands, which is calculated on a unit-of-production basis, is charged directly to the Trust corpus since the amount does not affect cash earnings.

(d) The initial carrying value of the Trust’s royalty interests in oil and gas properties represents the Company’s cost on a successful efforts basis (net of accumulated depreciation, depletion and amortization) at June 28, 1983 applicable to the interest in the properties transferred to the Trust. Information regarding the calculation of the amount of such cost was supplied by the Company to the Trustee. The unamortized balance at September 30, 2008, is not necessarily indicative of the fair market value of the interests held by the Trust.

The preparation of the financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

The financial information furnished herein should be read in conjunction with the financial statements and notes thereto included in the Trust’s Annual Report onForm 10-K for the year ended December 31, 2007. The information furnished reflects all adjustments which are, in the opinion of the Trustee, necessary for a fair presentation of the results for the interim periods presented.


(3)	Going Concern

The accompanying financial statements have been prepared on the basis described in note 2. As discussed in note 1, the Trust’s net revenues did not exceed the $5,000,000 Termination Threshold stipulated by the Trust Agreement for the second consecutive year, thus requiring the Trust to terminate effective December 31, 2007. The accompanying financial statements do not include any adjustments as a result of the termination of the Trust.

The Trust has $59,573 in cash reserved for Trust expenses as of September 30, 2008. Based on current general and administrative expenditures, in the absence of Royalty Revenues the Trustee expects that it will be required to borrow money in accordance with the Trust Agreement to fund future Trust expenses. However, no assurance can be given that the Trustee will be able to borrow money on terms the Trustee considers reasonable or at all. The Trust Agreement permits, but does not require, The Bank of New York Mellon Trust Company, N.A. or an affiliate to lend funds to the Trustee. In the event any loans are made to the Trust, the Trust Agreement will prohibit the Trustee from making any distributions to unit holders until those loans are repaid in full.

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LL&E ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS — (Continued)


(4)	Net Overriding Royalty Interests and Fee lands Royalties

The instruments conveying the Overriding Royalties generally provide that the Working Interest Owners or any successor working interest owners will calculate and pay to the Trust each month an amount equal to various percentages of the Net Proceeds (as defined in the Conveyances of Overriding Royalty Interests) from the Productive Properties. For purposes of computing Net Proceeds, the Productive Properties have been grouped geographically into three groups of leases, each of which has been defined as a separate “Property.” Generally, Net Proceeds are computed on aProperty-by-Property basis and consist of the aggregate proceeds to the Working Interest Owners or any successor working interest owner from the sale of oil, gas and other hydrocarbons from each of the Productive Properties less: (a) all direct costs, charges, and expenses incurred by the Working Interest Owners in exploration, production, development and other operations on the Productive Properties (including secondary and tertiary recovery operations), including abandonment costs; (b) all applicable taxes, including severance and ad valorem taxes, but excluding income taxes except as described in note 5 below; (c) all operating charges directly associated with the Productive Properties; (d) an allowance for costs if costs and expenses for any Productive Property have exceeded proceeds of production from such Productive Property in a preceding month; and (e) charges for certain overhead expenses.

The Fee Lands Royalties consist of royalty interests equal to a 3% interest in the future gross oil, gas, and other hydrocarbon production, if any, from each of the Fee Lands, unburdened by the expense of drilling, completion, development, operating and other costs incident to production. In June 1993, pursuant to applicable law, the Fee Lands Royalties terminated as to all tracts not then held by production or maintained by production from other tracts. Additional tracts subsequently expired and, consequently, at September 30, 2008, the Fee Lands consisted of approximately 22,282 gross acres in South Louisiana approximately 1,062 of which were under lease.

As part of the termination procedures, the Trustee engaged an independent joint venture auditor in January 2004 to review payments to the Trust for a portion of the Trust properties as part of the termination of the Trust. The joint venture auditor reviewed the period from January 2004 through December 2007. The Trustee believed this engagement of an outside expert on these matters to be a prudent step to identify any potential benefits to the Trust, as well as any limitations on potential benefits, due to differing interpretations of accounting matters that commonly occur in the oil and gas production industry. The independent joint venture auditor issued reports for the periods from January 2004 through December 2006 and for the period from January 2007 through December 2007 on February 26, 2008 and September 15, 2008 respectively. It was the joint venture auditor’s opinion that the charges and credits and revenue to the trust were in accordance with the applicable agreements, except for certain items noted in the reports. The reports note exceptions as to amounts due to the Trust of $149,627 for the periods reviewed through December 2006 and $121,286 for 2007. ConocoPhillips has received a copy the reports and has advised the Trustee that ConocoPhillips agrees with the exceptions noted in both reports. ConocoPhillips made a single payment of approximately $437,000 to the Trust on March 7, 2008 to settle all issues raised by the report dated February 26, 2008. ConocoPhillips also advised the Trustee all outstanding exceptions detailed in the 2007 report are anticipated to be settled in the fourth quarter 2008.

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LL&E ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS — (Continued)


(5)	Federal Income Tax Matters

In May and June 1983, the Company applied to the Internal Revenue Service (IRS) for certain rulings, including the following: (a) the Trust would be classified for federal income tax purposes as a trust and not as an association taxable as a corporation, (b) the Trust would be characterized as a “grantor” trust as to the Unit holders and not as a “simple” or “complex” trust (a “non-grantor” trust), (c) the Partnership would be classified as a partnership and not as an association taxable as a corporation, (d) the Company would not recognize gain or loss upon the transfer of the Royalties to the Trust or upon the distribution of the Units to its stockholders, (e) each Royalty would be considered an economic interest in oil and gas in place, and each Overriding Royalty would constitute a single property within the meaning of Section 614(a) of the Internal Revenue Code, (f) the steps taken to create the Trust and the Partnership and to distribute the Units would be viewed for federal income tax purposes as a distribution of the Royalties by the Company to its stockholders, followed by the contribution of the Royalties by the stockholders to the Partnership in exchange for interests therein, which in turn was followed by the contribution by the stockholders of the interests in the Partnership to the Trust in exchange for Units, and (g) the transfer of a Unit of the Trust would be considered for federal income tax purposes to be the transfer of the proportionate part of the Partnership interest attributable to such Unit.

Subsequent to the distribution of the Units, the IRS ruled favorably on all requested rulings except (d). Because the rulings were issued after the distribution of the Units, however, the rulings could be revoked by the IRS if it changes its position on the matters they address. If the IRS changed its position on these issues, challenged the Trust and the Unit holders and was successful, the result could be adverse.

The Company withdrew its requested ruling (d) that the Company did not recognize gain or loss upon the transfer of the Royalties to the Trust or upon distribution of the Units to its stockholders because the IRS proposed to rule that the transfer and distribution resulted in the recapture of ordinary income attributable to intangible drilling and development costs under Section 1254 of the Code (IDC Recapture Income). Counsel for the Company expressed no opinion on this issue. The Company and the IRS subsequently litigated the issue, and in 1989 the Tax Court rendered an opinion favorable to the Company. The Tax Court held that the Company’s transfer of the Royalties to the Trust and its distribution of the Units to its stockholders did not constitute a disposition of “oil, gas, or geothermal property” within the meaning of Section 1254 of the Code. Consequently the Company was not required to recognize IDC Recapture Income on the disposition of the Royalties. The opinion of the Tax Court has become final and nonappealable.

These financial statements are prepared on the basis that the Trust will be treated as a “grantor” trust and that the Partnership will be treated as a partnership for federal income tax purposes. Accordingly, no income taxes are provided in the financial statements.

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LL&E ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS — (Continued)


(6)	Dismantlement Costs

According to the most recent reserve report, included in the Trust’s Annual Report onForm 10-K for the year ended December 31, 2007, the total future dismantlement costs to the Working Interest Owners are estimated to be $14,200,000 for the Jay Field property, $5,200,000 for the South Pass 89 property, and $13,700,000 for the Offshore Louisiana property. The Trust’s interests in these properties are equivalent to 50% of the net proceeds from Jay Field and South Pass 89 properties and 90% of the net proceeds from the Offshore Louisiana property. The Working Interest Owners, under the terms of the Trust Conveyances, are permitted to escrow funds from the Productive Properties for estimated future costs such as dismantlement costs and capital expenditures. Beginning with the April 2006 distribution, the Working Interest Owner elected to escrow funds from the South Pass 89 and Offshore properties due to significant increases in estimated dismantlement costs for the Offshore Louisiana property and capital expenditures for the South Pass 89 properties due to damage caused by Hurricanes Katrina and Rita. During the first nine months of 2008, the Working Interest Owner withheld $2,409,707 and $7,199,858 in escrow from the South Pass 89 and Offshore Louisiana Properties respectively. The Working Interest Owner expended $0 and $3,315,412 from the escrow funds for dismantlement costs incurred during the first nine months of 2008 for the South Pass 89 and Offshore Louisiana properties respectively.

The cumulative escrow balance as of September 30, 2008 was $4,543,402 for the Jay Field property and $6,500,000 for the South Pass 89 property, 50 percent of which would otherwise have been distributable to the Trust after recovery of excess production costs. The cumulative escrow balance as of September 30, 2008 for the Offshore Louisiana property was $7,840,294, 90 percent of which would otherwise have been distributable to the Trust after recovery of excess production costs. The Conveyances prohibit the Working Interest Owner from escrowing additional funds for estimated future Special Costs with respect to a particular Productive Property once the amount escrowed exceeds 125% of the aggregate estimated future Special Costs for that Property. The Conveyances permit the Working Interest Owner to release funds from any of the Special Costs escrows at any time if it determines in its sole discretion that there no longer exists a need for escrowing all or any portion of such funds. However, the Working Interest Owner is not required to do so.

The Working Interest Owner has advised the Trustee that it intends to continue monitoring its estimates of relevant factors in order to evaluate the necessity of escrowing funds on an ongoing basis. The Working Interest Owner is under no obligation to give any advance notice to the Trustee or the Unit holders in the event it determines that additional funds should be escrowed.

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LL&E ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS — (Continued)


(7)	Contingencies

The Trustee has been informed by ConocoPhillips that it or a subsidiary has been named as one of many defendants in certain lawsuits alleging the underpayment of royalties on the production of natural gas and natural gas liquids through the use of below-market prices, improper deductions, improper measurement techniques and transactions with affiliated companies. Plaintiffs in some of the lawsuits allege that the underpayment of royalties, among other things, resulted in false forms being filed by the defendants with the Minerals Management Service, thereby violating the civil False Claims Act.

If the plaintiffs are successful in the matters described above, the Working Interest Owner could be entitled to reimbursements for past periods attributable to properties covered by the Trust’s interest, which could decrease future royalty payments to the Trust’s interest. ConocoPhillips has informed the Trustee that at this time, it is not able to reasonably estimate the amount of any potential loss or settlement allocable to the Trust’s interest.

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Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations.*

The following discussion and analysis of the Trust’s financial condition and results of operations should be read in conjunction with the financial statements and notes thereto. Unless otherwise indicated, information presented or discussed herein is as of September 30, 2008.

Note Regarding Forward-looking Statements

ThisForm 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 thisForm 10-Q, including without limitation the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, are forward-looking statements. Although the Working Interest Owners have advised the Trust that they believe that the expectations reflected in the forward-looking statements contained herein are reasonable, no assurance can be given that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from expectations (“Cautionary Statements”) are disclosed in thisForm 10-Q and in the Trust’s Annual Report onForm 10-K for the year ended December 31, 2007, including without limitation in conjunction with the forward-looking statements included in thisForm 10-Q. All subsequent written and oral forward-looking statements attributable to the Trust or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements.

The unaudited data included in the financial statements and notes thereto in Item 1 are an integral part of this discussion and analysis and should be read in conjunction herewith. The information contained herein regarding operations and exploration and development activities on the properties burdened by the Royalties, and certain other matters, has been furnished by the Working Interest Owners.

Status of the Trust

The Trust Agreement provides that the Trust will terminate in the event that the net revenues fall below $5,000,000 for two successive years (the “Termination Threshold”). Net revenues are calculated as royalty revenues after administrative expenses of the Trust and as if the Trust had received its pro rata portion of any amounts being withheld by the Working Interest Owners or the Partnership under escrow arrangements or to make refund payments pursuant to the Conveyances (the Trust’s pro rata portion of escrowed amounts relating to the future dismantlement of platforms are included in the net revenue calculation for this purpose).

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Trustee does not expect to make any further monthly distributions to Unit holders in the interim period prior to the distribution of the proceeds of the sale of the Trust’s assets.

The Trustee has retained Stifel, Nicolaus & Company, Incorporated (“Stifel Nicolaus”), a nationally recognized investment banking firm, to market the Trust’s assets. However, as announced by the Trustee on October 22, 2008, the Trustee has determined that, in light of market conditions, it is in the best interests of the Trust unit holders to postpone the sale of the Trust’s assets for an indefinite period of time. The Trustee anticipates that the sale will occur during 2009; however, the sale could take longer. The Trustee intends to review market conditions frequently, and intends to recommence the marketing process as soon as practicable. If any asset required to be sold has not been sold within three years after the termination of the Trust, the Trustee will cause the asset to be sold at public auction to the highest cash bidder, and will mail notice of any such public auction to all Unit holders at least 30 days prior to any such auction. Except in connection with any proposed non-cash sale, no approval of the Unit holders will be required in connection with the sale of the Trust’s assets.

The Trustee has been advised by Quantum that Quantum believes it holds one or more preferential rights to purchase a portion of the interests held by the Trust in the Jay Field. Quantum has furnished documentation in support of its assertion to the Trustee. The Trustee has reviewed the documents furnished by Quantum, and has informed Quantum that the Trustee does not believe that the preferential purchase rights set forth therein would apply to the Trust’s sale of its interest in the Jay Field.

For the first nine months of 2008, the Trust did not receive any royalty revenue associated with the Jay Field, Offshore Louisiana or South Pass 89 properties. The Jay Field, South Pass 89 and Offshore Louisiana properties excess production costs as of September 30, 2008 were approximately $13,566,000, $488,000 and $10,937,000, respectively. The excess production costs must be recovered by the Working Interest Owners before any distribution of royalty revenues will be made to the Trust. In the first quarter 2008, the Trust received a single payment of approximately $437,000 as a result of a review conducted by an independent oil and gas accounting firm retained by the Trustee to review the Working Interest Owner’s calculation of amounts relevant to the determination of the net proceeds properly payable to the Trust under the Conveyances.

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are anticipated to be settled in the fourth quarter of 2008. The Trustee has engaged the joint venture auditor to review payments to the Trust from the remaining properties.

During 2005, Hurricanes Katrina and Rita affected the operational status of properties included in the Offshore Louisiana and South Pass 89 groups of properties. Distributions to the Trust will be reduced significantly for a period of time as a result of damage from these storms to the production facilities for properties in which the Trust has an interest. As a result of the uncertainty of future proceeds from these properties, the Trustee, as of September 30, 2008, has reserved $59,573 that otherwise would have been distributed to the unitholders for the payment of the Trust’s likely expenses in the foreseeable future. The Trustee intends to hold these funds for use in the payment of future Trust expenses until it becomes reasonably clear that they are no longer necessary.

All of the information in this Report onForm 10-Q relating to the operational status of the properties was provided to the Working Interest Owners by the various operators of the properties in which the Trust has an interest, and was provided to the Trust by the Working Interest Owners. ConocoPhillips is not the operator of any of these properties, and relies on the various operators for information regarding the operational status of the various properties. Consequently, all of the information provided herein is based on preliminary and sometimes informal information provided by the operators of the Properties.

Offshore Louisiana Properties:

East Cameron 336

The operator, Apache, informed the Working Interest Owner that it had abandoned the wells in the first half of 2008. No cost estimates or actual costs have been received to date. The platform has not been abandoned yet and no cost estimates have been received.

East Cameron 195

Well abandonment work began in February 2006 and was substantially finished in December 2006 (7 wells were plugged and abandoned and 3 wells have remaining plugging work that will be completed as part of the platform and debris removal process). Platform abandonment and debris removal work has not commenced and the Working Interest Owner has not received an estimated cost for such work from the operator.

South Marsh Island 76

The operator, Mariner, abandoned the wells in 2008 for a cost of $4,485,953 ($403,736 net to the Trust). No cost estimates have been received for the final platform debris removal and site clearance.

Jay Field

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to the Trust under the Conveyances, the Trustee and the Working Interest Owner concluded that the Working Interest Owner had inadvertently included sulfur extraction processing costs at the Jay and Little Escambia Creek Field Unit desulfurization plant in the calculation of Jay Field Gross Proceeds. Because neither the Trustee nor the Working Interest Owner was able to quantify the amount of the sulfur extraction costs inadvertently included, the Trustee requested that the Working Interest Owner pay to the Trust royalties on the revenue generated by the sale of the sulfur in lieu of refunding the amount charged to the Trust’s interest. The Working Interest Owner agreed to do so, and made a single payment of approximately $437,000 to the Trust on March 7, 2008 to settle all issues relating to the inclusion of the sulfur extraction costs in the calculation of Jay Field Gross Proceeds through December 31, 2007. After December 31, 2007, the Working Interest Owner will address sulfur extraction costs in accordance with the terms of the Conveyances.

Other


Reimbursements received by the Working Interest Owner due to lost production as follows:
Offshore Louisiana Property
South Marsh Island 76 (Hurricane Rita)	$	1,275,000
Reimbursements received by the Working Interest Owner for operating costs (which will be reported as a reduction to lease operating expense) as follows:
South Pass 89
SP 89B (Hurricane Katrina)	$	816,088
SP 86C (Hurricane Katrina)	$	111,725
Offshore Louisiana Property
East Cameron 195 (Hurricane Rita)	$	6,525,937
South Marsh Island 76 (Hurricane Rita)	$	2,328,915
Eugene Island 261 (Hurricane Rita)	$	52,160
Vermillion 331 (Hurricane Rita)	$	206,259

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The abandonment and repair costs estimated by the Working Interest Owner have had and are expected to have a material adverse effect on royalties payable from the and Offshore Louisiana properties to the Trust, and from the Trust to Unit holders. As previously disclosed, the Working Interest Owner began escrowing funds otherwise distributable to the Trust from the South Pass 89 property and Offshore Louisiana properties, beginning with the April 2006 monthly distribution. Consequently, distributions from the Trust to the Unit holders have been eliminated for a period of time. The Trustee does not expect to make any further distribution prior to a final liquidating distribution after the sale of the Trust’s interests.

Liquidity and Capital Resources

As stipulated in the Trust Agreement, the Trust is intended to be passive and the Trustee’s activities are limited to the receipt of revenues attributable to the Royalties, which revenues are to be distributed currently (after payment of or provision for Trust expenses and liabilities) to the owners of the Units. The Trust has no source of liquidity or capital resources other than the revenue, if any, attributable to the Royalties.

The Working Interest Owner, under the terms of the Trust Conveyances, is permitted to escrow funds from the Productive Properties for estimated future costs such as dismantlement costs and capital expenditures. According to the most recent reserve report, included in the Trust’s Annual Report onForm 10-K for the year ended December 31, 2007, the total future dismantlement costs to the Working Interest Owner are estimated to be $14,200,000 for the Jay Field property, $5,200,000 for the South Pass 89 property, and $13,700,000 for the Offshore Louisiana property. The Trust’s interests in these properties are equivalent to 50% of the net proceeds from Jay Field and South Pass 89 properties and 90% of the net proceeds from the Offshore Louisiana property.

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The cumulative escrow balance as of September 30, 2008 was $4,543,402 for the Jay Field property, and $6,500,000 for the South Pass 89 property, 50 percent of which would otherwise have been distributable to the Trust after recovery of excess production costs. The Trustee has been informed by the Working Interest Owner that the South Pass 89 Special Cost Escrow is fully funded, based on the Working Interest Owner’s most recent estimates, although those estimates remain subject to change. The cumulative escrow balance as of September 30, 2008 for the Offshore Louisiana property was $7,840,294, 90 percent of which would otherwise have been distributable to the Trust after recovery of excess production costs. The Conveyances prohibit the Working Interest Owners from escrowing additional funds for estimated future Special Costs with respect to a particular Productive Property once the amount escrowed exceeds 125% of the aggregate estimated future Special Costs for that Property. The Conveyances permit the Working Interest Owners to release funds from any of the Special Costs escrows at any time if they determine in their sole discretion that there no longer exists a need for escrowing all or any portion of such funds. However, the Working Interest Owners are not required to do so.

The Working Interest Owners have advised the Trustee that they intend to continue monitoring their estimates of relevant factors in order to evaluate the necessity of escrowing funds on an ongoing basis. The Working Interest Owners are under no obligation to give any advance notice to the Trustee or the Unit holders in the event they determine that additional funds should be escrowed.

Results of Operation


	Third Quarter						First Nine Months
	2008			2007			2008			2007

Royalty revenues	$	82,854		$	163,563		$	632,268		$	1,132,523
Trust administrative expenses		(298,209	)		(330,507	)		(904,678	)		(1,002,811	)

Cash earnings (deficit)		(215,355	)		(166,944	)		(272,410	)		129,712
Change in undistributed cash		215,355			166,944			272,410			386,020

Cash distributions	$	—		$	—		$	—		$	515,732

Cash distributions per unit	$	—		$	—		$	—		$	.02716

Units of beneficial interest		18,991,304			18,991,304			18,991,304			18,991,304

Revenues are generally received in the third month following the month of production of oil and gas attributable to the Trust’s interest. Both revenues and Trust expenses are recorded on a cash basis. Accordingly, distributions to Unit holders for the three-month and nine-month periods ended September 30, 2008 and 2007 (the 2008 and 2007 “Third Quarters” and “First Nine Months”, respectively) are attributable to the Working Interest Owners’ operations during the periods April through June (the “Three-Month Operating Periods”) of 2008 and 2007, respectively, and the periods October 2007 through June 2008 and October 2006 through June 2007 (the 2008 and 2007 “Nine-Month Operating Periods”, respectively).

There were no distributions made to the Unit holders for the 2008 and 2007 Third Quarter. As a result of the uncertainty of future proceeds from properties in which the Trust has an interest, the Trustee has reserved $59,573 in proceeds that otherwise would have been distributed to the Unit holders for the payment of the Trust’s likely

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expenses in the foreseeable future. The Trustee intends to hold these funds for use in the payment of future Trust expenses until it becomes reasonably clear that they are no longer necessary. During the Third Quarter 2008 and 2007, the Trust received cash of $82,854 and $163,563, respectively, from the Working Interest Owners with respect to the Royalties from the Properties.

The monthly per Unit distributions during the 2008 and 2007 Third Quarters were as follow:


	2008		2007

July	$	.0000	$	.0000
August		.0000		.0000
September		.0000		.0000

	$	.0000	$	.0000

There were no Distributions to the Unit holders for the First Nine Months of 2008 and Distributions to Unit holders for the First Nine Months of 2007 amounted to $515,732 ($.02716 per Unit). During these periods, the Trust received cash of $632,268 and $1,132,523, respectively, from the Working Interest Owners with respect to the Royalties from the Properties.

The following unaudited schedules provide summaries of the Working Interest Owners’ calculations of the Net Proceeds from the Properties and the Royalties paid to the Trust for the Third Quarter and First Nine Months of 2008:

Third Quarter 2008


				South			Offshore
	Jay Field			Pass 89			Louisiana			Total

Revenues:
Liquids	$	7,654,690		$	1,703,651		$	1,328,174		$	10,686,515
Natural gas		678,263			82,761			1,418,120			2,179,144

		8,332,953			1,786,412			2,746,294			12,865,659
Amounts withheld in escrow		—			—			(2,746,294	)		(2,746,294	)
Production costs and expenses(1)		(9,382,774	)		(150,198	)		(521,424	)		(10,054,396	)
Capital expenditures		(5,523,871	)		(36,304	)		(269,145	)		(5,829,320	)

Net Proceeds	$	(6,573,692	)	$	1,599,910		$	(790,569	)	$	(5,764,351	)

Overriding Royalties paid to the Trust(2)	$	—		$	—		$	—		$	—

Fee Lands Royalties											57,689
Fee Land overpayments (to be offset against future royalty payments)(4)											25,165

Other Proceeds Paid to the Trust											—

Royalties paid to the Trust										$	82,854

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First Nine Months 2008


				South			Offshore
	Jay Field			Pass 89			Louisiana			Total

Revenues:
Liquids	$	25,551,979		$	3,920,139		$	3,521,208		$	32,993,326
Natural gas		1,718,095			382,115			3,678,650			5,778,860

		27,270,074			4,302,254			7,199,858			38,772,186
Amounts withheld in escrow		—			(2,409,707	)		(7,199,858	)		(9,609,565	)
Production costs and expenses(1)		(25,883,775	)		(359,705	)		(1,134,251	)		(27,377,731	)
Capital expenditures		(10,623,720	)		(60,620	)		(1,655,302	)		(12,339,642	)

Net Proceeds	$	(9,237,421	)	$	1,472,222		$	(2,789,553	)	$	(10,554,752	)

Overriding Royalties paid to the Trust(2)	$	—		$	—		$	—		$	—

Fee Lands Royalties											170,555
Fee Land overpayments (to be offset against future royalty payments)(4)											25,165

Other Proceeds Paid to the Trust(3)											436,548
Royalties paid to the Trust										$	632,268


(1)		Interest earned on funds escrowed for estimated future dismantlement costs are reported as a reduction of production costs and expenses. Interest earned for the 2008 Third Quarter and 2008 First Nine Months was $186,930 and $572,704, respectively. Pursuant to the terms of the Trust Conveyances, interest earned on the escrowed funds for any month will be calculated at an interest rate equal to 80% of the median between the Prime Rate at the end of such month and the Prime Rate at the end of the preceding month.

		Processing fees earned on the South Pass 89 properties are shown as a reduction of production costs and expenses. For the 2008 Third Quarter, production costs and expenses include processing fee income of $210,632. For the First Nine Months of 2008, South Pass 89 processing fees earned were $640,238.

(2)		As a result of excess production costs incurred in one monthly operating period and then recovered in a subsequent monthly operating period(s), the Overriding Royalties paid to the Trust may not agree to the Trust’s royalty interest in the Net Proceeds.

(3)		In the first quarter 2008, the Trust received a single payment of $436,548 as a result of a review conducted by an independent oil and gas accounting firm retained by the Trustee to review the Working Interest Owner’s calculation of amounts relevant to the determination of the net proceeds properly payable to the Trust under the Conveyances.

(4)		As a result of inquiries by the Trustee, the working interest owner recalculated its computation of the Fee Lands royalties and determined that the Trust was overpaid $25,165 during the third quarter 2008. The overpayment will offset future Fee Lands royalties received by the Trust. In October and November 2008, royalty income was reduced by $16,925 and $8,240, respectively, to adjust for this overpayment.

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Third Quarter 2007


				South			Offshore
	Jay Field			Pass 89			Louisiana			Total

Revenues:
Liquids	$	4,857,168		$	534,018		$	518,217		$	5,909,403
Natural gas		20,779			—			319,785			340,564

		4,877,947			534,018			838,002			6,249,967
Amounts withheld in escrow		—			(534,018	)		(838,002	)		(1,372,020	)
Production costs and expenses(1)		(5,102,235	)		(458,346	)		(386,223	)		(5,946,804	)
Capital expenditures		—			(2,416	)		(383,308	)		(385,724	)

Net Proceeds	$	(224,288	)	$	(460,762	)	$	(769,531	)	$	(1,454,581	)

Overriding Royalties paid to the Trust(2)	$	—		$	—		$	—		$	—

Fee Lands Royalties											163,563

Royalties paid to the Trust										$	163,563

First Nine Months 2007


				South			Offshore
	Jay Field			Pass 89			Louisiana			Total

Revenues:
Liquids	$	14,460,012		$	2,849,173		$	1,222,546		$	18,531,731
Natural gas		20,779			97,759			844,405			962,943

		14,480,791			2,946,932			2,066,951			19,494,674
Amounts withheld in escrow		—			(2,946,932	)		(2,066,951	)		(5,013,883	)
Production costs and expenses(1)		(12,798,574	)		(745,448	)		(3,122,618	)		(16,666,640	)
Capital expenditures		(288,900	)		(2,416	)		(861,141	)		(1,152,457	)

Net Proceeds	$	1,393,317		$	(747,864	)	$	(3,983,759	)	$	(3,338,306	)

Overriding Royalties paid to the Trust(2)	$	808,803		$	—		$	—		$	808,803

Fee Lands Royalties											323,720

Royalties paid to the Trust										$	1,132,523

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(1)		Interest earned on funds escrowed for estimated future dismantlement costs are reported as a reduction of production costs and expenses. Interest earned for the 2007 Third Quarter and 2007 First Nine Months was $132,000 and $320,000, respectively. Pursuant to the terms of the Trust Conveyances, interest earned on the escrowed funds for any month will be calculated at an interest rate equal to 80% of the median between the Prime Rate at the end of such month and the Prime Rate at the end of the preceding month.

		Processing fees earned on the South Pass 89 properties are shown as a reduction of production costs and expenses. For the 2007 Third Quarter, production costs and expenses include processing fee income of $197,000. For the First Nine Months of 2007, South Pass 89 processing fees earned were $618,000.

(2)		As a result of excess production costs incurred in one monthly operating period and then recovered in a subsequent monthly operating period(s), the Overriding Royalties paid to the Trust may not agree to the Trust’s royalty interest in the Net Proceeds.

The following unaudited schedule provides a summary of the Working Interest Owners’ calculations of the Net Proceeds from the Properties and the Royalties paid to the Trust for the Third Quarter and First Nine Months of 2008 and 2007:


	Third Quarter						First Nine Months
	2008			2007			2008			2007

Net Proceeds:
Revenues	$	12,865,659		$	6,249,967		$	38,772,186		$	19,494,674
Amounts withheld in escrow		(2,746,294	)		(1,372,020	)		(9,609,565	)		(5,013,883	)
Production costs and expenses		(10,054,396	)		(5,946,804	)		(27,377,731	)		(16,666,640	)
Capital expenditures		(5,829,320	)		(385,724	)		(12,339,642	)		(1,152,457	)

Net Proceeds	$	(5,764,351	)	$	(1,454,581	)	$	(10,554,752	)	$	(3,338,306	)

Royalties paid to the Trust:
Overriding Royalties		—			—		$	—		$	808,803
Other proceeds paid to the Trust		—			—		$	436,548		$	—
Fee Lands Royalties		82,854			163,563			195,720			323,720

Royalties paid to the Trust	$	82,854		$	163,563		$	632,268		$	1,132,523

With respect to the Productive Properties in the Current Operating Period, revenues of the Working Interest Owners increased approximately 106% in the 2008 Three-Month Operating Period and increased approximately 99% in the 2008 Nine-Month Operating Period versus the comparable periods in 2007. Average crude oil, natural gas liquids and natural gas prices received by the Working Interest Owners in the 2008 Three-Month Operating Period attributable to the Productive Properties were $124.09 per barrel, $61.13 per barrel and $10.00 per thousand cubic feet (“mcf”), respectively. In the comparable 2007 period, average crude oil, natural gas liquids and natural gas prices were $64.69 per barrel, $42.23 per barrel and $8.50 per mcf, respectively. In the 2008 Nine-Month Operating Period, average crude oil, natural gas liquids and natural gas prices were $102.47 per barrel, $59.93 per

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barrel and $7.82 per mcf, respectively. In the comparable 2007 Nine-Month Operating Period, average crude oil, natural gas liquids and natural gas prices were $60.10 per barrel, $42.48 per barrel and $6.62 per mcf, respectively.

Imputed production attributable to the Trust is calculated by multiplying the gross production volumes attributable to the Productive Properties by the ratio of the net overriding royalties paid to the Trust to the gross revenues attributable to the Productive Properties. There was no imputed production for either the 2008 or 2007 Three-Month Operating Period. There were no imputed barrels of oil equivalent produced for the 2008 Nine-Month Operating Period and 13,858 imputed barrels of oil equivalent produced for the 2007 Nine-Month Operating Period.

Production costs and expenses incurred by the Working Interest Owners on the Productive Properties increased approximately 69% and 64% in the 2008 Three-Month Operating Period and the 2008 Nine-Month Operating Period, respectively, versus the comparable periods in 2007. The increase in the Three-Month and Nine-Month Operating Period is primarily due to plant turnaround costs, gas purchases, workover costs and severance taxes, which directly related to increased production in the Jay Field.

Capital expenditures increased 1,411% in the 2008 Three-Month Operating Period and increased 971% for the 2008 Nine-Month Operating Period versus the comparable periods in 2007. The increase in the Three-Month and Nine-Month Operating Period is primarily due to the purchase of air separation units and drilling activity in the Jay Field.

At September 30, 2008, the Fee Lands consisted of approximately 22,282 gross acres in south Louisiana, approximately 1,062 of which were under lease.

The Trustee has been informed by ConocoPhillips that it or a subsidiary has been named as one of many defendants in certain lawsuits alleging the underpayment of royalties on the production of natural gas and natural gas liquids through the use of below-market prices, improper deductions, improper measurement techniques and transactions with affiliated companies. Plaintiffs in some of the lawsuits allege that the underpayment of royalties, among other things, resulted in false forms being filed by the Working Interest Owners with the Minerals Management Service, thereby violating the civil False Claims Act.

If the plaintiffs are successful in the matters described above, revenues to the Trust could decrease. A judgment or settlement could entitle the Working Interest Owners to reimbursements for past periods attributable to properties covered by the Trust’s interest. ConocoPhillips has informed the Trustee that, at this time, it is not able to reasonably estimate the amount of any potential loss or settlement allocable to the Trust’s interest.

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Assets and Liabilities in the Process of Liquidation

As a result of the contractual termination of the Trust effective December 31, 2007, the Trust is in the process of liquidation. The table below presents the assets of the Trust at their estimated fair value, based solely on the assessment described below:

ASSETS


	September 30, 2008
Cash	$	59,573
Net overriding royalty interests in oil and gas properties and 3% royalty interests in fee lands		46,970,644

Net assets in process of liquidation	$	47,030,217

The net overriding royalty interest in oil and gas properties at December 31, 2007 reflect the Trustee’s estimate of value (in the absence of third-party appraisals or evaluations), based on the Trust’s share of estimated future net revenues from the net overriding royalty interest in the properties as of December 31, 2007. This estimate includes the following assumptions:


	•	The Trust’s estimated share of proved oil and gas reserve volumes at September 30, 2008, which were derived from the December 31, 2007 reserve report prepared by Miller and Lents and updated for first nine months of 2008 production. The Working Interest Owners have not prepared a reserve report as of September 30, 2008, and therefore any revisions in oil and gas reserves during the first nine months of 2008 have not been considered in the estimate of fair value of the net overriding royalty interest in oil and gas properties. The estimated fair value also does not include any value for probable or possible oil and gas reserves.

	•	The estimated fair value does not include any amounts related to Offshore Louisiana and South Pass 89 properties. The estimated share for these properties is not economical per the oil and gas reserve report.

	•	Forward strip commodity prices on September 30, 2008, which do not reflect the substantial decline in commodity prices since September 30, 2008.

	•	Includes approximately $5 million of future abandonment costs and approximately $7 million of excess production costs to be recouped by the Working Interest Owners, for the Jay Field property.

	•	Discount rate of 10%.

	•	Future income taxes were not taken into account.

The actual net proceeds from the sales of oil and gas properties may vary substantially from these estimates in value due to changes in current and estimated future oil and gas prices, subsequent production, estimates of actual abandonment costs and other factors.

For all other assets presented in the above table, the Trustee believes that historical cost approximates fair market value due to the short-term nature of such assets. The Trustee will add any future distributions to previously

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established reserves to pay Trust expenses, which will primarily consist of expenses incurred by the Trustee to liquidate the Trust’s assets. Any funds remaining after all expenses have been paid will be distributed to the Unit holders.

For more information regarding the estimated remaining life of each of the Royalty Properties and the estimated future net revenues of the Royalty Properties based on information provided by the Working Interest Owners to Miller and Lents, see pages 17 through 19 of theForm 10-K for the year ended December 31, 2007 and note 9 in the Notes to Financial Statements included elsewhere in theForm 10-K for the year ended December 31, 2007. For more information regarding the amounts escrowed by the Working Interest Owners as of December 31, 2007, see “Terms and Operations of the Trust — Terms of the Conveyances” in theForm 10-K for the year ended December 31, 2007.

Nothing herein should be interpreted as an assurance of the values of the assets held by the Trust. The actual value, if any, of such assets will be determined solely by the amount a buyer is willing to pay for the assets.

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Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

The Trust does not engage in any operations, and does not utilize market risk sensitive instruments, either for trading purposes or for other than trading purposes. As described in detail elsewhere herein, the Trust’s monthly distributions are highly dependent upon the prices realized from the sale of natural gas. Natural gas prices can fluctuate widely on a month-to-month basis in response to a variety of factors that are beyond the control of the Trust and the working interest owner. Factors that contribute to price fluctuation include, among others:


	•	political conditions worldwide, in particular political disruption, war or other armed conflict in or affecting oil producing regions;

	•	worldwide economic conditions;

	•	weather conditions, including hurricanes and tropical storms in the Gulf of Mexico;

	•	the supply and price of foreign natural gas;

	•	the level of consumer demand;

	•	the price and availability of alternative fuels;

	•	the proximity to, and capacity of, transportation facilities; and

	•	the effect of worldwide energy conservation measures.

Moreover, government regulations, such as regulation of natural gas transportation and price controls, can affect product prices in the long term.


Item 4.	*Controls and Procedures*

The Trust maintains disclosure controls and procedures designed to ensure that information required to be disclosed by the Trust in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Trust in the reports that it files or submits under the Exchange Act is accumulated and communicated by the Working Interest Owners to the Trustee and its employees who participate in the preparation of the Trust’s periodic reports as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, the Trustee carried out an evaluation of the design and operation of the Trustee’s disclosure controls and procedures. Mike Ulrich, as Vice President of the Trustee, has concluded that these controls and procedures were effective at the time.

Due to the contractual arrangements pursuant to which the Trust was created and the terms of the related Conveyances regarding information furnished by the Working Interest Owners, the Trustee relies on (i) information provided by the Working Interest Owners, including all information relating to the productive properties burdened by the Royalties, such as operating data, data regarding operating and capital expenditures, geological data relating to reserves, information regarding environmental and other conditions relating to the productive properties, liabilities and potential liabilities potentially affecting the revenues to the Trust’s interest, the effects of regulatory

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changes and of the compliance of the operators of the properties with applicable laws, rules and regulations, the number of producing wells and acreage, and plans for future operating and capital expenditures, and (ii) conclusions of independent reserve engineers regarding reserves. The conclusions of the independent reserve engineers are based on information received from the Working Interest Owners.

Changes in Control Over Financial Reporting. There has been no change in the Trustee’s internal control over financial reporting during the three months ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Trustee’s internal control over financial reporting.

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PART II

OTHER INFORMATION


Item 1A.	*Risk Factors*

There have been no material changes in the risk factors disclosed under Part I, Item 1A of the Trust’s Annual Report onForm 10-K for the year ended December 31, 2007.


Item 6.	*Exhibits*

(a) Exhibits


Exhibit
Number				Description

	4	*	—	Trust Agreement for LL&E Royalty Trust, dated as of June 1, 1983, between the Company and First City National Bank of Houston, as Trustee.
	28	.1*	—	Agreement of General Partnership of LL&E Royalty Partnership.
	28	.3*	—	Form of Conveyance of Overriding Royalty Interests for Jay Field (Alabama) Property.
	28	.4*	—	Form of Conveyance of Overriding Royalty Interests for Jay Field (Florida) Property.
	28	.5*	—	Form of Conveyance of Overriding Royalty Interests for Offshore Louisiana Property.
	28	.6*	—	Form of Conveyance of Overriding Royalty Interests for South Pass 89 Property.
	28	.7*	—	Form of Royalty Deed.
	31		—	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32		—	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


*		Incorporated by reference to Exhibits of like designation to Registrant’s Annual Report onForm 10-K for the period ended December 31, 1983 (Commission FileNo. 1-8518).

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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.

LL&E ROYALTY TRUST
(Registrant)


	By:	THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. Trustee


	By:	/s/ MIKE ULRICH

Mike Ulrich

Vice President and Trust Officer

Date: January 30, 2009


NOTE:	Because the Registrant is a trust without officers or employees, only the signature of an officer of the Trustee is available and has been provided.

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Legalese
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Readability	H.S. senior Bad

Ll&e Royalty Trust (LRT) Inactive 10-Q2008 Q3 Quarterly report

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