SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended October 31, 2000 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
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Commission file number 1-8245
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NORTH EUROPEAN OIL ROYALTY TRUST
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(Exact name of registrant as specified in its charter)
Delaware 22-2084119
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(State of organization) (IRS Employer Identification Number)
Suite 19A, 43 West Front Street, Red Bank, N.J. 07701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 732-741-4008
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Units of Beneficial Interest New York Stock Exchange
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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
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As of December 31, 2001, 8,931,414 units of beneficial interest of the
Registrant were outstanding, and the aggregate market value of outstanding
units of beneficial interest of the Registrant, which may be voted, held by
non-affiliates of the Registrant was approximately $174,007,453 on such
date. (The Trustees and the Managing Director are the only persons deemed
to be affiliates of the Registrant.)
Documents Incorporated by Reference
-----------------------------------
Items 10, 11, 12 and 13 of Part III have been partially or wholly omitted
from this report and the information required to be contained therein is
incorporated by reference from the Registrant's definitive proxy statement,
dated January 10, 2002, for the annual meeting to be held on
February 13, 2002.
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PART I
Item 1. Business.
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(a) General Development of Business.
--------------------------------
Registrant (the "Trust") is a trust which, on behalf of the owners
of beneficial interest in the Trust (the "unit owners"), holds overriding
royalty rights covering gas and oil production in certain concessions or
leases in the Federal Republic of Germany. The rights are held under
contracts with local German exploration and development subsidiaries of
Exxon Mobil Corp. and the Royal Dutch Group. Under these contracts, the
Trust receives various percentage royalties on the proceeds of the sales of
certain products from the areas involved. At the present time, royalties
are received for sales of gas well gas, oil well gas, crude oil, distillate
and sulfur. See Item 2 for descriptions of certain of these contracts.
The royalty rights were received by the Trust from North European
Oil Company (the "Company") upon dissolution of the Company in September,
1975. The Company was organized in 1957 as the successor to North European
Oil Corporation (the "Corporation"). The Trust is administered by trustees
(the "Trustees") under an Agreement of Trust dated September 10, 1975,
amended May 13, 1976 and February 10, 1981 and as deemed amended pursuant to
the Delaware Court of Chancery order dated February 26, 1996 (the "Trust
Agreement").
Neither the Trust nor the Trustees on behalf of the Trust conduct
any active business activities or operations. The sole permitted function
of the Trustees is to monitor, verify, collect, hold, invest, and distribute
the royalty payments made to the Trust. Under the Trust Agreement, the
Trustees make quarterly distributions of the net funds received by the Trust
on behalf of the unit owners. Funds temporarily held by the Trust are
invested in interest bearing bank deposits, certificates of deposit, U.S.
Treasury Bills or other government obligations.
There has been no significant change in the principal operation or
purpose of the Trust during the past fiscal year.
(b) Financial Information about Industry Segments.
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The Trust conducts no active business operations, and analysis by
industry segments is accordingly not applicable to the Trust. To the extent
that royalty income received by the Trust is attributable to sales of
different products, to sales from different geographic areas or to sales by
different operating companies the information is set forth in Item 2 of this
Report and the Exhibit described in that Item 2.
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(c) Narrative Description of Business.
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Under the Trust Agreement, the Trust conducts no active business
operations and is restricted to collection of income from royalty rights and
distribution to unit owners of the net income after payment of administrative
and related expenses.
The overriding royalty rights held by the Trust are derived from
contracts and agreements originally entered into by German subsidiaries of
the predecessor Corporation during the early 1930's. Some of these royalty
rights are based on leases which have passed their original expiration dates.
However, the leases remain in effect as long as there is continued production
or the lessor does not cancel the lease. Individual lessors will normally
not seek termination of the rights originally granted because the leases
provide for royalty payments to the lessors if sales of oil or gas result
from discoveries made on the leased land. Additionally, termination by
individual lessors would result in the escheat of mineral rights to the
State. The remainder of the Trust's royalty rights are based on government
granted concessions which remain in effect as long as there are continued
production activities and/or exploration efforts by the operating companies.
It is generally anticipated that the operating companies will continue
production where it remains economically profitable for them to do so.
Royalties are paid to the Trust on sales from production under
these leases and concessions by the operating companies on a regular monthly
or quarterly basis pursuant to the royalty agreements. Beginning in January
2001, the operating companies began to making royalty payments to the Trust
exclusively in Euros. Once deposited in the Trust's account with Deutsche
Bank in Germany, the Euros were converted into U.S. dollars at the rate in
effect on the date of transfer. The Trust does not engage in hedge or
similar transactions and the fluctuations in the conversion rate impact its
financial results. The Trust did not experience any difficulty in effecting
the conversion into U.S. dollars.
As the holder of overriding royalty rights, the Trust has no legal
ability, whether by contract or operation of law, to compel production.
Moreover, if an operator should determine to terminate production in any
concession or lease area and to surrender the concession or lease, the
royalty rights for that area would thereby be terminated. Under certain
royalty agreements, the operators are required to advise the Trust of any
intention to surrender lease or concession rights. In recent years, no such
notices have been received and management of the Trust has not been informed
of any such intention. The Trust itself is precluded from undertaking any
production activities and only if it could locate an alternate operator for
the same areas would there be any possibility of continued royalty payments
for such an area following any such termination. The likelihood of locating
such an alternate operator is small because the current operating companies
would be unlikely to surrender their rights for areas where continued
economic return from production is reasonably anticipated.
The exploration for and the production of gas and oil is a
speculative business. The Trust has no means of ensuring continued income
from its royalty rights at either their present levels or otherwise. In
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addition, fluctuations in prices and supplies of gas and oil and what effect
these fluctuations might have on royalty income to the Trust and on reserves
net to the Trust cannot be accurately projected. The Trustees have no
information with which to make any projections beyond information on economic
conditions which is generally available to the public and thus are unwilling
to make any such projections.
While Germany has laws relating to environmental protection, the
Trustees have no detailed information concerning the present or possible
effect of such laws on operations in areas where the Trust holds royalty
rights on production and sale of product from those areas.
Seasonal demand factors affect the income from royalty rights
insofar as they relate to energy demands and increases or decreases in
prices, but, on the average they are not material to the regular annual
income received under the royalty rights.
The Trust, either itself or in cooperation with holders of parallel
royalty rights, arranges for periodic audits of the books and records of the
operating companies to verify compliance with the computation provisions of
the applicable agreements. From time to time, these examinations disclose
computational errors or errors from inappropriate application of existing
agreements and appropriate adjustments are requested and made.
(d) Financial Information about Foreign and Domestic Operations and
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Export Sales.
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The Trust does not engage in any active business operations, and
its sources of income are the overriding royalty rights covering gas,
sulfur and oil production in certain areas in Germany and interest on the
funds temporarily invested by the Trustees. In Item 2 there is a schedule
(by product, geographic area and operating company) showing the royalty
income received by the Trust during the fiscal year ended October 31, 2001.
(e) Executive Officers of the Trust.
--------------------------------
The affairs of the Trust are managed by not more than five
individual Trustees who receive compensation determined under the Trust
Agreement. One of the Trustees is designated as Managing Trustee and
receives additional compensation in such capacity. The Managing Trustee,
John H. Van Kirk, is responsible for managerial oversight, while day to day
matters are handled by the Managing Director, John R. Van Kirk.
John H. Van Kirk, who is 77 years old, has been Managing Trustee since the
Trust's inception in 1975. John R. Van Kirk, who is 49 years old, has held
the position of Managing Director of the Trust since November 1990.
John R. Van Kirk is the son of John H. Van Kirk, the Managing Trustee.
The Managing Director provides office space and services at cost
to the Trust. In addition to the Managing Trustee and the Managing
Director, the Trust has one secretarial employee in the United States. It
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also retains a part-time consultant in Germany on a fixed yearly basis plus
associated expenses. Employee relations or labor contracts are not directly
material to the business or income of the Trust. The Trustees have no
specific information concerning employee relations of the operating
companies.
Item 2. Properties.
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The properties of the Trust, which the Trust and Trustees hold
pursuant to the Trust Agreement on behalf of the unit owners, are overriding
royalty rights on sales of gas, sulfur and oil under certain concessions or
leases in the Federal Republic of Germany. The actual leases or concessions
are held either by Mobil Erdgas-Erdol GmbH ("Mobil Erdgas"), a German
operating subsidiary of the Exxon Mobil Corp., or by Oldenburgische Erdol
Gesellschaft ("OEG"). The Oldenburg concession (1,398,000 acres), covering
virtually the entire former State of Oldenburg and located in the Federal
state of Lower Saxony, is the major source of royalty income for the Trust.
Within this concession Mobil Erdgas and BEB Erdgas und Erdol GmbH ("BEB"),
a joint venture of Exxon Mobil Corp. and the Royal Dutch Group, carry out all
exploration, drilling, production and sales activities. As a result by
direct and indirect ownership, Exxon Mobil Corp. owns two-thirds of OEG and
the Royal Dutch Group owns one-third of OEG.
Under one series of rights covering the western part of the
Oldenburg concession (approximately 662,000 acres), the Trust receives a
royalty payment of 4% on gross receipts from sales by Mobil Erdgas of gas
ell gas, oil well gas, crude oil and condensate. Under the royalty agreement
with Mobil Erdgas there is no deduction of costs prior to the calculation of
royalties from gas well gas or oil well gas, which together account for
approximately 99% of all the royalties under said agreement. The Trust also
is entitled to receive from Mobil Erdgas a 2% royalty on gross receipts of
sales of sulfur obtained as a by-product of sour gas produced from the
western part of Oldenburg. The payment of the sulfur royalty is conditioned
upon sales by Mobil Erdgas of sulfur at a selling price above an agreed upon
base price. This base price is adjusted annually by an inflation index.
When the average selling price falls below the adjusted base price, no
royalties are payable. No payments were received under this sulfur royalty
during fiscal 2001.
Under another series of rights covering the entire Oldenburg
concession and pursuant to an agreement with OEG (the "OEG Agreement"), the
Trust receives royalties at the rate of 0.6667% on gross receipts from sales
of gas well gas, oil well gas, crude oil, condensate and sulfur (removed
during the processing of sour gas) less 50% of an escalating cost base. This
cost base is recomputed annually based on indices reflecting changes in
certain prices within Germany. Under the agreement previously reached with
OEG, the computation system will be changed in 2002, at which time 50% of the
field handling, treatment and transportation costs as reported for state
royalty purposes will be deducted from the gross sales receipts prior to the
calculation of the royalty to be paid to the Trust. Based on the limited
audit access available to it and the financial information provided by the
operating companies, the Trust's management does not believe that this change
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will materially alter the amount of the Trust's royalty receipts, but there
can be no assurance that this will be the case until the calculations are
actually applied.
The Trust also holds through Mobil Erdgas a 2% royalty interest in oil
and gas sales from acreage in Bavaria, and a 0.2117% royalty under the net
interest of the Bayerische Mineral Industries A.G. ("BMI"), a subsidiary of
Mobil Erdgas, in concessions in Bavaria. The net interest of BMI ranges from
16-1/2 to 100% of the sales, depending on the geographic region or area. Due
to the absence of royalty income under this agreement, reserves from this
area in Bavaria are not included in reserve calculations for this report
year. While both Mobil Erdgas and BMI have suspended production in their
concessions in Bavaria, the concessions remain open.
In addition to the areas of Oldenburg and Bavaria, the Trust also
holds overriding royalties on 21 leases in other areas of northwest Germany
ranging in size from 185 to 25,000 acres and totaling 73,214 acres. The
ates of overriding royalties vary from 1.83% to 6.75%. At the present time
all but one of these 21 leases are in the non-producing category. Due to the
low level of income and the intermittent gas production from the single
producing lease, reserves from this lease are not included in reserve
calculations for this report year.
The following is a schedule of royalty income for the fiscal year
ended October 31, 2001 by product, geographic area and operating company:
BY PRODUCT:
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Product Royalty Income
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Gas Well and Oil Well Gas $ 22,156,746
Sulfur $ 125,646
Oil $ 171,038
BY GEOGRAPHIC AREA:
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Area Royalty Income
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Western Oldenburg $ 19,249,489
Eastern Oldenburg $ 3,145,824
Non-Oldenburg Areas $ 58,117
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BY OPERATING COMPANY:
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Company Royalty Income
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Mobil Erdgas-Erdol GmbH $ 16,697,772
OEG $ 5,755,658
Exhibit 99.1 to this Report is a report dated December 21, 2001
which summarizes certain production data and the estimated net proved
producing reserves as of October 1, 2001, based on the limited information
available, for the Oldenburg area in which the Trust now holds overriding
royalty rights. That report, the Estimate of Remaining Proved Producing
Reserves in the Northwest Basin of the Federal Republic of Germany as of
October 1, 2001 and Calculation of Cost Depletion Percentage for the 2001
Calendar Year, (the "Reserve and Depletion Report") was prepared by
Ralph E. Davis Associates, Inc., 3555 Timmons Lane, Suite 1105, Houston,
Texas 77027 ("Davis Associates"). Davis Associates is an independent
petroleum and natural gas consulting organization specialized in analyzing
hydrocarbon reserves. In order to permit timely filing of this Report and
consistent with the practice of the Trust in prior years, the information
has been prepared for the 12-month period ending September 30, 2001, which
is one month prior to the end of the fiscal year of the Trust. Unit owners
are referred to the full text of the Reserve and Depletion Report contained
herein for further details.
In connection with the information in the Reserve and Depletion
Report, note should be taken of the limited nature of the information
available to the Trust. Pursuant to the arrangements under which the Trust
holds royalty rights and due to the fact that the Trust is not considered an
operating company within Germany, it has no access to the operating
companies' proprietary information concerning producing field reservoir data.
The Trustees have been advised that publication of such information is not
required under applicable law in Germany and that the royalty rights do not
give rise to the right to require or compel the release of such information.
Past efforts to obtain such information have not been successful. The
information made available to the Trust by the operating companies does not
include any of the following: reserve estimates, capitalized costs,
production cost estimates, revenue projections, producing field reservoir
data (including pressure data, permeability, porosity and thickness of
producing zone) or other similar information. The limited nature of the
information available to the Trust makes many calculations impossible
including the following among others: proved undeveloped or probable future
net recoverable oil and gas by appropriate geographic areas, total gross and
net productive wells, availability of oil and gas from the present reserve,
contract supply for one year or acreage concentration.
The Trust has the authority to audit for certain limited purposes
the operating companies' sales and production from the royalty areas. The
Trust also has access to published materials in Germany from W.E.G. (a German
organization equivalent to the American Petroleum Institute or the American
Gas Association). The use of such statistical information relating to
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production and sales necessarily involves extrapolations and projections.
Both Davis Associates and the Trustees believe the use of the material
available is appropriate and suitable for preparation of the estimates
described in the Reserve and Depletion Report. Both the Trustees and Davis
Associates believe this report and these estimates to be reasonable and
appropriate but they would possibly vary from statistical projections which
could be made if reservoir production information (of the kind normally
available to domestic producing companies) were available. The limited
information available makes it inappropriate to make projections or estimates
of proved or probable reserves of any category or class other than the
estimated net proved producing reserves described in the Reserve and
Depletion Report.
Attachment A of the Reserve and Depletion Report is comprised of a
schedule of estimated net proved producing reserves of the Trust's royalty
properties, computed as of October 1, 2001 and a five year schedule of gas,
sulfur and oil sales for the 12 months ended September 30, 2001, 2000, 1999,
1998 and 1997 computed from quarterly sales reports of operating companies
received by the Trust during such periods.
Item 3. Legal Proceedings.
------------------
In implementation of the provisions of the order of the Delaware
Court of Chancery dated February 26, 1996 (the "Delaware Order"), reported
n Form 8-K filed February 26, 1996, on December 4, 2001, the Trust and the
Administrator of Unclaimed Property, Office of the New York State
omptroller (the "New York Administrator") entered into a Settlement Agreement
covering Units for which owners were unlocated but New York state addresses
were shown in predecessor corporation records. The New York Settlement
Agreement covers 89,220 Units attributable to stock ownership by unlocated
shareholders of predecessor corporate entities. A copy of the New York
Settlement Agreement is filed as Exhibit 99.1 to this Report.
Of the Units covered by the Settlement Agreement, 44,610 were
issued to the New York Administrator prior to December 31, 2001 and the
balance of 44,610 will be issued on or before June 30, 2005. The Settlement
Agreement provides for processing of claims in the period until June 30,
2005 and the sharing of any costs relating to any claims which are allowed.
After June 30, 2005, under the Delaware Order, no payments will be required
for arrearages in dividends or distributions to allowed claims and the
existing contingent liability concerning them will be eliminated.
The 44,610 Units issued now will receive regular distributions of
Trust royalty income. Their issuance results in a de minimus reduction
(amounting to 0.502%) in Trust distributions to existing owners.
Management of the Trust intends to continue the implementation
program permitted by the Delaware Order with other states, but the impact of
any such implementation will be minimal in view of the limited numbers of
addresses listed in each of the other states.
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Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
Inapplicable.
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PART II
Item 5. Market for the Registrant Trust's Units of Beneficial Interest
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and Related Unit Owner Matters.
-------------------------------
The Trust's units of beneficial interest ("Units") are traded on
the New York Stock Exchange (the "NYSE") under the symbol NET. In addition,
the Midwest Stock Exchange and the Boston Exchange have granted unlisted
trading privileges in the Trust Units.
Under the Trust Agreement, the Trustees distribute to unit owners,
on a quarterly basis, the net royalty income after deducting expenses and
reserving limited funds for anticipated administrative expenses.
The following table presents the high and low closing prices for
the quarterly periods ended in fiscal 2001 and 2000 as reported by the NYSE
as well as the cash distributions paid to unit owners by quarter for the
past two fiscal years.
FISCAL YEAR 2001
Low High Distribution
Closing Closing Per
Quarter Ended Price Price Unit
- ------------- --------- --------- ------------
January 31, 2001 15.1250 17.8500 .71
April 30, 2001 17.0000 20.9000 .61
July 31, 2001 17.7000 20.6500 .54
October 31, 2001 16.2500 19.4500 .60
FISCAL YEAR 2000
Low High Distribution
Closing Closing Per
Quarter Ended Price Price Unit
- ------------- --------- --------- ------------
January 31, 2000 13.0000 15.5000 .39
April 30, 2000 12.3125 15.1250 .41
July 31, 2000 12.5000 17.0625 .43
October 31, 2000 14.1250 18.1250 .33
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The quarterly distributions to unit owners represent their
undivided interest in royalty payments from sales of gas, sulfur and oil
during the previous quarter. Each unit owner is entitled to recover a
portion of his or her investment in these royalty rights through a cost
depletion percentage. The calculation of this cost depletion percentage is
set forth in detail in Attachment B to the Reserve and Depletion Report
attached as Exhibit 99.1. This report has been prepared by Davis Associates
using the limited information described under Item 2, Properties, to which
reference is made. The Trustees believe that the calculations and
assumptions used in this report are reasonable under the facts and
circumstances of available information. The cost depletion percentage
recommended by the Trust's independent petroleum and natural gas consultants
for calendar 2001 is 9.2385%. Specific details relative to the Trust's
income and expenses and cost depletion percentage as they apply to the
calculation of taxable income for the 2001 calendar year are included on a
special removable page in the 2001 Annual Report under "Note to Unit Owners"
and have been sent in a separate letter to all unit owners who were
registered at any time during 2001 and who are no longer registered owners
as of year end.
The Trust maintains no reserve to cover any payments which might
be required if the holders of shares of stock of the predecessor Corporation
or Company, who have not yet exchanged those shares for Units, should
surrender them for exchange. See Item 7 and Note 3 to the Financial
Statements in Item 8 of this Report.
As of December 31, 2001, there were 1,441 Unit owners of record,
which figure does not include the owners of unexchanged shares of stock in
the Corporation or the Company (a total of 604 record holders). The owners
of shares of stock in the Corporation are entitled under Section 3.10 of the
Trust Agreement to receive Units upon presentation of those shares or other
evidences of ownership thereof. The owners of unexchanged shares of stock
in the Company, for whom a nominee of the Bank of New York acts as agent
under a shareholder agency agreement, are entitled to receive Units upon
presentation of those shares or other evidences of ownership thereof.
Management continues to believe that the number of such presentations will
continue to be immaterial in the coming years. In all events, after the
year 2005, pursuant to the provisions of the order of the Delaware Court of
Chancery of April 17, 1996, further liability for payment of dividends or
distributions arrears will be eliminated. See Note 3 to the Financial
Statements contained herein for further information.
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ITEM 6. Selected Financial Data
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North European Oil Royalty Trust
--------------------------------
Selected Financial Data (Cash Basis)
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For Five Years Ended October 31, 2001
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2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
German gas, oil
and sulfur
royalties
received $22,453,630 $14,155,028 $10,667,478 $13,881,870 $13,651,678
=========== =========== =========== =========== ===========
Net Income on a
cash basis $21,906,824 $13,668,262 $10,168,423 $13,397,013 $13,070,207
=========== =========== =========== =========== ===========
Net Income per unit
on a cash
basis (a) $2.47 $1.54 $1.17 $1.54 $1.50
===== ===== ===== ===== =====
Units of beneficial
interest
outstanding at end
of year (a) 8,886,804 8,886,804 8,696,646 8,696,460 8,696,430
Cash distributions
paid or to be
paid:
Dividends and
distributions
per unit paid
to former
unlocated
shareholders $0.00 $0.00 $0.00 $0.00 $0.00
Distributions per
unit paid or to
be paid to
unit owners $2.46 $1.56 $1.17 $1.54 $1.51
----- ----- ----- ----- -----
$2.46 $1.56 $1.17 $1.54 $1.51
===== ===== ===== ===== =====
Total assets at
end of year $ 5,391,321 $ 2,946,597 $ 2,319,173 $ 2,765,902 $ 3,024,318
=========== =========== =========== =========== ===========
(a) Net income per unit on a cash basis was calculated based on the number
of units of beneficial interest outstanding at the end of the year.
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Item 7. Management's Discussion and Analysis of Financial Condition
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and Results of Operations.
--------------------------
General
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The Trust is a passive fixed investment trust which holds
overriding royalty rights, receives income under those rights from certain
operating companies, pays its expenses and distributes the remaining net
funds to its unit owners. The Trust is not involved in any business or
extractive operations of any kind in the areas over which it holds royalty
rights and is precluded from any such involvement by the Trust Agreement.
There are no requirements, therefore, for capital resources with which to
make capital expenditures or investments in order to continue the receipt of
royalty revenues by the Trust.
The operating companies, subsidiaries of Exxon Mobil Corp. and the
Royal Dutch Group, pay monthly royalties to the Trust based on their sales of
natural gas, sulfur and oil. The Oldenburg concession is the primary area
from which these products are extracted and provides nearly 100% of all the
royalties received by the Trust. Of these three products, natural gas
provides approximately 98% of the total royalties. The gas is sold to
various distributors under long term contracts which delineate, among other
provisions, the timing, manner, volume and price of the gas sold. The
pricing mechanisms contained in these contracts include a delay factor of
three to six months and use the price of light heating oil in Germany as one
of the primary pricing components. Since Germany must import a large
percentage of its energy requirements, the U.S. dollar price of oil on the
international market has a significant, although delayed, impact on the price
of gas.
The Trust does not conduct any active business operations and has
only limited need of funds for its own administrative services. These funds
are used to pay Trustees' fees (computed under the Trust Agreement and based
upon a percentage of royalties and interest income received), the
remuneration fixed by the Trustees for the Managing Trustee and the Managing
Director, expenses associated with the Trustees' meetings, professional fees
paid to consultants, legal advisors and auditors, transfer agent fees, and
secretarial and other general office expenses.
Another requirement for funds by the Trust relates to the
occasional necessity of making lump sum payments of arrearages of dividends
of a corporate predecessor and distributions previously declared by the
Trust. The payment of such arrearages would require a reduction in the
amount of distributions which otherwise would be made on presently
outstanding units. For further information on this contingent liability and
the impact of the Delaware Court order see Item 3, Legal Proceedings, and
Note 3 to Financial Statements contained herein.
The Trust has no means of assuring continued income from
overriding royalty rights at their present level or otherwise. Economic and
political factors which are not foreseeable may have an impact on Trust
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income. The effect of changing economic conditions on the demand for energy
throughout the world and future prices of oil and gas cannot be accurately
projected.
The relatively small amounts required for administrative expenses
of the Trust limit the possible effect of inflation on its financial
prospects. Continued price inflation would be reflected in sales prices,
which, with sales volumes, form the basis on which the royalties paid to the
Trust are computed. In addition, fluctuations in the euro/dollar
exchange rate have an impact on domestic energy prices within Germany and on
the amount of dollars received upon conversion. The impact of inflation or
deflation on energy prices in Germany is delayed by the use in certain
long-term gas sales contracts of a deferred "trailing average" related to
light fuel oil prices.
Fiscal 2001 versus Fiscal 2000
- ------------------------------
For fiscal 2001 the Trust's gross royalty income increased 58.6%
from $14,155,028 to $22,453,630. The lingering impact of higher world oil
prices on German gas prices as well as reduced maintenance downtime at the
Grossenkneten desulfurization plant, which resulted in higher gas sales from
the higher royalty area of western Oldenburg, combined to produce the
increase in royalties. The Euro continued to exhibit its weakness relative
to the dollar. For each of the first three quarters the dollar value of the
Euro was below that of the prior year and only in the final quarter did the
value of the Euro increase over the prior year's quarter.
The high world oil prices that lingered into the first half of
fiscal 2001 continued to be reflected through the contractual delay mechanism
in the high gas prices for gas sold from the Oldenburg concession throughout
the year. For the first three quarters, average Oldenburg gas prices under
the lower royalty rate agreement posted quarter over quarter increases
reaching a high point of 1.8718 Euro cents per kilowatt hour ("Ecents/Kwh")
in the third quarter. The decline in oil prices was finally reflected in gas
prices during the fourth quarter with average gas prices falling to 1.5950
Ecents/Kwh. For the year, average gas prices posted a 63.9% increase to a
value of 1.6643 Ecents/Kwh. Average gas prices under the higher royalty rate
agreement followed a similar track rising to a high point of 1.7552
Ecents/Kwh in the third quarter before falling back to 1.6723 Ecents/Kwh in
the fourth quarter. In average for the year, gas prices increased 61.5% to
1.6415 Ecents/Kwh. When we use the average exchange rates and convert prices
measured in Ecents/Kwh into more familiar terms of dollars/Mcf, we see
average gas prices under the lower and higher royalty rate agreements of
$4.18/ Mcf and $4.19/Mcf, increases of 38.4% and 52.9%, respectively.
For fiscal 2001 overall Oldenburg gas sales showed a slight decline
for the year falling 1.44% from 218.7 billion cubic feet ("BCF") to 215.6
BCF. This decline, which was concentrated in the lower royalty rate area of
eastern Oldenburg, was more than offset by an increase in gas sales from the
higher royalty rate area of western Oldenburg. Western Oldenburg gas sales
increased 5.7% from 93.2 BCF to 98.5 BCF in total for the year. In contrast
to the prior year when the Grossenkneten plant underwent a sizeable
- 16 -
multi-year renovation and repair program which entailed an extended reduction
in processing capacity, the impact of this year's scheduled maintenance was
comparatively minor. Since the gas in western Oldenburg is predominantly
sour gas (which must be processed to remove the hydrogen sulfide component)
the reduced downtime at Grossenkneten permitted operations to resume more
quickly resulting in increased gas sales.
With an effective royalty rate in western Oldenburg seven times
greater than the royalty rate in eastern Oldenburg, changes in the percentage
of sales originating from western Oldenburg can have significant effects on
the level of Trust royalties. The percentage of western sales to total sales
increased in fiscal 2001 from 42.60% to 45.7% reflecting the reduced downtime
at the desulfurization plant.
Since reaching its current all time low, based on the transfer rate
for the Trust's royalties, of a dollar equivalent value of $0.8626 during the
Trust's third fiscal quarter, the Euro has maintained some stability. In
average for the year, the Euro declined 5% from a dollar equivalent of
$0.9417 for fiscal 2000 to $0.8945 for fiscal 2001.
Trust expenses increased by 17.3% from $583,226 to $684,111
reflecting higher Trustee's fees pursuant to the formula contained in the
Trust Agreement and higher Trust expenses. Interest income increased 42.3%
from $96,460 to $137,305 reflecting greater sums available for investment.
During fiscal 2001 and 2000 respectively, an additional 0 and 30
Trust units were issued and $0 and $1,043 were paid to former unlocated
shareholders of North European Oil Corporation and North European Oil Company
who presented shares for exchange or filed properly documented affidavits of
loss and obtained an unlimited, open penalty indemnity bond. Management
continues to believe that the number of such presentations will continue to
be immaterial in the coming years. In all events, after the year 2005,
pursuant to the provisions of the order of the Delaware Court of Chancery of
April 17, 1996, further liability for payment of dividends or distributions
arrears will be eliminated. See Note 3 to the Financial Statements contained
herein for further information.
Fiscal 2000 versus Fiscal 1999
- ------------------------------
For fiscal 2000 the Trust's gross royalty income increased 32.7% from
$10,667,478 to $14,155,028. The substantial increase in world oil prices
experienced during 2000 continued to be reflected in the higher gas prices
and accounted for the entire increase in the Trust's royalties. The
shutdown for maintenance and repairs of the Grossenkneten desulfurization
plant during the fourth quarter accounted for the majority of the decline in
gas sales. The Euro remained under pressure throughout the year and
continued the decline in value begun shortly after its introduction in
January 1999.
The sustained increase in world oil prices during 2000 was reflected
to a growing degree throughout the year in the price of gas sold under the
overriding royalty agreements covering the Oldenburg concession. Under the
- 17 -
higher royalty rate agreement covering gas sales from western Oldenburg, gas
prices measured in pfennigs per kilowatt hour ("Pf/Kwh") climbed from 1.6136
Pf/Kwh in the first quarter of fiscal 2000 to 2.4459 Pf/Kwh in the fourth
quarter, an increase of 51.6%. Under the lower royalty rate agreement
covering gas sales from the entire Oldenburg concession, gas prices
increased 59% from 1.5587 Pf/Kwh in the first quarter to 2.4786 Pf/Kwh in
the fourth quarter.
Under both the higher and lower royalty rate agreements covering gas
sales from the Oldenburg concession, gas sales through the first nine months
showed increases of 3% and 2.5%, respectively. During the fourth quarter,
however, the Grossenkneten desulfurization plant experienced significant
downtime while the operating companies conducted extensive maintenance and
repair operations. These operations following previous changes in the
maintenance timetable were significantly more extensive than last year's and
required a more complete suspension of production activity at the plant
resulting in a significant decline in fourth quarter gas sales. For the
entire year under the higher and lower royalty rate agreements, gas sales
declined 2.4% to 93.2 Billion cubic feet ("Bcf") and 1.1% to 218.7 Bcf.,
respectively.
With an effective royalty rate in western Oldenburg seven times
greater than the royalty rate in eastern Oldenburg, changes in the
percentage of sales originating from western Oldenburg can have significant
effects on the level of Trust royalties. The percentage of western sales to
total sales declined in fiscal 2000 to 42.60% from 43.17% in fiscal 1999.
Since the bulk of gas extracted from wells located in western Oldenburg is
sour gas, the more extensive shutdown of the desulfurization plant in the
fourth quarter disproportionately affected the level of western sales.
Fiscal 2000 showed no relief from the continued decline in the value
of the Euro since shortly after its introduction in January 1999. After a
brief respite in the fourth quarter of fiscal 1999, the Euro had four
consecutive quarters of quarter-to-quarter declines. Based on the exchange
rates utilized at the times of the various transfers of royalties from
Germany to the U.S., the average dollar equivalent value of the Euro for the
first quarter of fiscal 2000 was $1.0043. The average values for the second
through fourth quarters were $0.9511, $0.9304 and $0.8810, respectively.
The Euro's decline has continued into the first quarter of fiscal 2001 as
well.
The impact on Trust royalties of changes in the Euro/dollar exchange
rates are twofold. There is an immediate impact on Trust royalties because
at the end of every month German royalty payments are transferred to the
United States and the exchange rate determines the amount of dollars the
Trust receives. The long term impact is derived from the pricing mechanism
which, in part, uses the price of light heating oil in Germany to determine
the price of gas sold under the various sales contracts. The price of light
heating oil, in turn, is affected by the price in dollars of oil on the
international market. Over time, the short and long term impact of changes
in the exchange rate tend to offset each other to varying degrees. Despite
the decline in the exchange rates, when we apply the average exchange rates
to gas prices in the various quarters, we see a steady increase through the
year. Under the higher royalty rate agreement, gas prices began the year at
- 18 -
the equivalent price of $2.40 per Mcf and finished the year at $3.17 per
Mcf. Under the lower royalty rate agreement, gas prices began the year at
the equivalent price of $2.23 per Mcf and finished the year at $3.17 per
Mcf.
Trust expenses increased 2.5% from $569,081 to $583,226 primarily due
to increased Trustees fees which are controlled by provisions in the Trust
Agreement based on Trust royalties. Interest income increased 38% from
$70,026 to $96,460 primarily due to the increase in funds available for
investment.
During fiscal 2000 and 1999 respectively, an additional 30 and 186
Trust units were issued and $1,043 and $6,425 were paid to former unlocated
shareholders of North European Oil Corporation and North European Oil
Company who presented shares for exchange or filed properly documented
affidavits of loss and obtained an unlimited, open penalty indemnity bond.
Management continues to believe that the number of such presentations will
continue to be immaterial in the coming years. In all events, after the
year 2005, pursuant to the provisions of the order of the Delaware Court of
Chancery of April 17, 1996, further liability for payment of dividends or
distributions arrears will be eliminated. See Note 3 to the Financial
Statements contained herein for further information.
-----------------------------------
This report on Form 10-K contains forward looking statements
concerning business, financial performance and financial condition of the
Trust, which are subject to certain risks and uncertainties that could cause
actual results to differ materially from those anticipated in any forward
looking statement. The statements contained herein are based on the
Trustees' current beliefs, expectations and assumptions and are subject to a
number of risks and uncertainties. Actual results and events may vary
significantly from those discussed in the forward looking statements.
- 19 -
Item 8. Financial Statements and Supplementary Data
--------------------------------------------
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
INDEX TO FINANCIAL STATEMENTS
------------------------------
Page Number
-----------
Report of Independent Public Accountants F-1
Financial Statements:
Statements of Assets, Liabilities and
Trust Corpus as of October 31, 2001 and 2000 F-2
Statements of Income and Expenses on a Cash Basis
for the Years Ended October 31, 2001, 2000 and 1999 F-3
Statements of Undistributed Earnings
for the Years Ended October 31, 2001, 2000 and 1999 F-4
Statements of Changes in Cash and Cash Equivalents
for the Years Ended October 31, 2001, 2000 and 1999 F-5
Notes to Financial Statements F-6 - F-9
Schedules are omitted because they are not applicable or not required or
because the required information is included in the financial statements or
notes thereto.
- 20 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To North European Oil Royalty Trust:
We have audited the accompanying statements of assets, liabilities and trust
corpus of North European Oil Royalty Trust as of October 31, 2001 and 2000
and the related statements of income and expenses on a cash basis,
undistributed earnings and changes in cash and cash equivalents for each of
the three years in the period ended October 31, 2001. These financial
statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The accounts of the Trust are maintained on the cash basis of accounting
under which income is not recorded until collected instead of when earned,
and expenses are recorded when paid instead of when incurred. Thus, the
accompanying financial statements are not intended to present financial
position and results of operations in conformity with generally accepted
accounting principles which require the use of the accrual basis of
accounting (see Note 1).
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities and trust corpus of North
European Oil Royalty Trust as of October 31, 2001 and 2000, and its income
and expenses, undistributed earnings and changes in cash and cash equivalents
for each of the three years in the period ended October 31, 2001, all on the
cash basis of accounting.
As discussed in Note 3, the Trust has a contingent liability relating to
unclaimed units and distributions. No reserves are established or reflected
in the financial statements for the possibility that funds would be required
to satisfy such claims.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
November 8, 2001 (except with respect to Note 4
as to which the date is December 4, 2001)
F-1
- 21 -
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
-----------------------------------------------------------
OCTOBER 31, 2001 AND 2000
-------------------------
ASSETS 2001 2000
------ ------------ ------------
Current Assets --
Cash and cash equivalents (Note 1) $5,391,320 $2,946,596
Producing gas and oil
royalty rights (Note 1) 1 1
------------ ------------
$5,391,321 $2,946,597
============ ============
LIABILITIES AND TRUST CORPUS
----------------------------
Current liabilities --
Cash distributions payable
to unit owners, paid
November 2001 and 2000 $5,332,083 $2,932,645
Contingent liability (Note 3)
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings (Note 1) 59,237 13,951
------------ ------------
$5,391,321 $2,946,597
============ ============
The accompanying notes to financial statements
are an integral part of these statements.
F-2
- 22 -
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
STATEMENTS OF INCOME AND EXPENSES ON A CASH BASIS (NOTE 1)
----------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
---------------------------------------------------
2001 2000 1999
------------ ------------ ------------
German gas, sulfur and
oil royalties
received $22,453,630 $14,155,028 $10,667,478
Interest income 96,460 70,026 101,973
Trust expenses (684,111) (583,226) ( 569,081)
------------ ------------ ------------
Net income on
a cash basis $21,906,824 $13,668,262 $10,168,423
============ ============ ============
Net income per unit
on a cash basis $2.47 $1.54 $1.17
======= ======= =======
Cash distributions paid
or to be paid:
Dividends and
distributions per
unit paid or to be
paid to former unlocated
shareholders (Note 3) $0.00 $0.00 $0.00
Distributions per unit
paid or to be paid to
unit owners (Note 4) 2.46 1.56 1.17
------- ------- -------
$2.46 $1.56 $1.17
======= ======= =======
The accompanying notes to financial statements
are an integral part of these statements.
F-3
- 23 -
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
---------------------------------------------
FOR THE YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
---------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Balance,
beginning of year $ 13,951 $ 58,044 $ 69,998
Reimbursement for prior
payment of past dividends
and distributions 0 0 1,017
Net income on
a cash basis 21,906,824 13,668,262 10,168,423
------------ ------------ ------------
21,920,775 13,726,306 10,239,438
------------ ------------ ------------
Less:
Dividends and
distributions paid
to former unlocated
shareholders (Note 3) 0 1,043 6,318
Current year
distributions paid
or to be paid to unit
owners (Note 4) 21,861,538 13,711,312 10,175,076
------------ ------------ ------------
21,861,538 13,712,355 10,181,394
------------ ------------ ------------
Balance, end of year $ 59,237 $ 13,951 $ 58,044
============ ============ ============
The accompanying notes to financial statements
are an integral part of these statements.
F-4
- 24 -
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1)
-----------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31, 2001, 2000 AND 1999
---------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Sources of cash and
cash equivalents:
German gas, sulfur and
oil royalties received $22,453,630 $14,155,028 $10,667,478
Interest income 137,305 96,460 70,026
Reimbursement for prior
payment of past dividends
and distributions 0 0 1,017
------------ ------------ ------------
22,590,935 14,251,488 10,738,521
Uses of cash and
cash equivalents:
Payment of Trust
expenses 684,111 583,226 569,081
Distributions and
dividends paid
(Note 3) 19,462,100 13,040,838 10,616,169
------------ ------------ ------------
20,146,211 13,624,064 11,185,250
------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents
during the year 2,444,724 627,424 ( 446,729)
Cash and cash
equivalents,
beginning of year 2,946,596 2,319,172 2,765,901
------------ ------------ ------------
Cash and cash
equivalents,
end of year $ 5,391,320 $2,946,596 $ 2,319,172
============ ============ ============
The accompanying notes to financial statements
are an integral part of these statements.
F-5
- 25 -
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
OCTOBER 31, 2001, 2000 AND 1999
-------------------------------
(1) Summary of significant
accounting policies:
----------------------
Basis of accounting -
---------------------
The accounts of North European Oil Royalty Trust (the "Trust") are
maintained on a cash basis of accounting with the exception of the
accrual for distributions to be paid to unit owners (those
distributions approved by the Trustees for the Trust). The Trust's
distributable income represents royalty income received by the Trust
during the period plus interest income less any expenses incurred by
the Trust, all on a cash basis. In the opinion of the Trustees, the
use of the cash basis provides a more meaningful presentation to
unit owners of the results of operations of the Trust.
Use of Estimates -
------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements. Actual results may differ
from those estimates.
Producing gas and oil royalty rights -
--------------------------------------
The rights to certain gas and oil royalties in Germany were
transferred to the Trust at their net book value by North European
Oil Company (the "Company") (see Note 2). The net book value of the
royalty rights has been reduced to one dollar ($1) in view of the
fact that the remaining net book value of royalty rights is
de minimis relative to annual royalties received and distributed by
the Trust and does not bear any meaningful relationship to the fair
value of such rights or the actual amount of proved producing
reserves.
F-6
- 26 -
Federal and state income taxes-
-------------------------------
The Trust, as a grantor trust, is exempt from Federal and state income
taxes under a private letter ruling issued by the Internal Revenue
Service.
Cash and cash equivalents-
--------------------------
Included in cash and cash equivalents are amounts deposited in bank
accounts and amounts invested in certificates of deposit and U. S.
Treasury bills with maturities of three months or less.
Net income per unit on the cash basis-
--------------------------------------
Net income per unit on the cash basis is based upon the number of
units outstanding at the end of the period (see Note 3). As of
October 31, 2001, 2000 and 1999, there were 8,886,804, 8,886,804 and
8,696,646 units of beneficial interest outstanding, respectively.
(2) Formation of the Trust:
-----------------------
The Trust was formed on September 10, 1975. As of September 30, 1975,
the Company was liquidated and the remaining assets and liabilities
of the Company, including its royalty rights, were transferred to
the Trust. The Trust on behalf of the owners of beneficial interest
in the Trust holds overriding royalty rights covering gas and oil
production in certain concessions or leases in the Federal Republic
of Germany. These rights are held under contracts with local German
exploration and development subsidiaries of Exxon Mobil Corp. and
the Royal Dutch Group. Under these contracts, the Trust receives
various percentage royalties on the proceeds of the sales of certain
products from the areas involved. At the present time, royalties
are received for sales of gas well gas, oil well gas, crude oil,
distillate and sulfur.
(3) Contingent liability:
---------------------
The Trust serves as fiduciary for certain unlocated or unknown
shareholders of the Trust's corporate predecessors, North European
Oil Corporation (the "Corporation") and North European Oil
Company. From the liquidation of the Company to October 31, 2000,
721,364 Trust units were issued in exchange for Corporate or Company
shares and dividends of $354,101 and distributions of $4,236,544
were paid to former unlocated Corporation and Company shareholders.
For the year ended October 31, 2001, no units were issued in
F-7
- 27 -
exchanges and no dividends and no distributions were paid
to former unlocated Corporation and Company shareholders.
On February 26, 1996 the settlement of litigation between the Trust and
the Delaware State Escheator was approved by the Delaware Court of
Chancery. As of that date, there were a total of 875,748 authorized
but unissued units representing the unexchanged shares of the
Trust's corporate predecessors. Out of this total, 760,560 units
were subject to the settlement. Pursuant to the Court approved
settlement, 380,280 units were issued to the Escheator on
April 17, 1996. Of the Trust units remaining to be issued to the
Escheator, approximately 50% (190,128 units) have been issued to the
Escheator as of June 30, 2000 and the remaining balance will be
issued by June 30, 2005. Through June 30, 2000, claims by unlocated
or unknown shareholders of the Trust's corporate predecessors for
units and past dividends and distributions thereon ("subsequent
claims") were paid by the Escheator and the Trust on a 50:50 basis.
From July 1, 2000 to June 30, 2005, subsequent claims will be paid
by the Escheator and the Trust on a 75:25 basis. Any subsequent
claims will reduce the number of units to be issued to the
Escheator in 2005. Following the final issuance of units to the
Escheator in 2005, the Trust's contingent liability for past
dividends and distributions attributable to all unexchanged
Corporation and Company shares subject to the settlement will be
completely eliminated. Under the terms of the settlement, the
maximum liability of the Escheator for subsequent claims is limited
to the value of the units received, plus current distributions on
units retained, less the Escheator's share of subsequent claims.
As of the receipt of the November, 2001 distribution, the maximum
liability of the Escheator will be $11,638,204.
Under the Trust Agreement as deemed amended by the February 26, 1996
Order of the Delaware Court of Chancery, the Trust is not required
to make payments of arrearages of Company dividends or Trust
distributions with respect to units issued or to be issued to the
Escheator. As of October 31, 2001, there remained a total of
303,786 units that could be issued to unlocated or unknown
Corporation and Company shareholders. Of this total, 190,122 units
are subject to the settlement and remain to be issued to the
Escheator. If all shares, represented by the units already issued
as well as the units remaining to be issued, were presented for
exchange, $487,023 in dividends and $29,889,710 in distributions
would be payable. In the opinion of the Trustees, based in part on
the history of exchanges during the last ten fiscal years, the
maximum liability of the Escheator would be adequate to cover the
Escheator's share of any subsequent claims. In any event, the
Trust's contingent liability for such claims will be eliminated in
2005.
F-8
- 28 -
(4) Subsequent Event:
-----------------
In implementation of the provisions of the order of the Delaware Court
of Chancery dated February 26, 1996 (the "Delaware Order"), and
reported on Form 8-K filed February 26, 1996, on December 4, 2001,
the Trust and the Administrator of Unclaimed Property, Office of the
New York State Comptroller (the "New York Administrator") entered
into a Settlement Agreement covering Units for which owners were
unlocated but New York state addresses were shown in predecessor
corporation records. The New York Settlement Agreement covers 89,220
Units attributable to stock ownership by unlocated shareholders of
predecessor corporate entities.
Of the Units covered by the Settlement Agreement, 44,610 would be
issued to the New York Administrator prior to December 31, 2001 and
the balance of 44,610 will be issued on or before June 30, 2005.
The Settlement Agreement provides for processing of claims in the
period until June 30, 2005 and the sharing of any costs relating to
any claims which are allowed. After June 30, 2005, under the
Delaware Order, no payments will be required for arrearages in
dividends or distributions to allowed claims and the existing
contingent liability concerning them will be eliminated.
The 44,610 Units issued now will receive regular distributions of Trust
royalty income. Their issuance results in a de minimis reduction
(amounting to 0.502%) in Trust distributions to existing owners.
Management of the Trust intends to continue the implementation program
permitted by the Delaware Order with other states, but the impact of
any such implementation will be minimal in view of the limited
numbers of addresses listed in each of the other states.
- 29 -
(5) Quarterly results (unaudited):
------------------------------
The table below summarizes the quarterly results and distributions of
the Trust for the years ended October 31, 2001 and 2000.
Fiscal 2001 by Quarter and Year
-------------------------------------------------------------
First Second Third Fourth Year
---------- ---------- ---------- ---------- -------------
Royalties
received $6,441,960 $5,574,374 $4,983,996 $5,453,300 $22,453,630
Net income on
a cash basis 6,322,861 5,395,154 4,870,571 5,318,238 21,906,824
Net income
per unit on
a cash basis .71 .61 .55 .60 2.47
Current year cash
distributions
paid or
to be paid 6,309,631 5,420,950 4,798,874 5,332,083 21,861,538
Current year cash
distributions
per unit .71 .61 .54 .60 2.46
Fiscal 2000 by Quarter and Year
-------------------------------------------------------------
First Second Third Fourth Year
---------- ---------- ---------- ---------- -------------
Royalties
received $3,499,675 $3,682,978 $3,966,769 $3,005,606 $14,155,028
Net income on
a cash basis 3,366,006 3,541,412 3,866,073 2,894,771 13,668,262
Net income
per unit on
a cash basis .39 .41 .43 .33 1.54
Current year cash
distributions
paid or
to be paid 3,391,704 3,565,637 3,821,326 2,932,645 13,711,312
Current year cash
distributions
per unit .39 .41 .43 .33 1.56
F-9
- 30 -
Item 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure.
-------------------------
Inapplicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The identity, business experience, relationships, and other
information about the Trustees as set forth under the caption "Election of
Trustees" in Registrant's definitive Proxy Statement, dated January 10 2002,
as filed with the Commission, are incorporated herein by reference in
accordance with Instruction G(3) to Form 10-K. See "Executive Officers of
the Trust" under Item 1 for information concerning the executive officers of
the Trust.
Item 11. Executive Compensation.
-----------------------
The information about remuneration of the Trustees and Management
as set forth under the caption "Management Compensation" in Registrant's
definitive Proxy Statement, dated January 10, 2002, as filed with the
Commission, is incorporated herein by reference in accordance with
Instruction G(3) to Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The information about security ownership of certain beneficial
owners and Management as set forth in the introduction to and under the
caption "Election of Trustees" in Registrant's definitive Proxy Statement
dated January 10, 2002, as filed with the Commission, is incorporated herein
by reference in accordance with Instruction G(3) to Form 10-K.
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The information about certain relationships and related
transactions as set forth under the captions "Election of Trustees" and
"Management Compensation" in Registrant's definitive Proxy Statement, dated
January 10, 2002 as filed with the Commission, is incorporated herein by
reference in accordance with Instruction G(3) to Form 10-K.
- 31 -
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K.
--------------------------------------------------------
(a) The following is a list of the documents filed as part of this
report:
1. Financial Statements
Index to Financial Statements for the Years Ended
October 31, 2001, 2000 and 1999
Report of Independent Public Accountants
Statements of Assets, Liabilities and Trust Corpus as of
October 31, 2001 and 2000
Statements of Income and Expenses on a Cash Basis for the
Years Ended October 31, 2001, 2000 and 1999
Statements of Undistributed Earnings for the Years Ended
October 31, 2001, 2000 and 1999
Statements of Changes in Cash and Cash Equivalents for the
Years Ended October 31, 2001, 2000 and 1999
Notes to Financial Statements
2. Exhibits
The Exhibit Index following the signature page lists all
exhibits filed with this report or incorporated by reference.
(b) No Current Report on Form 8-K was filed during the last
quarter of the period covered by this Report.
- 32 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Trust has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NORTH EUROPEAN OIL ROYALTY TRUST
Dated: January 10,2002 By: /s/ John H. Van Kirk
-------------------------
John H. Van Kirk,
Managing Trustee
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Dated: January 10, 2002 /s/ John H. Van Kirk
--------------------------------
John H. Van Kirk, Trustee
Dated: January 10, 2002 /s/ Robert P. Adelman
--------------------------------
Robert P. Adelman, Trustee
Dated: January 10, 2002 /s/ Samuel M. Eisenstat
--------------------------------
Samuel M. Eisenstat, Trustee
Dated: January 10, 2002 /s/ Willard B. Taylor
--------------------------------
Willard B. Taylor, Trustee
- 33 -
Exhibit Index
-------------
Exhibit Page
- ------- ----
(3) Trust Agreement, dated September 10, 1975,
amended May 13, 1976, and February 10, 1981,
(incorporated by reference to Exhibit 4(i) to
Form 10-Q for the quarter ended April 30, 1981
(File No. 0-8378)).
(10.1) Agreement with OEG, dated April 2, 1979,
exhibit to Current Report on Form 8-K,
filed May 11, 1979 (incorporated by
reference as Exhibit 1 to Current Report
on Form 8-K, filed May 11, 1979
(File No. 0-8378)).
(10.2) Agreement with Mobil Oil, A.G. concerning
sulfur royalty payment, dated March 30,
1979, (incorporated by reference to Exhibit 3
to Current Report on Form 8-K, filed
May 11, 1979 (File No. 0-8378)).
(22) There are no parents and no subsidiaries
of the Trust.
(99.1) Estimate of Remaining Proved Producing Reserves 34
in the Northwest Basin of the Federal Republic of
Germany as of October 1, 2001 and Calculation
Of Cost Depletion Percentage for the 2001
Calendar Year prepared by
Ralph E. Davis Associates, Inc.
(99.2) Order Approving Settlement signed by
Vice Chancellor Jack Jacobs of the
Delaware Court of Chancery on
Form 8-K, filed February 26, 1996.