- 44 -
Exhibit 99.1
NORTH EUROPEAN OIL ROYALTY TRUST
ESTIMATE OF REMAINING PROVED PRODUCING RESERVES
IN THE NORTHWEST BASIN OF THE
FEDERAL REPUBLIC OF GERMANY
AS OF OCTOBER 1, 2004
AND
CALCULATION OF COST DEPLETION PERCENTAGE
FOR 2004 CALENDAR YEAR
RALPH E. DAVIS ASSOCIATES, INC.
HOUSTON, TEXAS DECEMBER, 2004
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T A B L E O F C O N T E N T S
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Description of Holdings . . . . . . . . . . . . . . . . . . . . . . . . 1-2
Oldenburg Area - Sales and Reserves . . . . . . . . . . . . . . . . . . . 3
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Gross Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Net Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3-4
Limitations of Available Data . . . . . . . . . . . . . . . . . . . . . . 4
Calculation of Cost Depletion Percentage . . . . . . . . . . . . . . . . 5
Certificate of Qualification . . . . . . . . . . . . . . . . . . . . . . 7
Attachment A:
Reserve Summary and Five Year Net Sales History . . . . . . . . . . 8
Attachment B:
Calculation of Cost Depletion Percentage . . . . . . . . . . . . . . 9
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Ralph E. Davis Associates, Inc.
Consultants - Petroleum and Natural Gas
1717 St. James Place, Suite 460
Houston, Texas 77056
(713) 622-8955
December 16, 2004
The Trustees of
North European Oil Royalty Trust
P. O. Box 456
Red Bank, New Jersey 07701
Gentlemen:
In accordance with your request, we have prepared a report of the
estimated remaining proved producing reserves attributable to the overriding
royalty interest of North European Oil Royalty Trust (the "Trust" or "NEORT")
in the Northwest German Basin of the Federal Republic of Germany as of
October 1, 2004. The proved producing reserves are as of October 1, 2004 and
the reported sales are for the twelve month period ending September 30, 2004.
The use of the period ending September 30, 2004 is consistent with prior
years and allows the timely calculation of the royalty reserves and the cost
depletion percentage for the calendar year.
In addition, based on the information contained in the first
part of this report, we have performed the calculations necessary to derive
the cost depletion percentage for the 2004 calendar year. As detailed in
Attachment B, the cost depletion percentage for the 2004 calendar year for
Trust unit owners is equal to 8.7247% of their cost base as of
January 1, 2004.
DESCRIPTION OF HOLDINGS
-----------------------
The Trust holds various overriding royalty rights on sales of gas,
sulfur and oil from certain concessions and leases in the Federal Republic
of Germany. The Oldenburg concession (1,398,000 acres), covering virtually
the entire former State of Oldenburg and located in the State of Lower
Saxony, is held by Oldenburgische Erdolgesellschaft ("OEG"). OEG in turn
is owned by Mobil Erdgas-Erdol GmbH ("Mobil Erdgas"), the German subsidiary
of ExxonMobil Corp. and BEB Erdgas und Erdol GmbH ("BEB"), a joint venture
of ExxonMobil Corp. and the Royal Dutch/Shell Group of Companies. As a
result by direct and indirect ownership, ExxonMobil Corp. owns two-thirds of
OEG and the Royal Dutch/Shell Group owns one-third of OEG.
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North European Oil Royalty Trust December 16, 2004
Page 2
The Oldenburg concession is the major source of royalty income for
the Trust. Although the Trust has interests in other producing areas,
reserves and net sales for these areas are no longer used in the calculation
of the annual cost depletion percentage. While the Trust continues to
receive royalty payments from some of these interests, these royalties
represent less than one (1) percent of the Trust's total royalties and the
expenses involved in the determination of reserve estimates for these
interests are not warranted by the royalties received. The exclusion of
these reserves does not have a material effect on the calculation of the
cost depletion percentage. We will continue to monitor the quarterly
statements and if increases are noted that could materially add reserves
to the Trust, we will resume estimating future reserves.
1. In 2002 Mobil Erdgas and BEB formed a new company ExxonMobil
Production Deutschland GmbH ("EMPG") to carry out all
exploration, drilling and production within the Oldenburg
concession. All sales activities are still handled by either
Mobil Erdgas or BEB.
(a) 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 well 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
receives from Mobil Erdgas a 2% royalty payment 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 subject to an
agreement which provides that if Mobil Erdgas' selling
price is below the escalated base price, payment of
royalties is deferred until such time as the selling
price again exceeds the escalated base price. Throughout
fiscal 2004, Mobil Erdgas' selling price was below the
escalated base price. We will continue to monitor this
situation, but until the point that Mobil Erdgas' selling
price again exceeds the escalated base price, reserves
subject to this royalty will not be included in overall
reserve calculations.
(b) 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
a certain allowed deduction of costs. Under the agreement
previously reached with OEG, 50% of the field handling,
treatment and transportation costs as reported for state
royalty purposes are deducted from gross sales receipts
prior to the calculation of the royalty to be paid to
the Trust.
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North European Oil Royalty Trust December 16, 2004
Page 3
OLDENBURG AREA - SALES AND RESERVES
------------------------------------
The Trust's royalty income comes primarily from the Oldenburg area.
Gas production accounts for the majority of the income; however, the
hydrogen sulfide in much of the gas produced necessitates its removal
before the gas can be sold. At the Grossenkneten desulfurization plant, the
hydrogen sulfide in sour gas is removed. Following renovations and
improvements to the plant in 1994 and again in 1996, the plant's input
capacity has been increased from 536.4 million cubic feet ("MMcf") per day
to its present capacity of 679.4 MMcf per day. A second desulfurization
plant NEAG remains connected by pipeline with the transportation system of
the Oldenburg concession but is currently being utilized only to a limited
degree for the processing of gas from Oldenburg.
TOTAL SALES
-----------
During the twelve months ending September 30, 2004 total sales for
the Oldenburg area were as follows:
WEST EAST TOTAL
---- ---- -----
Gas Well Gas-MMcf 64,058 102,179 166,237
Oil Well Gas-MMcf 71 101 172
Oil & Condensate-Barrels 135,197 73,165 208,362
Sulfur-Short Tons 220,169 552,369 775,538
GROSS RESERVES
--------------
Estimated gross remaining proved producing reserves attributable
to the total Oldenburg area are as follows:
WEST EAST TOTAL
---- ---- -----
Gas Well Gas-MMcf 592,928 1,672,154 2,265,082
Oil Well Gas-MMcf 223 283 506
Oil & Condensate-Barrels 1,767,344 815,739 2,583,083
Sulfur-Short Tons 2,013,568 8,366,383 10,379,951
NET RESERVES
------------
To present an accurate picture of estimated proved producing
reserves net to the Trust, the gross reserve figures outlined above must be
modified by the impact of the different royalty rates in effect in the
Oldenburg concession. A comparison of the Trust's overriding royalty rates
in both the western and eastern areas of Oldenburg is as follows:
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North European Oil Royalty Trust December 16, 2004
Page 4
Mobil Erdgas West East
--------------- ---------- ----------
Gas & Oil 4% 0%
Sulfur 2%* 0%
BEB
---------------
Gas & Oil 0.6667%** 0.6667%**
Sulfur 0.6667%** 0.6667%**
*Temporarily suspended. (See prior explanation.)
**Prior to the calculation of royalties, 50% of costs as reported for
state royalty purposes are deducted.
The application of these royalty rates to the estimated gross
remaining proved producing reserves attributable to the western and eastern
Oldenburg areas yields the combined estimated proved producing reserves net
to the Trust. The Trust's estimated remaining net proved producing reserves
as of October 1, 2004 and net sales for the twelve month period ending
September 30, 2004 are as follows:
Reserves Sales
-------- -----
Gas Well Gas-MMcf 36,631 3,513
Oil Well Gas-MMcf 12 4
Oil & Condensate-Barrels 87,343 6,752
Sulfur-Short Tons 56,952*** 4,239***
*** Note: At current price levels no royalties are being paid
under the Mobil Erdgas sulfur royalty.
A summary of net proved producing reserves by product and a five
year history of net sales attributable to the royalty interests of the Trust
are presented in Attachment A.
LIMITATIONS OF AVAILABLE DATA
-----------------------------
The reserves considered in this report are defined as proved
producing reserves. Proved producing reserves are limited to those
quantities which can be expected to be recoverable commercially from known
reservoirs at current prices and costs, under existing regulatory practices
and with existing conventional equipment and operating methods. Proved
producing reserves do not include either proved developed non-producing
reserves or any class of probable reserves.
The reserve estimates were prepared using engineering methods
generally accepted by the petroleum industry. The reliability of any
reserve estimate is a function of the quality of available information and
of engineering interpretation and judgment.
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North European Oil Royalty Trust December 16, 2004
Page 5
The Trust, as an overriding royalty interest owner, does not
receive proprietary data from the various operators on producing wells.
Data, such as logs, core analysis, reservoir tests, pressure tests, gas
analyses, geologic maps, and individual well production histories, which are
used in volumetric and material balance type reserve estimates, are not
available to the Trust.
The Trust receives various monthly and quarterly statements from
the operators that report production, sales and revenue data. Utilizing the
same procedures as in prior years, this information plus published
information received from W.E.G. (a German organization comparable to the
American Petroleum Institute or the American Gas Association) has been used
to prepare this annual report. In addition, the Trust retains a part-time
consultant in Germany who is familiar with the German petroleum industry in
general and the operating companies in particular. His periodic reports
and communications are considered in the preparation of this report. We
believe that reserve estimates prepared using all the available data
represent realistic values. However, due to the limitations of available
data, this estimate of reserves cannot have the same degree of accuracy that
an estimate of reserves prepared using all pertinent data would have. Our
experience in the evaluation of reserves using such limited data, including
eleven (11) years of experience working for the Trust, compensates somewhat
for the limitations of available data.
The data in the reports received by the Trust is in metric tons and
cubic meters. The following Metric to English Unit conversion factors were
used:
Gas: 37.25 cubic feet per cubic meter at 14.7 psia
and 60 degrees Fahrenheit
Oil: 7.23 barrels per metric ton
Sulfur: 1.1 short tons per metric ton
CALCULATION OF COST DEPLETION PERCENTAGE
----------------------------------------
The categories of proved producing reserves considered in the
calculation of the cost depletion percentage are oil, oil well gas, and
gas well gas. Sulphur is a by-product of gas production and is not
considered in the computation of total cost depletion percentage.
For each category of reserves, a product base was established for
the Trust as of January 1, 1976. Through the use of these product bases, we
can account for the relative size of each of these categories of reserves and
the corresponding impact on the calculation of the cost depletion percentage.
The product base for each category of proved producing reserves is reduced
annually by an adjustment that is calculated by multiplying the product base
at the beginning of the current year by the depletion factor for that
category of reserves. The depletion factor for each category of reserves is
the ratio of the relevant net sales during the current year to the
corresponding adjusted net proved producing reserves at the beginning of the
current year.
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North European Oil Royalty Trust December 16, 2004
Page 6
Significant items in the cost depletion percentage calculation that
appear on Attachment B as specific item numbers, shown in parentheses, and
their sources are as follows:
The adjusted estimated net proved producing reserves as of
10/1/03 Line (3) is obtained by adding the estimated remaining
net proved producing reserves as of 10/1/03 Line (1) and the
adjustments to reserves during the period Line (2). Therefore
Line (3) = Line (1) + Line (2).
The depletion factor Line (6) for each category of proved
producing reserves is obtained by dividing the relevant net
sales Line (4) by the corresponding adjusted estimated net
proved producing reserves as of 10/1/03 Line (3). Therefore
Line (6) = Line (4) / Line (3).
The product base for each category of proved producing
reserves as of 1/1/03 Line (7) and the adjustment taken during
2003 Line (8) were obtained from the previous year's report.
The product base as of 1/1/04 Line (9) forms the initial
starting point for the calculation of the cost depletion
percentage for the 2004 tax year. The product base for
1/1/04 Line (9) then is Line (7) - Line (8).
The adjustment to the product base for each category of proved
producing reserves Line (10) is used to reduce the product
base as of the beginning of each year. This adjustment is the
product of the depletion factor for each category of proved
producing reserves Line (6) multiplied by the corresponding
product base as of 1/1/04 Line (9). Therefore Line (10) =
Line (6) x Line (9).
The cost depletion percentage Line (11) then is the sum of the
adjustment to the product base of each category of proved
producing reserves [Sum Line (10)] divided by the sum of the
product base for each category as of 1/1/04 [Sum Line (9)].
Therefore Line (11) = [Sum Line (10)] / [Sum Line (9)].
The cost depletion percentage represents the total allowable cost
depletion for the 2004 calendar year for the Trust's unit owners, expressed
as a percentage of their cost base as of January 1, 2004.
Sincerely yours,
RALPH E. DAVIS ASSOCIATES, INC.
/s/ Larry A. Barnett
----------------------------
Larry A. Barnett, P.E.
Senior Vice-President
LAB:sw
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North European Oil Royalty Trust December 16, 2004
Page 7
CERTIFICATE OF QUALIFICATION
----------------------------
I, Larry A. Barnett, Registered Professional Engineer, do hereby
certify:
1. That I am senior vice-president of the consulting firm of
Ralph E. Davis Associates, Inc. with offices at 1717 St. James
Place, Suite 460, Houston, Texas 77056.
2. That I have prepared a reserve report on the interests of the
North European Oil Royalty Trust in the Northwest Basin of the
Federal Republic of Germany as of October 1, 2004.
3. That I have no direct or indirect interest, nor do I expect to
receive any direct or indirect interest, in the properties or
in any securities of the North European Oil Royalty Trust.
4. That I attended The University of Texas and that I graduated
with a Bachelor of Science Degree in Petroleum Engineering
in 1958.
5. That I am a Registered Professional Engineer in the State of
Texas Registration Number 23399, and that I am a member in
good standing of the Society of Petroleum Engineers, the
Society of Petroleum Evaluation Engineers and the Society of
Professional Well Log Analysts.
6. That I have in excess of forty-five years experience in the
evaluation of oil and gas properties in the United States,
Canada, Mexico, South America and Germany, and that I have
been practicing as a consultant in petroleum engineering and
geology since 1985.
RALPH E. DAVIS ASSOCIATES, INC.
/S/ Larry A. Barnett
---------------------------------
Larry A. Barnett, P.E.
Senior Vice-President
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Page 8
ATTACHMENT A
NORTH EUROPEAN OIL ROYALTY TRUST
RESERVE SUMMARY AND FIVE YEAR NET SALES HISTORY
ESTIMATED NET PROVED PRODUCING RESERVES
- ---------------------------------------
AS OF OCTOBER 1, 2004
- ---------------------
OLDENBURG
- ---------------------------------------------------------------------------
Gas Well Oil Well Oil/Cond. Sulfur
Gas Gas
MMcf MMcf Barrels Short Tons
--------- ---------- ---------- ----------
36,631 12 87,343 56,952***
***Note: At current prices, no royalties are presently
being paid under the Mobil Erdgas sulfur royalty.
FIVE YEAR NET SALES SUMMARY
- ---------------------------
12 MONTHS ENDING SEPTEMBER 30
- -----------------------------
OLDENBURG
- ---------------------------------------------------------------------------
Gas Well Oil Well Oil/Cond. Sulfur
Gas Gas
MMcf MMcf Barrels Short Tons
---------- ---------- ---------- ------------
2004 3,513 4 6,752 4,239***
2003 4,141 3 5,597 4,265***
2002 4,652 3 6,412 3,600***
2001 5,159 7 7,205 4,667***
2000 4,953 7 6,996 4,373***
***Note: At current prices, no royalties are presently
being paid under the Mobil Erdgas sulfur royalty.
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Page 9
ATTACHMENT B
NORTH EUROPEAN OIL ROYALTY TRUST
CALCULATION OF TOTAL COST DEPLETION PERCENTAGE
For the Year Ending December 31, 2004
OLDENBURG
-------------------------------------
Gas Well Oil Well
Gas Gas Oil
MMcf MMCF Barrels
------- ---------- ----------
NEORT NET RESERVES (Million Cubic Feet of Gas and Barrels of Oil )
- ------------------------------------------------------------------
1. Estimated remaining net proved
producing reserves as of 10-1-03 39,141 11 90,541
2. Adjustments to reserves
during period 1,003 5 3,554
3. Adjusted est. net proved
producing reserves
as of 10-1-03 40,144 16 94,095
4. Net sales from 10-1-03
to 9-30-04 3,513 4 6,752
5. Estimated remaining net proved
producing reserves
as of 10-1-04 36,631 12 87,343
RESERVE DEPLETION FACTOR
- -----------------------------
6. Depletion factor 0.08751 0.25000 0.07176
NEORT WEIGHTED PRODUCT BASE ALLOCATION
- -------------------------------------------
7. Product base as of 1-1-03 8.74680 0.01879 0.30725
8. Less adjustments taken
during 2003 0.83685 0.00403 0.01789
9. Product base as of 1-1-04 7.90995 0.01476 0.28936
10. 2004 Adjustment
to product base 0.69220 0.00369 0.02076
11. Cost depletion percentage for 2004 calendar year for Trust unit owners
is equal to 8.7247 percent of their 1-1-04 cost base.
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Page 10
Footnotes:
Line (1) from reserves review as of 10-1-03
Line (2) from reserves review as of 10-1-04
Line (3) = Line (1) + Line (2)
Line (4) from BEB and Mobil Erdgas statements
Line (5) from reserves review as of 10-1-04
Line (6) = Line (4) / Line (3)
Line (7) from 2003 Depletion Calculations
Line (8) from 2003 Depletion Calculations
Line (9) = Line (7) - Line (8)
Line (10) = Line (9) x Line (6)
Line (11) = [Sum Line (10)] / [Sum Line (9)]