NORTH EUROPEAN OIL ROYALTY TRUST
COMPUTATION OF COST DEPLETION FACTOR
For 1995 Tax Year
Ralph E. Davis Associates, Inc.
Houston, Texas December, 1995
Ralph E. Davis Associates, Inc.
Consultants - Petroleum and Natural Gas
3555 Timmons Lane - Suite 1105
Houston, Texas 77027
(713) 622-8955
December 21, 1995
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 preformed an
estimate of remaining proved producing reserves attributable to
the overriding royalty interests of North European Oil Royalty
Trust ("Trust" or "NEORT") in the Northwest German Basin of the
Federal Republic of Germany. Based on that estimate, we have
submitted our reserve report (the "Davis Report") to you. The
Davis Report forms the basis on which the calculation of the cost
depletion percentage for 1995 is made. As detailed in Attachment
A, the total cost depletion to be taken for the twelve month
period ending December 31, 1995 is 9.343 percent.
In annual reserve reports prepared for the Trust prior to
1992, reserve estimates were presented for the Trust's interests
in fields located in the Alpine Foreland Area of Bavaria and
other non-Oldenburg areas. Reserves and net sales for these areas
were used in the calculation of cost depletion in those prior
years. Reports from 1992 forward omit such an estimate. The
Trust still receives royalty payments from these interests, but
the annual revenues are less than two (2) percent of the total
royalties received by the Trust and the expenses associated with
the computations necessary to determine the reserve estimates 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.
The Trust's net proved producing reserves as of October 1,
1995 and net sales for the twelve month period ending
September 30, 1995 are as follows:
Reserves Sales
-------- -----
Oil, Barrels 82,687 9,226
Associated Gas, MMcf 62 8
Non-Associated Gas, MMcf 39,910 4,098
Sulfur - Short Tons 40,851** 4,081**
(MMcf = millions of cubic feet @ 14.7 psia and 60 Degrees
Fahrenheit)
**Note: At current prices no royalties are presently being
paid under the Mobil sulfur royalty.
Computation of Cost Depletion Percentage
----------------------------------------
A cost base for the Trust was established as of January 1,
1976 for each category of reserves. This cost base is adjusted
(reduced) each year by an amount of depletion that is calculated
by multiplying the remaining cost base at the beginning of the
current year by a unit cost depletion factor. The unit cost
depletion factor is the ratio of the net sales during the current
year to the adjusted net proved producing reserves at the
beginning of the current year.
The categories of reserves considered are oil, associated
gas and non-associated gas. Sulfur is a by-product of the gas
production and is not considered in the cost depletion
calculation.
Significant items in the cost depletion percentage
calculation that appear on Attachment A as specific item numbers
( ) and their sources are as follows:
The cost base as of 1-1-94 (2) and the depletion taken in
1994 (3) were obtained from the previous year's report. The cost
base for 1-1-95 (4) forms the initial starting point for the
calculation of the cost depletion percentage for the 1995 tax
year. The cost base for 1-1-95 (4) then is (2)-(3).
The adjusted net proved producing reserves as of 10-1-94 (8)
is obtained by adding back annual sales (7) to the current
estimated remaining net proved producing reserves as of 10-1-95
(6). Therefore (8)=(6)+(7).
The unit cost depletion factor (10) is obtained by dividing
net sales for the taxable year (7) by adjusted net proved
producing reserves at the beginning of the taxable year (8).
Therefore (10)=(7)/(8).
The cost depletion to be taken for each category of reserves
that is used to reduce the original base each year (11) then is
the product of the unit cost depletion factor (10) multiplied by
the cost base at the beginning of the taxable year (4).
Therefore (11)=(4)x(10).
The total Trust cost depletion percentage then is the sum of
the cost depletion to be taken on each category (11) divided by
the sum of the cost base as of the beginning of the taxable year
for each category. Therefore (12)= Sum(11)/Sum(4).
The Trust's cost depletion percentage represents the
allowable cost depletion for the current tax year, expressed as a
percentage of the cost base at the beginning of the tax year.
Sincerely yours,
RALPH E. DAVIS ASSOCIATES, INC.
/S/ Larry A. Barnett, P.E.
-------------------------------
Larry A. Barnett, P.E.
Senior Vice-President
LAB:sw
ATTACHMENT A
NORTH EUROPEAN OIL ROYALTY TRUST
COMPUTATION OF COST DEPLETION FACTOR
For the Year Ending December 31, 1995
OLDENBURG
---------------------------------------
1.Product Associated Non-Assoc.
Oil Gas Gas
Barrels MMCF MMCF
------- ---------- ---------
NEORT COST BASE ALLOCATION (%)
- -----------------------------
2. Cost base as of 1-1-94 0.73044 0.06295 20.31197
3. Less depletion taken
during 1994 0.06750 0.00597 1.62286
4. Cost base as of 1-1-95 0.66294 0.05698 18.68911
NEORT NET RESERVES (Barrels of Oil and Millions of Cubic Feet)
- --------------------------------------------------------------
5. Estimated remaining net
proved producing reserves
as of 10-1-94 88,235 105 42,391
6. Estimated remaining net
proved producing reserves
as of 10-1-95 82,687 62 39,910
7. Net sales from 10-1-94
to 10-1-95 9,226 8 4,098
8. Adjusted net proved
producing reserves
as of 10-1-94 91,913 70 44,008
9. Reserves adjustments
during period 3,678 -35 1,617
COST DEPLETION CALCULATION (%)
- -------------------------------
10. Unit cost depletion
factor 0.10038 0.11429 0.09312
11. 1995 cost depletion
to be taken 0.06654 0.00651 1.74032
- -----------------------------------------------------------------
12. Total NEORT cost depletion percentage = 9.343 percent of
1-1-95 cost base
- -----------------------------------------------------------------
Footnotes:
Line (2) from 1994 depletion computations
Line (3) from 1994 depletion computations
Line (4) = Line (2) - Line (3)
Line (5) from reserves review as of 10-1-94
Line (6) from reserves review as of 10-1-95
Line (7) from OEG and MOBIL statements
Line (8) = Line (6) + Line (7)
Line (9) = Line (8) - Line (5)
Line (10) = Line (7)/Line (8)
Line (11) = Line (10) x Line (4)
Line (12) = Sum of Line (11)/Sum of Line (4)