SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] 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 1-10243
BP PRUDHOE BAY ROYALTY TRUST
(Exact name of registrant as specified in its charter)
Delaware 13-6943724
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
THE BANK OF NEW YORK
101 Barclay Street
New York, New York 10286
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 815-5092
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
As of November 13, 1997 21,400,000 Units of Beneficial Interest were
outstanding.
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BP PRUDHOE BAY ROYALTY TRUST
Statements of Assets, Liabilities and Trust Corpus
(In thousands, except unit data)
September 30,
1997 December 31,
Assets (Unaudited) 1996
------ ------------- ------------
Royalty Interest (notes 1 and 2) $ 535,000 535,000
Less: accumulated amortization (285,421) (265,970)
Prepaid expenses 141 --
-------- --------
Total assets $ 249,720 269,030
======== ========
Liabilities and Trust Corpus
----------------------------
Accrued expenses 100 90
Trust corpus (40,000,000 units of beneficial
interest authorized, 21,400,000 units
issued and outstanding) 249,620 268,940
-------- --------
Total liabilities and
Trust corpus $ 249,720 269,030
======== ========
See accompanying notes to financial statements.
2
BP PRUDHOE BAY ROYALTY TRUST
Statements of Cash Earnings and Distributions
(In thousands, except unit data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Royalty revenues $ 8,770 11,701 35,960 29,721
Trust administrative expenses 221 299 585 663
------ ------ ------ ------
Cash earnings $ 8,549 11,402 35,375 29,058
====== ====== ====== ======
Cash distributions $ 8,549 11,402 35,375 29,058
====== ====== ====== ======
Cash distributions per unit $ .399 .533 1.653 1.358
====== ====== ====== ======
Units outstanding 21,400,000 21,400,000 21,400,000 21,400,000
========== ========== ========== ==========
See accompanying notes to financial statements.
3
BP PRUDHOE BAY ROYALTY TRUST
Statements of Changes in Trust Corpus
(In thousands)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Trust corpus at beginning of period $ 255,949 286,649 268,940 304,544
Cash Earnings 8,549 11,402 35,375 29,058
Increase in prepaid expenses 141 -- 141 --
(Increase) decrease in
accrued expenses 85 177 (10) 53
Cash distributions (8,549) (11,402) (35,375) (29,058)
Amortization of Royalty Interest (6,555) (8,886) (19,451) (26,657)
------- ------- ------- -------
Trust corpus at end of period $ 249,620 286,649 249,620 277,940
======= ======= ======= =======
See accompanying notes to financial statements.
4
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements
September 30, 1997
(Unaudited)
(1) Formation of the Trust and Organization
BP Prudhoe Bay Royalty Trust (the "Trust") was formed pursuant to a Trust
Agreement dated February 28, 1989 among The Standard Oil Company ("Standard
Oil"), BP Exploration (Alaska) Inc. (the "Company"), The Bank of New York (the
"Trustee") and The Bank of New York (Delaware), as co-trustee. Standard Oil and
the Company are indirect wholly owned subsidiaries of The British Petroleum
Company p.l.c. ("BP").
On February 28, 1989, Standard Oil conveyed an overriding royalty interest
(the "Royalty Interest") to the Trust. The Trust was formed for the sole
purpose of owning and administering the Royalty Interest. The Royalty Interest
represents the right to receive, effective February 28, 1989, a per barrel
royalty (the "Per Barrel Royalty") on 16.4246% of the lesser of (a) the first
90,000 barrels of the average actual daily net production of oil and condensate
per quarter or (b) the average actual daily net production of oil and condensate
per quarter from the Company's working interest as of February 28, 1989 in the
Prudhoe Bay Unit, located on the North Slope of Alaska. Trust Unit holders will
remain subject at all times to the risk that production will be interrupted or
discontinued or fall, on average, below 90,000 barrels per day in any quarter.
BP has guaranteed the performance by the Company of its payment obligations with
respect to the Royalty Interest.
The Trust is passive, with the Trustee having only such powers as are
necessary for the collection and distribution of revenues, the payment of Trust
liabilities and the protection of the Royalty Interest.
(2) Basis of Accounting
The financial statements of the Trust are prepared on a modified cash basis
and reflect the Trust's assets, liabilities and trust corpus and earnings and
distributions as follows:
(a) Revenues are recorded when received (generally within 15 days of
the end of the preceding quarter) and distributions to Trust Unit holders
are recorded when paid.
(b) Trust expenses (which generally include accounting, engineering,
legal, and other professional fees, trustees' fees and out-of-pocket
expenses) are recorded on an accrual basis.
5
(c) Amortization of the Royalty Interest is calculated based on the
units-of-production attributable to the Trust over the production of
estimated proved reserves attributable to the Trust (approximately
111,000,000 barrels at December 31, 1996), is charged directly to the Trust
corpus, and does not affect cash earnings. The rate for amortization per
net equivalent barrel of oil and condensate was $4.82 for the three and nine
months ended September 30, 1997 and $6.61 for the three and nine months
ended September 30, 1996. The remaining unamortized balance of the net
overriding Royalty Interest at September 30, 1997 is not necessarily
indicative of the fair market value of the interest held by the Trust.
While these statements differ from financial statements prepared in
accordance with generally accepted accounting principles, the cash basis of
reporting revenues and distributions is considered to be the most meaningful
because quarterly distributions to the Unit holders are based on net cash
receipts. The accompanying modified cash basis financial statements contain all
adjustments necessary to present fairly the assets, liabilities and Trust corpus
of the Trust as of September 30, 1997 and December 31, 1996 and the modified
cash earnings and distributions and changes in Trust corpus for the three and
nine months ended September 30, 1997 and 1996. The adjustments are of a normal
recurring nature and are, in the opinion of management, necessary to fairly
present the results of operations for the period.
The financial statements should be read in conjunction with the financial
statements and related notes in the Trust's 1996 Annual Report on Form 10-K. The
cash earnings and distributions for the interim period presented are not
necessarily indicative of the results to be expected for the full year.
(3) Income Taxes
The Trust files its federal tax return as a grantor trust subject to the
provisions of subpart E of Part I of Subchapter J of the Internal Revenue Code
of 1986, as amended rather than an association taxable as a corporation. The
Unit holders are treated as the owners of Trust income and corpus, and the
entire taxable income of the Trust will be reported by the Unit Holders on
their respective tax returns.
If the Trust were determined to be an association taxable as a corporation,
it would be treated as an entity taxable as a corporation on the taxable income
from the Royalty Interest, the Trust Unit holders would be treated as
shareholders, and distributions to Trust Unit holders would not be deductible
in computing the Trust's tax liability as an association.
6
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Item should be read in conjunction with the unaudited financial
statements and the notes thereto in Item 1.
Liquidity and Capital Resources
The Trust is a passive entity, and the Trustee's activities are limited to
collecting and distributing the revenues from the Royalty Interest and paying
liabilities and expenses of the Trust. The Trust has no source of liquidity and
no capital resources other than the revenue attributable to the Royalty Interest
that it receives from time to time. See, generally, Note 1 of Notes to
Financial Statements in Item 1. Also, see the discussion under "THE PRUDHOE BAY
UNIT - Reserve Estimates" and "INDEPENDENT OIL AND GAS CONSULTANTS' REPORT" in
Item 1 of the Trust's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 for information concerning the estimated future net revenues
of the Trust.
Results of Operations
Royalty revenues are received on the Quarterly Record Date (generally the
fifteenth day of the month) following the end of the calendar quarter in which
the related royalty production occurred. The Trustee, to the extent possible,
pays all expenses of the Trust for each quarter on the Quarterly Record Date on
which the revenues for the quarter are received. Both revenues and Trust
expenses are recorded on a cash basis for purposes of distributions to Unit
holders and, as a result, royalties paid to the Trust and distributions to Unit
holders in the quarter ended September 30 of each year are attributable to the
Company's operations during the quarter ended June 30 of that year, while
royalties paid to the Trust and distributions to Unit holders in the nine month
period ended September 30 of each year are attributable to the Company's
operations during the first six months of such year and the last three months of
the preceding year.
The following table shows the factors employed to compute the Per Barrel
Royalty received by the Trust during the three quarterly periods ended September
30, 1997 and 1996 (see "THE ROYALTY INTEREST" in Part I, Item 1 of the Trust's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 for an
explanation of the items listed below). The information in the table has been
furnished by the Company.
7
Quarter Ended Quarter Ended
--------------------------- ---------------------------
6/30/97 3/31/97 12/31/96 6/30/96 3/31/96 12/31/95
------- ------- -------- ------- ------- --------
Average WTI Price $ 19.91 22.86 24.71 21.70 19.74 18.16
------ ------ ------ ------ ------ ------
Chargeable Costs $ 8.85 8.85 8.50 8.50 8.50 8.25
Cost Adjustment Factor 1.2686 1.2647 1.2568 1.2409 1.2274 1.2171
------ ------ ------ ------ ------ ------
Adjusted Chargeable Costs $ 11.23 11.19 10.68 10.55 10.43 10.04
Production Taxes 2.16 2.61 2.89 2.45 2.17 1.94
------ ------ ------ ------ ------ ------
$ 13.39 13.80 13.57 13.00 12.60 11.98
------ ------ ------ ------ ------ ------
Per Barrel Royalty $ 6.52 9.06 11.13 8.70 7.14 6.18
====== ====== ====== ====== ====== ======
As long as the Company's average daily net production from the Prudhoe Bay
Unit exceeds 90,000 barrels, which the Company currently projects will continue
until the year 2009, the only factors affecting the Trust's revenues and
distributions to Unit holders are changes in WTI Prices, scheduled annual
increases in Chargeable Costs, changes in the Consumer Price Index, changes in
Production Taxes and changes in the expenses of the Trust.
Three and Nine Months Ended September 30, 1997 Compared to
Three and Nine Months Ended September 30, 1996
The Trust's royalty revenues in the three-month period ended September 30,
1997 decreased approximately 25% from the quarter ended September 30, 1996;
however, revenues in the nine-month period ended September 30, 1997 increased by
approximately 21% over the comparable period ended September 30, 1996. The
Average WTI Price in the second quarter of 1997 was approximately 8.2% below the
Average WTI Price for the second quarter of 1996, but revenues received in the
nine months ended September 30, 1997 benefitted from Average WTI Prices which
were significantly higher in the fourth quarter of 1996 and the first quarter of
1997 (by 36.1% and 15.8%, respectively) than in fourth quarter of 1995 and the
first quarter of 1996. Total deductions from the Average WTI Price (consisting
of Adjusted Chargeable Costs and Production Taxes) increased by $0.39
(approximately 3%) from the second quarter of 1996 to the second quarter of
1997.
Trust administrative expenses for the three months and nine months ended
September 30, 1997 decreased by approximately 26% and 11.8%, respectively, from
the comparable periods of 1996. Changes in Trust administrative expenses from
period to period are affected by the timing of invoices submitted by service
providers to the Trust.
8
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
On October 15, 1997, the Trust received a cash royalty payment of $8,622,187
from the Company with respect to the period July 1, 1997 to September 30, 1997
and, after adding investment income of $20,827 and deducting expenses of
$260,071, distributed $8,382,944, or approximately $0.392 per Unit, on October
20, 1997 to Unit holders of record on October 15, 1997.
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a) Exhibits
4.1 BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among
The Standard Oil Company, BP Exploration (Alaska) Inc., The Bank of
New York, Trustee, and F. James Hutchinson, Co-Trustee.
4.2 Overriding Royalty Conveyance dated February 27, 1989 between BP
Exploration (Alaska) Inc. and The Standard Oil Company.
4.3 Trust Conveyance dated February 28, 1989 between The Standard Oil
Company and BP Prudhoe Bay Royalty Trust.
4.4 Support Agreement dated as of February 28, 1989 among The British
Petroleum Company p.l.c., BP Exploration (Alaska) Inc., The Standard
Oil Company and BP Prudhoe Bay Royalty Trust.
27 Financial Data Schedule
9
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1997.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BP PRUDHOE BAY ROYALTY TRUST
BY: THE BANK OF NEW YORK,
as Trustee
By: /s/ Marie Trimboli
------------------------
Marie Trimboli
Assistant Treasurer
Date: November 14, 1997
The registrant is a trust and has no officers or persons performing similar
functions. No additional signatures are available and none have been provided.
11
INDEX TO EXHIBITS
Exhibit Exhibit
No. Description
------- -----------
*4.1 BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989
among The Standard Oil Company, BP Exploration (Alaska) Inc., The
Bank of New York, Trustee, and F. James Hutchinson, Co-Trustee.
*4.2 Overriding Royalty Conveyance dated February 27, 1989 between BP
Exploration (Alaska) Inc. and The Standard Oil Company.
*4.3 Trust Conveyance dated February 28, 1989 between The Standard Oil
Company and BP Prudhoe Bay Royalty Trust.
*4.4 Support Agreement dated as of February 28, 1989 among The British
Petroleum Company p.l.c., BP Exploration (Alaska) Inc., The
Standard Oil Company and BP Prudhoe Bay Royalty Trust.
**27. Financial Data Schedule.
- ---------
* Incorporated by reference to the correspondingly numbered exhibit to the
registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (Commission File No. 1-10243).
** Filed herewith.