1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8518
LL&E ROYALTY TRUST
(Exact name of registrant as specified in its charter)
TEXAS 76-6007940
(State or other jurisdiction of (I.R.S. Employer
incorporation Identification No.)
or organization)
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION 77002
CORPORATE TRUST DIVISION (Zip Code)
712 MAIN STREET
HOUSTON, TEXAS
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 216-5447
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 ______
At August 10, 1999, 18,991,304 Units of Beneficial Interest in the
registrant were outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
TABLE OF CONTENTS
PAGE
----
Part I. Financial Information
Item 1. Financial Statements:
Presentation of Financial Information.................. 2
Statements of Cash Earnings and Distributions.......... 3
Statements of Assets, Liabilities and Trust Corpus..... 3
Statements of Changes in Trust Corpus.................. 3
Notes to Financial Statements.......................... 4
Independent Auditors' Review Report.................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................. 15
Signature................................................... 16
-1-
3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LL&E ROYALTY TRUST
PRESENTATION OF FINANCIAL INFORMATION
The accompanying unaudited financial statements of LL&E Royalty Trust
(Trust) have been prepared in accordance with the instructions to Form 10-Q. The
financial statements were prepared on the basis of cash receipts and
disbursements and are not intended to be a presentation in conformity with
generally accepted accounting principles. The information reflects all
adjustments which, in the opinion of the Trustee, are necessary for a fair
presentation of the results for the interim periods presented. The financial
information should be read in conjunction with the financial statements and
notes thereto included in the Trust's Annual Report on Form 10-K for the year
ended December 31, 1998. The cash earnings and distributions for the six months
ended June 30, 1999 are not necessarily indicative of the results to be expected
for the year 1999.
The June 30, 1999 and 1998 financial statements included in this filing on
Form 10-Q have been reviewed by KPMG LLP, independent auditors, in accordance
with established professional standards and procedures for such a review. The
report of KPMG LLP commenting upon their review is included herein.
-2-
4
LL&E ROYALTY TRUST
STATEMENTS OF CASH EARNINGS AND DISTRIBUTIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Royalty revenues............................. $ 533,604 $2,930,890 $1,445,516 $7,017,662
Trust administrative expenses................ (146,680) (131,602) (299,845) (282,920)
---------- ---------- ---------- ----------
Cash earnings................................ 386,924 2,799,288 1,145,671 6,734,742
Changes in undistributed cash................ (18,544) (6,166) (48) 1,550
---------- ---------- ---------- ----------
Cash distributions........................... $ 368,380 $2,793,122 $1,145,623 $6,736,292
========== ========== ========== ==========
Cash distributions per Unit.................. $ .0194 $ .1471 $ .0603 $ .3547
========== ========== ========== ==========
Units outstanding............................ 18,991,304 18,991,304 18,991,304 18,991,304
========== ========== ========== ==========
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
ASSETS
Cash........................................................ $ 20,011 $ 19,963
Net overriding royalty interests in productive oil and gas
properties and 3% royalty interests in fee lands (notes 2,
3 and 5).................................................. 76,282,000 76,282,000
Less accumulated amortization (note 3)...................... (73,894,000) (73,717,000)
------------ ------------
Total assets...................................... $ 2,408,011 $ 2,584,963
============ ============
LIABILITIES AND TRUST CORPUS
Trust Corpus (18,991,304 Units of Beneficial Interest
authorized, issued and outstanding)....................... $ 2,408,011 $ 2,584,963
Contingencies (note 4)
------------ ------------
Total liabilities and Trust Corpus................ $ 2,408,011 $ 2,584,963
============ ============
STATEMENTS OF CHANGES IN TRUST CORPUS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-------------------------
1999 1998
----------- -----------
Trust Corpus, beginning of period (note 3).................. $ 2,584,963 $ 3,747,726
Cash earnings............................................... 1,145,671 6,734,742
Cash distributions.......................................... (1,145,623) (6,736,292)
Amortization of royalty interest (note 3)................... (177,000) (388,000)
----------- -----------
Trust Corpus, end of period................................. $ 2,408,011 $ 3,358,176
=========== ===========
The accompanying notes are an integral part of these financial statements.
-3-
5
LL&E ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(1) FORMATION OF THE TRUST
On June 28, 1983, The Louisiana Land and Exploration Company (herein
Working Interest Owner or Company) created the Trust and distributed Units of
Beneficial Interest (Units) in the Trust to the holders of record of capital
stock of the Company on the basis of one Unit for each two shares of capital
stock held on June 22, 1983. On October 22, 1997, the shareholders of the
Company approved a definitive agreement to merge with Burlington Resources Inc.
("BR"). Effective on that date, the Company became a wholly owned subsidiary of
BR. The merger had no significant effects on the Trust.
Upon creation of the Trust, the Company conveyed to the Trust (a) net
overriding royalty interests (Overriding Royalties), which are equivalent to net
profits interests, in certain productive oil and gas properties located in
Alabama, Florida, Texas and in federal waters offshore Louisiana (Productive
Properties) and (b) 3% royalty interests (Fee Lands Royalties) in certain of the
Company's then unleased, undeveloped south Louisiana fee lands (Fee Lands). The
Overriding Royalties and the Fee Lands Royalties are referred to collectively as
the "Royalties". Title to the Royalties is held by a partnership (Partnership)
of which the Trust and the Company are the only partners, holding 99% and 1%
interests, respectively.
The Trust is passive, with Chase Bank of Texas, National Association as
Trustee, having only such powers as are necessary for the collection and
distribution of revenues resulting from the Royalties, the payment of Trust
liabilities and the conservation and protection of the Trust estate. The Units
are listed on the New York Stock Exchange.
(2) NET OVERRIDING ROYALTY INTERESTS AND FEE LANDS ROYALTIES
The instruments conveying the Overriding Royalties generally provide that
the Working Interest Owner or any successor working interest owner will
calculate and pay to the Trust each month an amount equal to various percentages
of the Net Proceeds (as defined in the Conveyance of Overriding Royalty
Interests) from the Productive Properties. For purposes of computing Net
Proceeds prior to January 1997, the Productive Properties were grouped
geographically into four groups of leases, each of which has been defined as a
separate Property. In January 1997, the Fort Worth Basin property was sold,
therefore only three groups of leases remain. Generally, Net Proceeds are
computed on a Property-by-Property basis and consist of the aggregate proceeds
to the Working Interest Owner or any successor working interest owner from the
sale of oil, gas and other hydrocarbons from each of the Productive Properties
less: (a) all direct costs, charges, and expenses incurred by the Working
Interest Owner in exploration, production, development and other operations on
the Productive Properties (including secondary and tertiary recovery
operations), including abandonment costs; (b) all applicable taxes, including
severance and ad valorem taxes, but excluding income taxes except as described
in note 4 below; (c) all operating charges directly associated with the
Productive Properties; (d) an
-4-
6
LL&E ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
allowance for costs if costs and expenses for any Productive Property have
exceeded proceeds of production from such Productive Property in a preceding
month; and (e) charges for certain overhead expenses.
The Fee Lands Royalties consist of royalty interests equal to a 3% interest
in the future gross oil, gas, and other hydrocarbon production, if any, from
each of the Fee Lands, unburdened by the expense of drilling, completion,
development, operating and other costs incident to production. In June 1993,
pursuant to applicable law, the Fee Lands Royalties terminated as to all tracts
not then held by production or maintained by production from other tracts.
Consequently, at June 30, 1999, the Fee Lands consisted of approximately 35,000
gross acres.
(3) BASIS OF PRESENTATION
The financial statements of the Trust are prepared on the following basis:
(a) Royalties are recorded on a cash basis and are generally received
by the Trustee in the third month following the month of production of oil
and gas attributable to the Trust's interest.
(b) Trust expenses, which include accounting, engineering, legal and
other professional fees, Trustee's fees and out-of-pocket expenses, are
recorded on a cash basis.
(c) Amortization of the net overriding royalty interests in productive
oil and gas properties and the 3% royalty interest in Fee Lands, which is
calculated on a unit-of-production basis, is charged directly to the Trust
Corpus since the amount does not affect cash earnings.
(d) The initial carrying value of the Trust's royalty interests in oil
and gas properties represents the Company's cost on a successful efforts
basis (net of accumulated depreciation, depletion and amortization) at June
28, 1983 applicable to the interest in the properties transferred to the
Trust. Information regarding the calculation of the amount of such cost was
supplied by the Company to the Trustee. The unamortized balance at June 30,
1999 is not necessarily indicative of the fair market value of the
interests held by the Trust.
The preparation of the financial statements requires estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
While these statements differ from financial statements prepared in
accordance with generally accepted accounting principles, the cash basis of
reporting revenues and expenses is considered to be the most meaningful because
monthly distributions to the Unit holders are based on net cash receipts. The
financial
-5-
7
LL&E ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
information furnished herein should be read in conjunction with the financial
statements and notes thereto included in the Trust's Annual Report on Form 10-K
for the year ended December 31, 1998.
(4) FEDERAL INCOME TAX MATTERS
In May and June 1983, the Company applied to the Internal Revenue Service
(IRS) for certain rulings, including the following: (a) the Trust will be
classified for federal income tax purposes as a trust and not as an association
taxable as a corporation, (b) the Trust would be characterized as a "grantor"
trust as to the Unit holders and not as a "simple" or "complex" trust (a
"non-grantor" trust), (c) the Partnership will be classified as a partnership
and not as an association taxable as a corporation, (d) the Company will not
recognize gain or loss upon the transfer of the Royalties to the Trust or upon
the distribution of the Units to its stockholders, (e) each Royalty would be
considered an economic interest in oil and gas in place, and each Overriding
Royalty would constitute a single property within the meaning of Section 614(a)
of the Internal Revenue Code, (f) the steps taken to create the Trust and the
Partnership and to distribute the Units will be viewed for federal income tax
purposes as a distribution of the Royalties by the Company to its stockholders,
followed by the contribution of the Royalties by the stockholders to the
Partnership in exchange for interests therein, which in turn was followed by the
contribution by the stockholders of the interests in the Partnership to the
Trust in exchange for Units, and (g) the transfer of a Unit of the Trust will be
considered for federal income tax purposes to be the transfer of the
proportionate part of the Partnership interest attributable to such Unit.
Subsequent to the distribution of the Units, the IRS ruled favorably on all
requested rulings except (d). Because the rulings were issued after the
distribution of the Units, however, the rulings could be revoked by the IRS if
it changes its position on the matters they address. If the IRS changed its
position on these issues, challenged the Trust and the Unit holders and was
successful, the result could be adverse. The Company withdrew its request for
the ruling described in (d), and the Company and the IRS subsequently litigated
the issue. The Tax Court rendered an opinion favorable to the Company, which
became final in 1992.
These financial statements are prepared on the basis that the Trust will be
treated as a "grantor" trust and that the Partnership will be treated as a
partnership for federal income tax purposes. Accordingly, no income taxes are
provided in the financial statements.
(5) DISMANTLEMENT OF PLATFORMS
The Working Interest Owner, under the terms of the Trust Conveyances, is
permitted to escrow funds from the Productive Properties for estimated future
costs such as dismantlement costs and capital expenditures. According to the
most recent reserve report, included in the Trust's Annual Report and Form 10-K
for the year ended December 31, 1998, the total future dismantlement costs to
the Working Interest Owner are
-6-
8
LL&E ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
$2.6 million for South Pass 89, $9.6 million for Jay Field and $3.0 million for
the Offshore Louisiana property. The Trust's interests in these properties are
equivalent to 50% of the net proceeds from South Pass 89 and Jay Field
properties and 90% of the net proceeds from the Offshore Louisiana property. The
total cumulative escrow balance as of June 30, 1999 was approximately $2.3
million for the Offshore Louisiana property only.
In June 1999, the Working Interest Owner informed the Trustee that, in
accordance with its contractual rights, it will escrow additional funds from the
Productive Properties to provide for the Trust's portion of the estimated costs
of dismantling platforms effective with the July 1999 royalty distribution. When
the Working Interest Owner escrows additional funds, the Royalties paid to the
Trustee will be reduced, and the reductions could be significant.
-7-
9
INDEPENDENT AUDITORS' REVIEW REPORT
Chase Bank of Texas, National Association, Trustee
and the Unit Holders of LL&E Royalty Trust:
We have reviewed the accompanying statement of assets, liabilities and
trust corpus of LL&E Royalty Trust (Trust) as of June 30, 1999, and the related
statements of cash earnings and distributions for the three-month and six-month
periods ended June 30, 1999 and 1998 and changes in Trust corpus for the
six-month periods ended June 30, 1999 and 1998. These financial statements are
the responsibility of the Trustee.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
As described in Note 3, these financial statements were prepared on the
basis of cash receipts and disbursements and are not intended to be a
presentation in conformity with generally accepted accounting principles.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with the basis of accounting as described in Note 3.
We have previously audited, in accordance with generally accepted auditing
standards, the statement of assets, liabilities and Trust corpus as of December
31, 1998, and the related statements of cash earnings and distributions and
changes in Trust corpus for the year then ended (not presented herein), and in
our report dated March 23, 1999, we expressed an unqualified opinion on those
financial statements which were prepared on the basis of accounting described in
Note 3.
KPMG LLP
Houston, Texas
August 10, 1999
-8-
10
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-Q, including without
limitation the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations", are forward-looking statements.
Although the Working Interest Owners have advised the Trust that they believe
that the expectations reflected in the forward-looking statements contained
herein are reasonable, no assurance can be given that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from expectations ("Cautionary Statements") are disclosed in
this Form 10-Q and in the Trust's Form 10-K, including without limitation in
conjunction with the forward-looking statements included in this Form 10-Q. All
subsequent written and oral forward-looking statements attributable to the Trust
or persons acting on its behalf are expressly qualified in their entirety by the
Cautionary Statements.
The unaudited data included in the financial statements and notes thereto
in Item 1 are an integral part of this discussion and analysis and should be
read in conjunction herewith. The information contained herein regarding
operations and exploration and development activities on the properties burdened
by the Royalties, and certain other matters, has been furnished by the Working
Interest Owner.
INFORMATION SYSTEMS FOR THE YEAR 2000
The year 2000 issue is the result of computer systems and other equipment
with embedded chips or processors using two digits instead of four to define a
specific year and potentially being unable to process accurately certain data
before, during or after the year 2000. This could result in system failures or
miscalculations, causing disruptions to various activities and operations.
BR's year 2000 readiness plan involves four phases: assessment,
remediation, testing and implementation. BR has completed its assessment of all
material systems that could be affected by the year 2000 issue. The assessment
confirmed that information technology exposures were not material; however,
assets used in producing, gathering and transporting hydrocarbons (hereafter
referred to as operating equipment) were determined to be at risk of
encountering year 2000 problems.
BR has completed the remediation, testing and implementation phases for all
significant operating equipment. BR's goal under its year 2000 readiness plan is
to ensure that all critical operating equipment, systems and processes under its
direct control remain operational. However, because certain operating equipment,
systems and processes may be linked with systems outside of BR's control, there
can be no assurance that all implementations will be successful.
BR has no means of ensuring that its third-party vendors and suppliers will
be year 2000 compliant. BR has contacted all third-party vendors and suppliers
of products and services that it considers material to its operations in order
to ascertain their level of year 2000 readiness. All of the significant vendors
and suppliers of BR have responded that they believe the year 2000 issue will
not have a material adverse impact on their
-9-
11
ability to perform. However, if BR's third party vendors and suppliers are
unable to perform because of year 2000 problems, such failures could result in
the inability to transport, deliver or market crude oil, natural gas or natural
gas liquids.
Presently, based on information available, BR cannot conclude that any
failure of BR or third parties to achieve year 2000 compliance will not
adversely affect BR.
The Trustee has developed and is implementing a program to prepare its
systems and applications for the Year 2000, including those used to render
services to the Trust. In that connection, the Trustee intends to have such
systems and applications capable of processing, on and after January 1, 2000,
date, and date-related data consistent with the functionality of such systems
and applications, without a material adverse effect upon its performance of
services as Trustee.
The Trust is reliant on the performance of third parties for the receipt of
royalty income, payment of expense and disbursement of distributable income. Any
failure by third party suppliers or business partners to successfully address
the year 2000 issue could adversely impact and cause delays in cash
distributions to Unit holders.
LIQUIDITY AND CAPITAL RESOURCES
As stipulated in the Trust Agreement, the Trust is intended to be passive,
and the Trustee's activities are limited to the receipt of revenues attributable
to the Royalties, which revenues are to be distributed currently (after payment
of or provision for Trust expenses and liabilities) to the owners of the Units.
The Trust has no source of liquidity or capital resources other than the
revenue, if any, attributable to the Royalties.
The Working Interest Owner, under the terms of the conveyances creating the
Overriding Royalties, is permitted to establish escrows for various matters. As
of June 30, 1999, the Working Interest Owner has escrowed approximately $2.3
million from the Offshore Louisiana Property, 90% of which would otherwise have
been distributable to the Trust, in preparation for anticipated platform
dismantlement costs. In June 1999, the Working Interest Owner informed the
Trustee that it will escrow additional funds from the Productive Properties to
provide for the Trust's portion of the estimated costs of dismantling platforms
effective with the July 1999 royalty distribution. When the Working Interest
Owner escrows additional funds, the Royalties paid to the Trustee will be
reduced, and the reductions could be significant.
RESULTS OF OPERATIONS
Revenues are generally received in the third month following the month of
production of oil and gas attributable to the Trust's interest. Both revenues
and Trust expenses are recorded on a cash basis. Accordingly, distributions to
Unit holders for the three-month and six-month periods ended June 30, 1999 and
1998 (the 1999 and 1998 "Second Quarter" and "First Half", respectively) are
attributable to the Working Interest Owner's operations during the periods
January through March (the "Three-Month Operating Periods") of 1999 and 1998,
respectively, and the periods October 1998 through March 1999 and October 1997
through March 1998 (the 1999 and 1998 "Six-Month Operating Periods",
respectively).
-10-
12
Distributions to Unit holders for the 1999 and 1998 Second Quarters
amounted to $368,380 ($.0194 per Unit) and $2,793,122 ($.1471 per Unit),
respectively. During these periods, the Trust received cash of $533,604 and
$2,930,890, respectively, from the Working Interest Owner with respect to the
Royalties from the Properties.
The monthly per Unit distributions during the 1999 and 1998 Second Quarters
were as follows:
1999 1998
-------- --------
April................................................. $ .0096 $ .0354
May................................................... .0026 .0623
June.................................................. .0072 .0494
------- -------
$ .0194 $ .1471
======= =======
Distributions to Unit holders for the First Half of 1999 and 1998 amounted
to $1,145,623 ($.0603 per Unit) and $6,736,292 ($.3547 per Unit), respectively.
During these periods, the Trust received cash of $1,445,516 and $7,017,662,
respectively, from the Working Interest Owner with respect to the Royalties from
the Properties.
The following unaudited schedules provide summaries of the Working Interest
Owner's calculation of the Net Proceeds from the Properties and the Royalties
paid to the Trust for the Second Quarter and First Half of 1999:
SECOND QUARTER 1999
OFFSHORE
JAY FIELD SOUTH PASS 89 LOUISIANA TOTAL
----------- ------------- --------- -----------
Revenues:
Liquids.................................... $ 3,229,384 $1,211,839 $ 131,556 $ 4,572,779
Natural gas................................ 79,009 620,753 581,783 1,281,545
----------- ---------- --------- -----------
3,308,393 1,832,592 713,339 5,854,324
Production costs and expenses................ (2,119,348) (266,637) (430,045) (2,816,030)
Capital expenditures......................... (932,496) (559,387) (44,230) (1,536,113)
----------- ---------- --------- -----------
Net Proceeds................................. $ 256,549 $1,006,568 $ 239,064 $ 1,502,181
=========== ========== ========= ===========
Overriding Royalties paid to the Trust(1).... $ -- $ 503,284 $ -- $ 503,284
=========== ========== =========
Fee Lands Royalties................................................................... 30,320
-----------
Royalties paid to the Trust........................................................... $ 533,604
===========
-11-
13
FIRST HALF 1999
OFFSHORE
JAY FIELD SOUTH PASS 89 LOUISIANA TOTAL
----------- ------------- ---------- -----------
Revenues:
Liquids.................................... $ 6,602,256 $2,525,445 $ 238,193 $ 9,365,894
Natural gas................................ 173,298 1,171,983 1,363,300 2,708,581
----------- ---------- ---------- -----------
6,775,554 3,697,428 1,601,493 12,074,475
Production costs and expenses................ (4,614,219) (535,905) (814,194) (5,964,318)
Capital expenditures......................... (1,818,305) (756,217) (366,374) (2,940,896)
----------- ---------- ---------- -----------
Net Proceeds................................. $ 343,030 $2,405,306 $ 420,925 $ 3,169,261
=========== ========== ========== ===========
Overriding Royalties paid to the Trust(1).... $ 191,768 $1,202,653 $ -- $ 1,394,421
=========== ========== ==========
Fee Lands Royalties.................................................................... 51,095
-----------
Royalties paid to the Trust............................................................ $ 1,445,516
===========
- ---------------
(1) As a result of excess production costs being incurred in one monthly
operating period and then being recovered in a subsequent monthly operating
period(s), the Overriding Royalties paid to the Trust may not agree to the
Trust's royalty interest in the Net Proceeds. As of June 30, 1999, excess
production costs to be recovered from future revenues total approximately
$41,000 at Jay Field and approximately $298,000 at Offshore Louisiana.
The following unaudited schedules provide summaries of the Working Interest
Owner's calculation of the Net Proceeds from the Properties and the Royalties
paid to the Trust for the Second Quarter and First Half of 1998:
SECOND QUARTER 1998
OFFSHORE
JAY FIELD SOUTH PASS 89 LOUISIANA TOTAL
----------- ------------- ---------- -----------
Revenues:
Liquids.................................... $ 4,670,505 $1,375,397 $ 284,047 $ 6,329,949
Natural gas................................ 296,378 1,047,153 1,641,993 2,985,524
----------- ---------- ---------- -----------
4,966,883 2,422,550 1,926,040 9,315,473
Production costs and expenses................ (2,695,806) (209,169) (499,903) (3,404,878)
Capital expenditures......................... (897,271) (42,081) (2,314) (941,666)
----------- ---------- ---------- -----------
Net Proceeds................................. $ 1,373,806 $2,171,300 $1,423,823 $ 4,968,929
=========== ========== ========== ===========
Overriding Royalties paid to the Trust(1).... $ 544,913 $1,085,650 $1,281,441 $ 2,912,004
=========== ========== ==========
Fee Lands Royalties.................................................................... 18,886
-----------
Royalties paid to the Trust............................................................ $ 2,930,890
===========
-12-
14
FIRST HALF 1998
OFFSHORE
JAY FIELD SOUTH PASS 89 LOUISIANA TOTAL
----------- ------------- ---------- -----------
Revenues:
Liquids.................................... $10,590,485 $3,169,633 $ 563,925 $14,324,043
Natural gas................................ 861,596 2,863,564 3,564,985 7,290,145
----------- ---------- ---------- -----------
11,452,081 6,033,197 4,128,910 21,614,188
Production costs and expenses................ (6,300,509) (487,489) (974,538) (7,762,536)
Capital expenditures......................... (2,372,822) (95,158) 31,251 (2,436,729)
----------- ---------- ---------- -----------
Net Proceeds................................. $ 2,778,750 $5,450,550 $3,185,623 $11,414,923
=========== ========== ========== ===========
Overriding Royalties paid to the Trust(1).... $ 1,389,375 $2,725,275 $2,867,061 $ 6,981,711
=========== ========== ==========
Fee Lands Royalties.................................................................... 35,951
-----------
Royalties paid to the Trust............................................................ $ 7,017,662
===========
- ---------------
(1) As a result of excess production costs being incurred in one monthly
operating period and then being recovered in a subsequent monthly operating
period(s), the Overriding Royalties paid to the Trust may not agree to the
Trust's royalty interest in Net Proceeds.
The following unaudited schedule provides a summary of the Working Interest
Owner's calculation of the Net Proceeds from the Properties and the Royalties
paid to the Trust for the Second Quarter and First Half of 1999 and 1998:
SECOND QUARTER FIRST HALF
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net Proceeds:
Revenues............................... $ 5,854,324 $ 9,315,473 $12,074,475 $21,614,188
Production costs and expenses.......... (2,816,030) (3,404,878) (5,964,318) (7,762,536)
Capital expenditures................... (1,536,113) (941,666) (2,940,896) (2,436,729)
----------- ----------- ----------- -----------
Net Proceeds........................... $ 1,502,181 $ 4,968,929 $ 3,169,261 $11,414,923
=========== =========== =========== ===========
Royalties paid to the Trust:
Overriding Royalties................... $ 503,284 $ 2,912,004 $ 1,394,421 $ 6,981,711
Fee Lands Royalties.................... 30,320 18,886 51,095 35,951
----------- ----------- ----------- -----------
Royalties paid to the Trust............ $ 533,604 $ 2,930,890 $ 1,445,516 $ 7,017,662
=========== =========== =========== ===========
Revenues of the Working Interest Owner with respect to the Productive
Properties decreased approximately 37% in the 1999 Three-Month Operating Period
and 44% in the 1999 Six-Month Operating Period versus the comparable periods in
1998 primarily as a result of lower commodity prices. A decrease in natural gas
production resulting from natural declines at mature producing properties also
contributed to the decrease in revenues.
Average crude oil, natural gas liquids and natural gas prices attributable
to the Producing Properties received by the Working Interest Owner in the 1999
Three-Month Operating Period were $11.51 per barrel,
-13-
15
$9.38 per barrel and $1.79 per thousand cubic feet of gas (Mcf), respectively.
In the comparable 1998 period, average crude oil, natural gas liquids and
natural gas prices were $14.22 per barrel, $12.69 per barrel and $2.27 per Mcf,
respectively. In the 1999 Six-Month Operating Period, average crude oil, natural
gas liquids and natural gas prices were $11.59 per barrel, $9.16 per barrel and
$1.92 per Mcf respectively. In the 1998 Six-Month Operating Period, average
crude oil, natural gas liquids and natural gas prices were $16.37 per barrel,
$11.19 per barrel and $2.74 per Mcf, respectively.
Production costs and expenses incurred by the Working Interest Owner on the
Productive Properties decreased 17% and 23% in the 1999 Three-Month Operating
Period and the 1999 Six-Month Operating Period, respectively, primarily as a
result of reduced lease operating expenses and severance taxes at Jay Field.
Capital expenditures increased 63% and 21% in the 1999 Three-Month
Operating Period and the 1999 Six-Month Operating Period, respectively,
primarily as a result of costs associated with the removal of a drilling rig at
South Pass 89 and drilling costs associated with the Vermilion 331A-29 well.
Imputed production attributable to the Trust is calculated by multiplying
the gross production volumes attributable to the Productive Properties by the
ratio of the net overriding royalties paid to the Trust to the gross revenues
attributable to the Productive Properties. Imputed liquids production was 27,959
barrels for the 1999 Three-Month Operating Period and 95,171 barrels for the
1998 Three-Month Operating Period. Imputed natural gas production was 87,620 Mcf
and 706,103 Mcf for the respective periods.
As described in more detail in the Trust's Annual Report on Form 10-K for
the year ended December 31, 1998, under Louisiana law, mineral royalties
generally terminate, in the absence of production, after the lapse of ten
consecutive years from the date of conveyance. Consequently, substantially all
of the Trust's royalty interest in the original Fee Lands acreage terminated in
June 1993. The Trust never received any revenues from the tracts as to which the
Fee Lands Royalties terminated and such termination did not affect tracts from
which the Trust is receiving revenues. However, the Trust will not be entitled
to receive any revenues in the future from the tract as to which the Fee Lands
Royalties terminated. At June 30, 1999, the Fee Lands consisted of approximately
35,000 gross acres in south Louisiana, approximately 3,496 of which were under
lease.
-14-
16
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4* -- Trust Agreement for LL&E Royalty Trust, dated as of June
1, 1983, between the Company and First City National Bank
of Houston, as Trustee.
27 -- Financial Data Schedule.
28.1* -- Agreement of General Partnership of LL&E Royalty
Partnership.
28.2* -- Form of Conveyance of Overriding Royalty Interests for
Fort Worth Basin Property.
28.3* -- Form of Conveyance of Overriding Royalty Interests for
Jay Field (Alabama) Property.
28.4* -- Form of Conveyance of Overriding Royalty Interests for
Jay Field (Florida) Property.
28.5* -- Form of Conveyance of Overriding Royalty Interests for
Offshore Louisiana Property.
28.6* -- Form of Conveyance of Overriding Royalty Interests for
South Pass 89 Property.
28.7* -- Form of Royalty Deed.
- ---------------
* Incorporated by reference to Exhibits of like designation to Registrant's
Annual Report on Form 10-K for the period ended December 31, 1983 (Commission
File No. 1-8518).
(b) Reports on Form 8-K
On June 28, 1999, the Trust filed a report on Form 8-K reporting the Trust
income distribution for the month of July 1999 and also reporting that the
Working Interest Owner had informed the Trust that, effective with the July 1999
income distribution, it will begin escrowing funds from the Jay Field and South
Pass 89 properties, and will escrow additional funds for the Offshore Louisiana
property.
-15-
17
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
LL&E ROYALTY TRUST
(Registrant)
By: CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION
Trustee
By: /s/ PETE FOSTER
----------------------------------
Pete Foster
Senior Vice President and Trust
Officer
Date: August 10, 1999
NOTE: Because the Registrant is a trust without officers or employees, only the
signature of an officer of the Trustee is available and has been provided.
-16-
18
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4* -- Trust Agreement for LL&E Royalty Trust, dated as of June
1, 1983, between the Company and First City National Bank
of Houston, as Trustee.
27 -- Financial Data Schedule.
28.1* -- Agreement of General Partnership of LL&E Royalty
Partnership.
28.2* -- Form of Conveyance of Overriding Royalty Interests for
Fort Worth Basin Property.
28.3* -- Form of Conveyance of Overriding Royalty Interests for
Jay Field (Alabama) Property.
28.4* -- Form of Conveyance of Overriding Royalty Interests for
Jay Field (Florida) Property.
28.5* -- Form of Conveyance of Overriding Royalty Interests for
Offshore Louisiana Property.
28.6* -- Form of Conveyance of Overriding Royalty Interests for
South Pass 89 Property.
28.7* -- Form of Royalty Deed.
- ---------------
* Incorporated by reference to Exhibits of like designation to Registrant's
Annual Report on Form 10-K for the period ended December 31, 1983 (Commission
File No. 1-8518).