1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________ TO
______________________.
COMMISSION FILE NO. 0-8565
MARINE PETROLEUM TRUST
(Exact name of registrant as specified in its charter)
TEXAS 75-6008017
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C/O THE CORPORATE TRUSTEE:
BANK OF AMERICA, N.A.
P.O. BOX 830241, DALLAS, TEXAS 75283-0241
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(at the office of the Corporate Trustee): (800) 985-0794
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF BENEFICIAL INTEREST
(Title of Class)
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, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
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]
Aggregate market value of Units of Beneficial Interest held by
non-affiliates of the registrant at August 31, 2001: $48,964,148.
Number of Units of Beneficial Interest outstanding as of August 31,
2001 -- 2,000,000 Units.
Documents Incorporated by Reference:
NONE
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CROSS-REFERENCE SHEET
This Form 10-K for the year ended June 30, 2001 of Marine Petroleum
Trust is not organized by conventional item numbers and headings contemplated by
SEC rules and forms. This cross-reference page is intended to indicate to the
reader where (or under which headings) information required under Form 10-K may
be found herein.
<Table>
<Caption>
FORM 10-K HEADINGS
ITEM NUMBERS HEREIN
------------ --------
PART I ....................................................................... General
Item 1. Business ........................................................ The Trust; Properties
Item 2. Properties ...................................................... Properties
Item 3. Legal Proceedings ............................................... Legal Matters
Item 4. Submission of Matters to a Vote of Security Holders ............. Unitholder Voting Matters
PART II ...................................................................... Financial
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ........................................... Market and Investor Information
Item 6. Selected Financial Data ......................................... Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial ............... Management's Discussion and Analysis
Condition and Results of Operations ........................... of Financial Condition and
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ...... Quantitative and Qualitative
Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data ..................... Financial Statements and
Supplementary Data
Item 9. Disagreements on Accounting and Financial Disclosure ............. Accounting Matters
PART III ...................................................................... Management and Principal Unitholders
Item 10. Directors and Executive Officers of the Registrant ............... Administrators
Item 11. Management Remuneration .......................................... Administrators; Management Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management ..................................................... Principal Unitholders
Item 13. Certain Relationships and Related Transactions ................... Administrators; Management
Compensation
PART IV ....................................................................... Miscellaneous
Item 14. Exhibits, Financial Statement Schedules and Reports on ........... Exhibits, Financial Statement
Form 8-K ....................................................... Schedules and Reports on
Form 8-K
</Table>
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GENERAL
THE TRUST
Organization. Marine Petroleum Trust ("Marine") is a royalty trust
created in 1956 under the laws of the State of Texas. Marine is not permitted to
engage in any business activity inasmuch as it was organized for the sole
purpose of providing an efficient, orderly, and practical means for the
administration and liquidation of rights to payments from certain oil and
natural gas leases in the Gulf of Mexico, pursuant to license agreements and
amendments thereto between Marine's predecessors and Gulf Oil Corporation
("Gulf"). As a result of various transactions that have occurred since 1956, the
Gulf interests now are held by Chevron Corporation ("Chevron"), Elf Exploration,
Inc. ("Elf"), and their assignees.
The indenture pursuant to which Marine was created (the "Indenture"),
provides that the corporate trustee is to distribute all cash in Marine, less an
amount reserved for the payment of accrued liabilities and estimated future
expenses, to unitholders of record on the 28th day of September, December, March
and June of each fiscal year. If the 28th falls on a Saturday, Sunday or legal
holiday, the distribution is payable on the immediately preceding business day.
The Indenture, as amended, also provides that the term of the royalty
trust created thereby will expire on June 1, 2021 unless extended by the vote of
the holders of a majority of the outstanding units of beneficial interest.
Marine's wholly-owned subsidiary, Marine Petroleum Corporation ("MPC"),
holds title to interests in properties subject to Marine's interests that are
situated offshore of Louisiana. Ninety-eight percent of all oil, natural gas,
and other mineral royalties collected by this subsidiary are paid to Marine.
MPC, like Marine, is prohibited from engaging in a trade or business and does
only those things necessary for the administration and liquidation of its
properties.
Marine's only industry segment or purpose is the administration and
collection of royalties.
Royalties. Marine's rights are generally referred to as overriding
royalty interests in the oil and natural gas industry, and are sometimes
referred to herein as such. All production and marketing functions are conducted
by the working interest owners of the leases. Revenues from the overriding
royalties are paid to Marine either (i) on the basis of the selling price of
oil, natural gas and other minerals produced, saved and sold, or (ii) at the
value at the wellhead as determined by industry standards, when the selling
price does not reflect the value at the wellhead.
Marine holds an overriding royalty interest equal to three-fourths of
1% of the value at the well of any oil, natural gas, or other minerals produced
and sold from the leases described in the "Properties" section below. Marine's
overriding royalty interest applies only to existing leases and does not apply
to new leases. Marine also owns a 32.6% equity interest in Tidelands Royalty
Trust "B" ("Tidelands"), a separate Texas trust, which owns interests in the
oil, natural gas, or other mineral lease acquired by Gulf and/or its transferees
and assignees in a 1,370,000-acre area of the Gulf of Mexico (the "Royalty
Area") during a 50-year period ended April 30, 2001. Prior to the expiration of
the 50-year lease acquisition period on April 30, 2001 (the "Acquisition
Expiration Date"), if Chevron, Elf or their assigns had acquired a lease or
leases on one of the 60 tracts, and if oil or natural gas were produced and sold
from any such tract, then Chevron, Elf or their assigns had to make production
payments to Tidelands, in an amount equal to approximately 12.5% of the value at
the well-head of the oil and natural gas subject to such lease until the sum of
$1,500,000 has been paid under the lease. Thereafter, Tidelands' interest in
such tract was converted to an overriding royalty and Tidelands received
payments equal to approximately 4.17% of the value of the oil and natural gas
sold as long as the lease on such tract exists. At June 30, 2001, six of
Tidelands' assigned leases had paid out their $1,500,000 production payment and,
therefore, Tidelands' royalty interest on six leases was 4.17%. The overriding
royalty on a recently acquired lease on West Cameron Block 251 will initially be
12.5% if any production occurs.
Presently, the leases subject to Marine's interests cover 275,413 gross
acres (including Tidelands' interest in 29,812 leased acres). These leases will
remain in force until the expiration of their respective terms. Leases may be
voluntarily released by the working interest owner after all oil and natural gas
reserves are produced. They may also be abandoned by the working interest owner
due to failure to discover sufficient reserves to make development
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economically worthwhile. In addition, the federal government may force
termination if the working interest owner fails to fully develop a lease once it
is acquired.
For the year ended June 30, 2001, approximately 40% of Marine's royalty
revenues were attributable to the sale of oil and approximately 60% were
attributable to the sale of natural gas. The royalty revenues received by Marine
are affected by seasonal fluctuations in demand and by changes in the market
price for oil and natural gas. Royalty revenue received by Marine from Chevron
and from Devon Energy Production Company, formerly known as Pennzenergy
Exploration and Production Company, ("Devon") accounted in the aggregate for
approximately 82%, 81% and 76% of Marine's royalty revenue for the years ended
June 30, 2001, 2000 and 1999, respectively. Chevron accounted for 75%, 71% and
55% of Marine's royalty revenue for the fiscal years ended June 30, 2001, 2000
and 1999, respectively. Devon accounted for 7%, 10% and 21% of Marine's royalty
revenue for the fiscal years ended June 30, 2001, 2000 and 1999, respectively.
In addition, Marine's revenue from its equity interest in Tidelands accounted
for approximately 7%, 6% and 10% of Marine's revenue for the years ended June
30, 2001, 2000 and 1999, respectively. Tidelands has reported that royalty
revenues from American Explorer Company, Burlington Resources, Chevron, USA,
Pennzenergy Exploration and Production Company and Devon accounted for a
substantial portion of Tidelands' royalty revenue for the years ended December
31, 2000, 1999 and 1998.
Marine derives no revenues from foreign sources and has no export
sales.
Trust Functions. Marine is administered by officers and employees of
its Trustee, Bank of America, N.A. MPC employs one individual (its president,
treasurer and director) to perform certain management, financial and
administrative services for Marine. Except for this individual, all officers and
directors of MPC serve without compensation. See "Management and Principal
Unitholders."
Important aspects of Marine's operations are conducted by third
parties. These include the production and sale of oil and natural gas and the
calculation of royalty payments to Marine, which are conducted by oil and
natural gas companies that lease tracts subject to Marine's interests.
Similarly, Marine's distributions are processed and paid by The Bank of New York
as the agent for the trustee of Marine.
MPC leases office space in Dallas, Texas to provide work space and
record storage for Marine, MPC, Tidelands and Tidelands' wholly-owned subsidiary
corporation, Tidelands Royalty "B" Corporation. The cost of this office facility
is shared by all four of these entities in proportion to each entity's gross
income to the total of such income of all entities.
The ability of Marine to receive revenues is entirely dependent upon
its entitlement to its rights with respect to the leases held by Chevron and its
assignees in the Gulf of Mexico (as more fully described in "Properties" below).
Moreover, no revenues are payable to Marine until sales of production commence
from any such lease.
The royalty interests held by Marine are depleting with each barrel of
oil and mcf of natural gas produced. No funds are reinvested by Marine; thus,
these depleting assets are not being replaced.
PROPERTIES
General. Marine is not engaged in oil and natural gas operations,
although its income is based upon the oil and natural gas operations of others.
Marine's income is derived from contracts that provide for payments in the
nature of overriding royalties made to Marine based on oil and natural gas sales
from certain leases in the Gulf of Mexico.
Reserves. Marine is not engaged in the production of oil or natural
gas. Marine's income is derived from overriding royalty payments which are
carved out of working interests in oil and natural gas leases in the Gulf of
Mexico. Marine does not have the engineering data necessary to make an estimate
of the proved oil and natural gas reserves attributable thereto (nor the present
value of future net cash flows from such reserves), and is not entitled to
receive such data from the owners of the working interests from which Marine's
interests are derived. See also "Difficulty in Obtaining Certain Data" below.
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Since Marine does not have access to this reserve information, Marine
is unable to compute the standardized measure of discounted future net cash
flows therefrom.
Marine did not file any reports during the fiscal year ended June 30,
2001 with any federal authority or agency with respect to oil and natural gas
reserves.
Production. Information regarding the net quantities of oil and natural
gas produced with respect to Marine's overriding royalty interests (excluding
its equity in Tidelands and excluding the income realized from the reduction of
the amounts reserved for royalty over-payments) for each of the last three
fiscal years, as well as the average sales price per unit of oil and natural gas
produced upon which payments to Marine are based, is set forth in the following
table:
<Table>
<Caption>
YEAR ENDED JUNE 30
------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Quantity
Oil (in barrels ("bbls")) ...................... 112,554 92,837 57,575
Natural Gas (in thousand cubic feet ("mcf")) ... 971,880 807,837 869,636
Average Price
Oil (per bbl) .................................. $ 28.50 $ 24.51 $ 12.54
Natural Gas (per mcf) .......................... $ 5.00 $ 2.48 $ 1.85
</Table>
Information about average production cost (lifting cost) per unit of
production has been omitted due to its unavailability and inapplicability to
Marine. For more recent information regarding prices, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" below.
Productive Wells. Based on the latest public records available to
Marine, and including its equity interest in Tidelands, there were approximately
375 active wells subject to Marine's interests, some of which contained multiple
completions. Approximately 153 wells were classified as oil wells and
approximately 222 wells were classified as natural gas wells. Most of the oil
wells also produced associated natural gas and most of the natural gas wells
produced condensate, which is economically the equivalent of oil. See
"Difficulty in Obtaining Certain Data" below.
Drilling Activity. Information concerning the results of operations on
leases in which Marine had an interest (including its equity interest in
Tidelands) for each of its last three fiscal years is set forth below:
<Table>
<Caption>
YEAR ENDED JUNE 30
------------------------------------------
2001 2000 1999
---------- ---------- ----------
Development
Oil ................. 39 21 24
Natural Gas ......... 58 36 36
Suspended* .......... 1 6 4
Dry ................. 1 5 10
---------- ---------- ----------
Totals ......... 99 68 74
========== ========== ==========
</Table>
---------------
* "Suspended" wells are completed wells the classification of which had not
been reported at the relevant date.
Information regarding net wells or acres is not included since Marine
does not own any working interests.
Lease Acreage. Marine has an overriding royalty interest (including its
equity interest in Tidelands) in 73 different oil and natural gas leases
covering 275,413 gross acres. These leases are located in the Central and
Western areas of the Gulf of Mexico off the coasts of Louisiana and Texas. This
acreage is presented in the following table:
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<Table>
<Caption>
PRIMARY
LEASES GRANTED BY (1): TERM PRODUCING TOTAL
---------------------- ------------ ------------ ------------
United States ........... 2,500 267,383 269,883
State of Texas .......... -- 640 640
State of Louisiana ...... -- 4,890 4,890
------------ ------------ ------------
2,500 272,913 275,413
============ ============ ============
</Table>
---------------
(1) Leases are typically granted for a term of five years, during which the
lease owner must establish a commercial production capability, or the lease
expires. There are 5,351 acres located on leases that have commercial
production, but the production is not on Marine's overriding royalty area
within those leases.
The overriding royalty interest owned by Marine is a fractional interest out of
total oil and natural gas sold, and is free and clear of all operating costs.
The actual percentage interest in a lease attributable to Marine's interest
varies from lease to lease. The acreage weighted average percentage interest
attributable to Marine's interest in all of these leases is .6181%.
Present Activities. Public records indicate that 7 wells are being
drilled on tracts in which Marine has an interest. Marine also understands from
public records that operators have designated locations for 13 additional wells.
Marine cannot assure the unitholders that these wells will be drilled and if
drilled that they will be successful.
Difficulty in Obtaining Certain Data. Marine's only activities are the
collection and distribution of revenues from overriding royalties on certain oil
and natural gas leases in the Gulf of Mexico, pursuant to purchase agreements
between Marine's predecessors and Gulf and its transferees. The leasehold
working interests which are subject to the rights held by Marine are owned, in
most cases, in whole or in part by Chevron, or other oil and natural gas
exploration and production companies. Certain information as to reserves,
availability of oil and natural gas, average production cost (lifting cost) per
unit, undeveloped acreage, net wells and net acres, etc., with respect to the
particular leases subject to Marine's interests lies solely within the knowledge
of these concerns. Engineering data, if any, regarding these leaseholds would
have been compiled principally by or for the working interest owners of these
leaseholds and Marine believes that it will not be provided access to such
information. Because of this, it appears that unreasonable efforts and expense
would be involved in seeking to obtain all of the information required under
Item 102 of Regulation S-K and Securities Exchange Act of 1934 Industry Guide 2.
LEGAL MATTERS
Neither Marine nor MPC, nor any of their respective properties
(exclusive of properties owned by Chevron and subject to the Marine and
Tidelands license agreements), is a party to or subject to any material pending
litigation as of the date hereof.
UNITHOLDER VOTING MATTERS
On December 8, 2000, the unitholders of record at the close of business
on October 24, 2000, approved an amendment to the Indenture to extend the life
of the trust beyond the original expiration date of June 1, 2001 to June 1,
2021.
FINANCIAL
MARKET AND INVESTOR INFORMATION
The units of beneficial interest in Marine trade on the Nasdaq SmallCap
Market under the symbol "MARPS." Distributions of cash are made to unitholders
quarterly. The following table presents the range of high and low trade prices
by quarter for the past two years as reported by the OTC Market Report. The per
unit amount of cash distributed to unitholders for each of these quarters is
also presented in the table.
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<Table>
<Caption>
TRADE PRICE
------------------------------ DISTRIBUTIONS
QUARTER ENDING HIGH LOW PER UNIT
------------------------- ------------ ------------ -------------
September 30, 2000 ...... 22.50 15.50 .623
December 31, 2000 ....... 25.00 17.25 .862
March 31, 2001 .......... 29.25 22.50 .935
June 30, 2001 ........... 41.75 26.20 1.174
September 30, 1999 ...... 15.750 13.875 .436
December 31, 1999 ....... 15.750 13.500 .517
March 31, 2000 .......... 16.000 13.750 .555
June 30, 2000 ........... 15.938 14.500 .643
</Table>
Marine is authorized to issue and has issued 2,000,000 units of
beneficial interest. On August 21, 2001, these outstanding units were held of
record by 638 unitholders.
Marine must distribute to its unitholders all cash accumulated each
quarter, less an amount reserved for accrued liabilities and estimated future
expenses. Such distributions have been made since its inception and will
continue so long as the income from oil and natural gas royalties exceeds
administrative costs.
Distributions fluctuate from quarter to quarter due to changes in oil
and natural gas prices and production quantities. Distributions, however, are
determined by the cash available to Marine on the determination date.
SELECTED FINANCIAL DATA
<Table>
<Caption>
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
--------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
STATEMENT OF INCOME AND UNDISTRIBUTED INCOME
SELECTED DATA
Income:
Oil and natural gas royalties ............... $ 8,062 $ 4,526 $ 2,841 $ 2,577 $ 3,645
Equity in Tidelands ......................... 575 318 328 461 319
Interest .................................... 120 92 98 100 101
---------- ---------- ---------- ---------- ----------
$ 8,757 $ 4,936 $ 3,267 $ 3,138 $ 4,065
---------- ---------- ---------- ---------- ----------
Expenses:
General and administrative .................. $ 241 $ 180 $ 176 $ 146 $ 143
Federal income taxes of
subsidiary .................................. 34 12 6 12 8
---------- ---------- ---------- ---------- ----------
$ 275 $ 192 $ 182 $ 158 $ 151
---------- ---------- ---------- ---------- ----------
Net income .................................. $ 8,482 $ 4,744 $ 3,085 $ 2,980 $ 3,914
========== ========== ========== ========== ==========
Distributions ............................... $ 7,187 $ 4,300 $ 2,777 $ 3,216 $ 3,939
========== ========== ========== ========== ==========
Per Unit (2,000,000 outstanding)
Net income .................................. $ 4.24 $ 2.37 $ 1.54 $ 1.49 $ 1.96
========== ========== ========== ========== ==========
Distributions ............................... $ 3.59 $ 2.15 $ 1.39 $ 1.61 $ 1.97
========== ========== ========== ========== ==========
BALANCE SHEET SELECTED DATA
Total assets .................................. $ 3,874 $ 2,570 $ 2,371 $ 2,745 $ 2,945
========== ========== ========== ========== ==========
Trust equity .................................. $ 3,856 $ 2,560 $ 2,117 $ 1,809 $ 2,045
========== ========== ========== ========== ==========
</Table>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity. Because of the nature of Marine as a
trust entity, there is no requirement for capital; its only obligation is to
distribute to unitholders the net income actually collected. As an administrator
of oil and natural gas royalty properties, Marine collects income monthly, pays
expenses of administration, and disburses all net income collected to its
unitholders each quarter. Because all of Marine's revenues are invested in
liquid funds pending distribution, Marine does not experience liquidity
problems.
Marine's Indenture (and the charter and by-laws of MPC) expressly
prohibits the operation of any kind of trade or business. Marine's oil and
natural gas properties are depleting assets and are not being replaced due to
the prohibition against these investments. Because of these restrictions, Marine
does not require short term or long term capital. These restrictions, along with
other factors, allow Marine to be treated as a grantor trust; thus all income
and deductions, for tax purposes, should flow through to each individual
unitholder. Marine is not a taxable entity.
Results of Operations. Marine's revenues are derived from the oil and
natural gas production activities of unrelated parties. Marine's revenues and
distributions fluctuate from period to period based upon factors beyond Marine's
control, including without limitation the number of leases subject to Marine's
interests, the number of productive wells drilled on leases subject to Marine's
interests, the level of production over time from such wells and the prices at
which the oil and natural gas from such wells are sold. Marine believes that it
will continue to have revenues sufficient to permit distributions to be made to
unitholders for the foreseeable future, although no assurance can be made
regarding the amounts thereof. The foregoing sentence is a forward-looking
statement. Factors that might cause actual results to differ from expected
results include reductions in prices or demand for oil and natural gas, which
might then lead to decreased production; reductions in production due to
depletion of existing wells or disruptions in service, including as the result
of storm damage, blowouts or other production accidents, and geological changes
such as cratering of productive formations; expiration or release of leases
subject to Marine's interests.
Marine's income consists primarily of oil and natural gas royalties and
is based on the value at the well of its percentage interest in oil and natural
gas sold without reduction for any of the expense of production. Value at the
well for oil is the purchasers' posted price at its receiving point onshore,
less the cost of transportation from the offshore lease to the onshore receiving
point. In general, value at the well is determined on the basis of the selling
price of oil, natural gas and other minerals produced, saved and sold, or at
wellhead prices determined by industry standards, where the selling price does
not reflect value at the well.
Summary Review. Marine's net income for the year ended June 30, 2001
amounted to $8,482,747 or $4.24 per unit as compared to $4,743,594 or $2.37 per
unit in fiscal 2000 and $3,084,449 or $1.54 per unit in fiscal 1999. These
results include $244,250 and $514,000 realized in fiscal 2000 and 1999,
respectively, from reduction of an accounts payable provided by MPC to cover
possible refunds that may have been required upon redetermination of natural gas
prices for royalty payments in prior periods.
These results also include income from Marine's equity interest in
Tidelands which amounted to $574,755 for fiscal 2001, $318,072 for fiscal 2000
and $328,085 for fiscal 1999. Income from Tidelands contributed approximately 7%
of Marine's royalty income for fiscal 2001 as compared to 6% and 10% of Marine's
royalty income for fiscal 2000 and 1999, respectively.
Marine's administrative expenses increased to approximately $241,000
from approximately $180,000 experienced in the previous year. This increase was
substantially due to increased legal, accounting and other expenses resulting
from the solicitation of the unitholders consent to extend the life of the Trust
for another 20 years to June 1, 2021.
Interest income increased to approximately $120,000 from approximately
$92,000 realized in the previous year due to an increase in funds temporarily on
deposit resulting from the increased revenue from oil and natural gas royalties.
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Marine believes that the drilling and work-over program of the
operating companies, which has resulted in an average of 80 new completions over
the past three years, is primarily responsible for maintaining the number of
producing wells at an average of 340 oil and natural gas wells for the past
three fiscal years.
The following table and related discussion and analysis shows the
royalty income, the net quantities sold, and the average price received for oil
and natural gas during the past three years excluding Marine's equity interest
in Tidelands and the $244,250 and $514,000 realized in fiscal 2000 and fiscal
1999, respectively, from the reduction of the previously established accounts
payable for possible royalty over-payments that management no longer deemed
required.
<Table>
<Caption>
FOR YEARS ENDED JUNE 30,
------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Income from
Oil royalties ............. $ 3,207,362 $ 2,275,447 $ 721,782
Natural gas royalties ..... 4,854,958 2,006,664 1,604,772
------------ ------------ ------------
Totals ................ $ 8,062,320 $ 4,282,111 $ 2,326,554
------------ ------------ ------------
Net quantities sold
Oil (bbls) ................ 112,554 92,837 57,575
Natural gas (mcf) ......... 971,880 807,837 869,636
Average price
Oil ....................... $ 28.50 $ 24.51 $ 12.54
Natural gas ............... $ 5.00 $ 2.48 $ 1.85
</Table>
Oil and Gas Royalties - 2001 and 2000: Revenue from oil royalties
amounted to $3,207,362 in fiscal 2001, an increase of 41% over the $2,275,447
realized in fiscal 2000. The average price of a barrel of oil increased 16% to
$28.50 and production increased 21% to 112,554 barrels. Please refer to the
table in the previous section.
Revenue from natural gas royalties amounted to $4,854,958, an increase
of 142% over the $2,006,664 realized in fiscal 2000. The average price of a
thousand cubic feet (mcf) of natural gas increased 102% to $5.00 and production
increased 20% to 971,880 mcf. Please refer to the table in the previous section.
Oil and Gas Royalties -- 2000 and 1999: During fiscal 2000, Marine
received approximately 53% of its royalty income from the sale of oil and 47%
from the sale of natural gas. Income from such oil and natural gas royalties in
fiscal 2000 increased approximately 84% from fiscal 1999.
Oil royalties during fiscal 2000 in the amount of $2,275,447 were 215%
more than oil royalties received in fiscal 1999 in the amount of $721,782, due
to an increase in the quantity of oil sold and in the average price received.
Natural gas royalties during fiscal 2000 in the amount of $2,006,664
were 25% higher than natural gas royalties received in fiscal 1999 in the amount
of $1,604,772. The increase was due to an increase in the price received that
was partially offset by a decrease in the quantity of natural gas sold.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 2001, Marine did not have any market risk exposure with
regard to any activities in derivative financial instruments, other financial
instruments and derivative commodity instruments.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed in the following Index, together with
the related notes and the report of KPMG LLP, independent certified public
accountants, are presented on pages 14 through 22 hereof.
<Table>
<Caption>
PAGE
----
Independent Auditors' Report .................................................................. 13
Financial Statements:
Consolidated Balance Sheets as of June 30, 2001 and 2000 .................................. 14
Consolidated Statements of Income and Undistributed Income for the Three Years Ended
June 30, 2001 ........................................................................ 15
Consolidated Statements of Cash Flows for the Three Years Ended June 30, 2001 ............. 16
Notes to Consolidated Financial Statements ................................................ 17
</Table>
See also "Exhibits, Financial Statement Schedules and Reports on Form
8-K" of this Form 10-K for further information concerning the financial
statements of Marine and its subsidiaries.
All schedules have been omitted for the reason that they are either not
required, not applicable or the required information is included in the
financial statements and notes thereto.
ACCOUNTING MATTERS
During fiscal 2001 and 2000, there have been no disagreements between
Marine and its independent auditors on accounting or financial disclosure
matters which would warrant disclosure under Item 304 of Regulation S-K.
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MANAGEMENT AND PRINCIPAL UNITHOLDERS
ADMINISTRATORS
Marine is a trust created under the laws of the State of Texas.
Marine's Indenture does not provide for directors or officers or the election of
directors or officers. Under the Indenture, Bank of America, N.A., serves as
Trustee.
R. Ray Bell may be considered a significant employee of Marine. Mr.
Bell has been involved in the administration of Marine since its inception. He
was the chief financial officer of Marine's predecessor and is 74 years old.
Since July 1, 1977, he has served as an officer and director of MPC, and will
continue to serve in such capacities until the next meeting of directors and
shareholders, respectively, of MPC or until his successors are elected and
qualified.
MANAGEMENT COMPENSATION
During the fiscal year ended June 30, 2001, Marine paid or accrued fees
of $46,370 to Bank of America, N.A., as Trustee. These fees are paid in
accordance with the terms of the Indenture, as amended, governing Marine.
PRINCIPAL UNITHOLDERS
The following table sets forth the persons known to Marine who own
beneficially more than five percent of the outstanding units of beneficial
interest as of August 21, 2001:
<Table>
<Caption>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP PERCENT OF CLASS
---------------- -------------------- ----------------
Paslay Family Limited Partnership 286,469 units 14.32%
5806 Lindenshire Lane
Dallas, TX 75230
Robert H. Paslay (1) 346,184 units 17.3%
1007 Gasserway Circle
Brentwood, TN 37027
Patricia Martin (1) 317,763 units 15.9%
1443 S. 23rd Street
Fargo, ND 58103
</Table>
----------
(1) Includes the 286,469 units beneficially owned as a co-trustee of
seven trusts that serve as the general partners of the Paslay Family
Limited Partnership.
There are no executive officers or directors of Marine. Bank of
America, N.A. does not beneficially own any units of beneficial interest.
11
12
MISCELLANEOUS
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements -- see "Financial Statements and Supplementary
Data" above.
The consolidated financial statements, together with the related notes
and the report of KPMG LLP, independent certified public accountants, as
contained in the Form 10-K of Tidelands Royalty Trust "B" for its fiscal year
ended December 31, 2000 and filed with the Securities and Exchange Commission,
are hereby incorporated herein by reference for all purposes.
(b) Reports on Form 8-K -- No reports on Form 8-K have been filed
during the last quarter of the fiscal year ended June 30, 2001.
(c) Exhibits:
4.1* -- Indenture, as amended on December 8, 2000, of Marine
Petroleum Trust.
4.2 -- Form of Certificate evidencing Unit(s) of Beneficial
Interest, filed as Exhibit 4 to the Annual Report on
Form 10-K of Marine Petroleum Trust for the fiscal year
ended June 30, 1994, filed with the Securities and
Exchange Commission and incorporated by reference
herein.
21.1* -- Subsidiaries of Marine.
----------
* Filed herewith.
12
13
INDEPENDENT AUDITORS' REPORT
The Trustee
Marine Petroleum Trust:
We have audited the accompanying consolidated balance sheets of Marine
Petroleum Trust and subsidiary as of June 30, 2001 and 2000 and the related
consolidated statements of income and undistributed income and cash flows for
each of the years in the three-year period ended June 30, 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 of America. 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.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Marine
Petroleum Trust and subsidiary as of June 30, 2001 and 2000 and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 2001, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
Dallas, Texas
September 5, 2001
13
14
MARINE PETROLEUM TRUST AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
<Table>
<Caption>
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 2,515,239 $ 1,681,598
Oil and gas royalties receivable .................. 854,229 486,708
Receivables from affiliate (note 2) ............... 165,216 95,002
------------ ------------
Total current assets .......................... 3,534,684 2,263,308
------------ ------------
Investment in affiliate (note 2) ...................... 338,788 306,401
Office equipment, net ................................. 555 555
Producing oil and gas properties ...................... 7 7
------------ ------------
$ 3,874,034 $ 2,570,271
============ ============
LIABILITIES AND TRUST EQUITY
Current liabilities:
Accounts payable (note 3) ......................... $ -- $ 88
Income taxes payable .............................. 18,343 10,182
------------ ------------
Total liabilities ............................. 18,343 10,270
------------ ------------
Trust equity
Corpus - authorized 2,000,000 units of beneficial
interest, issued 2,000,000 units at nominal value 8 8
Undistributed income .............................. 3,855,683 2,559,993
------------ ------------
Total trust equity ............................ 3,855,691 2,560,001
------------ ------------
$ 3,874,034 $ 2,570,271
============ ============
</Table>
See accompanying notes to consolidated financial statements.
14
15
MARINE PETROLEUM TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND UNDISTRIBUTED INCOME
THREE YEARS ENDED JUNE 30, 2001
<Table>
<Caption>
2001 2000 1999
------------ ------------ ------------
Income:
Oil and gas royalties ......................... $ 8,062,320 $ 4,526,361 $ 2,840,554
Equity in earnings of affiliate (note 2) ...... 574,755 318,072 328,085
Interest income ............................... 120,207 92,399 97,929
------------ ------------ ------------
8,757,282 4,936,832 3,266,568
Expenses:
General and administrative .................... 240,749 180,832 176,169
------------ ------------ ------------
Income before federal income taxes ........ 8,516,533 4,756,000 3,090,399
Federal income taxes of subsidiary ............... 33,786 12,406 5,950
------------ ------------ ------------
Net income ................................ 8,482,747 4,743,594 3,084,449
Undistributed income at beginning of year ........ 2,559,993 2,116,678 1,809,260
------------ ------------ ------------
11,042,740 6,860,272 4,893,709
Distributions to unitholders ..................... 7,187,057 4,300,279 2,777,031
------------ ------------ ------------
Undistributed income at end of year .............. $ 3,855,683 $ 2,559,993 $ 2,116,678
============ ============ ============
Net income per unit .............................. $ 4.24 $ 2.37 $ 1.54
============ ============ ============
Distributions per unit ........................... $ 3.59 $ 2.15 $ 1.39
============ ============ ============
</Table>
See accompanying notes to consolidated financial statements.
15
16
MARINE PETROLEUM TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED JUNE 30, 2001
<Table>
<Caption>
2001 2000 1999
------------ ------------ ------------
Cash flows from operating activities:
Net income ............................................ $ 8,482,747 $ 4,743,594 $ 3,084,449
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of affiliate ....... (32,387) 15,669 (15,400)
Change in assets and liabilities:
Oil and gas royalties receivable .................. (367,521) (179,051) 91,350
Receivables from affiliate ........................ (70,214) (14,063) 35,438
Accounts payable .................................. (88) (244,162) (682,413)
Income taxes payable .............................. 8,161 26 1,135
------------ ------------ ------------
Net cash provided by operating activities ..... 8,020,698 4,322,013 2,514,559
Cash flows used in financing activities - distributions to
unitholders ........................................... (7,187,057) (4,300,279) (2,777,031)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ..... 833,641 21,734 (262,472)
Cash and cash equivalents at beginning of year ........... 1,681,598 1,659,864 1,922,336
------------ ------------ ------------
Cash and cash equivalents at end of year ................. $ 2,515,239 $ 1,681,598 $ 1,659,864
============ ============ ============
</Table>
See accompanying notes to consolidated financial statements.
16
17
MARINE PETROLEUM TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED JUNE 30, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
The Marine Petroleum Trust ("Marine") was established on June 1, 1956
with the transfer of property to Marine consisting of certain contract rights,
units of beneficial interest and common stock in exchange for units of
beneficial interest in Marine. The contract rights entitled Marine to receive a
.0075 overriding royalty interest in oil, natural gas and other mineral
leasehold interests acquired by Gulf Oil Corporation, now Chevron U.S.A., Inc.
("Chevron"), a subsidiary of Chevron Corporation, in certain areas of the Gulf
of Mexico prior to January 1, 1980.
Marine must distribute all income, after paying its liabilities and
obligations, to the unitholders during the months of March, June, September and
December each year. It cannot invest any of its money for any purpose and cannot
engage in a trade or business.
A Louisiana trust can only exist for a short period of time; therefore,
the unitholders assigned their contract rights off-shore of Louisiana to Marine
Petroleum Corporation, a wholly-owned subsidiary of Marine, ("MPC") reserving a
98% net profits interest to themselves. The net profits interest contract was
transferred to Marine along with the other properties. Marine is authorized to
pay expenses of MPC should it be necessary.
Marine is to continue until June 1, 2021, or until such later date as
holders of the units owning a majority of the outstanding units may designate,
but in any event, not more than 20 years from such designation. However, the
unitholders owning eighty percent (80%) of the outstanding units may terminate
the trust on any date.
(b) Principles of Consolidation
The consolidated financial statements include Marine and its
wholly-owned subsidiary, MPC. All material intercompany accounts and
transactions have been eliminated in consolidation.
(c) Producing Oil and Gas Properties
At the time Marine was established, no determinable market value was
available for the assets transferred to Marine; consequently, nominal values
were assigned. Accordingly, no allowance for depletion has been computed.
All income from oil and natural gas royalties relate to proved
developed oil and natural gas reserves.
(d) Undistributed Income
Marine's indenture agreement provides that the corporate trustee is to
distribute all cash in the trust, less an amount reserved for the payment of
accrued liabilities and estimated future expenses, to unitholders of record on
the 28th day of March, June, September and December of each year. If the 28th
falls on a Saturday, Sunday or legal holiday, the distribution is payable on the
immediately preceding business day. Undistributed income includes $974,167 and
$855,397 applicable to MPC at June 30, 2001 and 2000, respectively.
(e) Federal Income Taxes
No provision has been made for Federal income taxes on Marine's income
since such taxes are the liability of the unitholders. Federal income taxes have
been provided on the income of MPC, excluding the 98% net profits interest to be
distributed to Marine and deducting statutory depletion.
17
18
MARINE PETROLEUM TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED JUNE 30, 2001
(f) Credit Risk Concentration and Cash Equivalents
Financial instruments which potentially subject Marine and MPC to
concentrations of credit risk are primarily investments in cash equivalents and
receivables. Marine and MPC place their cash investments with financial
institutions or companies that management considers credit worthy and limit the
amount of credit exposure from any one financial institution or company. Marine
has not experienced significant problems collecting its receivables in the past.
Marine and MPC had cash equivalents of $2,480,267 and $1,611,902 at
June 30, 2001 and 2000, respectively, which consisted of money market accounts
and money market mutual funds. For purposes of the statements of cash flows,
Marine considers all investments with initial maturities of three months or less
to be cash equivalents.
(g) Statements of Cash Flows
MPC made Federal income tax payments of $25,625, $12,380 and $4,815
during the years ended June 30, 2001, 2000 and 1999, respectively.
(h) Fair Value of Financial Instruments
Marine and MPC define the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties. The carrying value of cash equivalents, oil and natural
gas royalties receivable, receivables from affiliates, accounts payable, and
taxes payable approximate fair value because of the short maturities of those
instruments.
(i) Use of Estimates
Management of Marine and MPC has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(j) Income Per Unit
Income per unit is calculated by dividing net income by the weighted
average number of units of beneficial interest outstanding during the period.
(k) Significant Royalty Sources
Royalty revenue received by Marine from producers is summarized as
follows:
<Table>
<Caption>
2001 2000 1999
---------- ---------- ----------
Chevron .................... 75% 71% 55%
Devon f/k/a Pennzenergy .... 7% 10% 21%
Others ..................... 18% 19% 24%
---------- ---------- ----------
100% 100% 100%
========== ========== ==========
</Table>
18
19
MARINE PETROLEUM TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED JUNE 30, 2001
(2) INVESTMENT IN AND RECEIVABLES FROM AFFILIATE - TIDELANDS ROYALTY TRUST "B"
At June 30, 2001 and 2000, Marine owned 32.63% of the outstanding units
of interest in Tidelands Royalty Trust "B" ("Tidelands"). The 452,366 units
owned by Marine had a quoted market value of $2,488,013 and $1,837,737 at June
30, 2001 and 2000, respectively.
Marine and Tidelands share certain common costs which are allocated
based on their respective net revenues.
The investment in affiliate is accounted for by the equity method. The
following summarizes changes in this account for 2001 and 2000:
<Table>
<Caption>
2001 2000
------------ ------------
Balance at beginning of year ......... $ 306,401 $ 322,070
Equity in earnings of affiliate ...... 574,755 318,072
Distribution of earnings ............. (542,368) (333,741)
------------ ------------
Balance at end of year ............... $ 338,788 $ 306,401
============ ============
</Table>
At June 30, 2001 and 2000, receivables from affiliate includes $154,883
and $82,765, respectively, of income distributable to Marine as a Tidelands
unitholder.
The following summary financial statements have been derived from the
unaudited consolidated financial statements of Tidelands.
BALANCE SHEETS
<Table>
<Caption>
JUNE 30
------------------------------
2001 2000
------------ ------------
ASSETS
Cash and cash equivalents .................................... $ 1,531,272 $ 1,448,800
Oil and gas royalties receivable ............................. 120,927 104,632
Other ........................................................ 1,351 579
------------ ------------
$ 1,653,550 $ 1,554,011
============ ============
LIABILITIES AND TRUST EQUITY
Liabilities (including $484,021 and $262,797 payable to
unitholders in 2001 and 2000, respectively) ................ $ 615,260 $ 614,975
Corpus ....................................................... 2 2
Undistributed income ......................................... 1,038,288 939,034
------------ ------------
$ 1,653,550 $ 1,554,011
============ ============
</Table>
19
20
MARINE PETROLEUM TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED JUNE 30, 2001
STATEMENTS OF INCOME
<Table>
<Caption>
YEAR ENDED JUNE 30
------------------------------------------------
2001 2000 1999
------------ ------------ ------------
Income ........................................... $ 1,903,226 $ 1,081,252 $ 1,149,611
Expenses ......................................... 115,340 88,149 93,817
------------ ------------ ------------
Income before Federal income taxes .......... 1,787,886 993,103 1,055,794
Federal incomes taxes of Tidelands' subsidiary ... 26,428 18,285 11,765
------------ ------------ ------------
Net income .................................. $ 1,761,458 $ 974,818 $ 1,044,029
============ ============ ============
</Table>
Tidelands is a registrant with the Securities and Exchange Commission
and has filed a Form 10-K as of December 31, 2000.
(3) OVERPAID ROYALTIES
During fiscal years 2000 and 1999, MPC determined that $244,250 and
$514,000, respectively, of the previously-established accounts payable for
possible royalty overpayments was no longer deemed required. Accordingly, during
these fiscal years, MPC reduced accounts payable and increased income before
federal income taxes by such amounts.
(4) SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following quarterly financial information for fiscal year 2001 and
2000 is unaudited; however, in the opinion of management, all adjustments
necessary to a fair statement of the results of operations for the interim
periods have been included.
<Table>
<Caption>
NET
OIL AND GAS NET INCOME
ROYALTIES EXPENSES INCOME PER UNIT
------------ ------------ ------------ ------------
Quarter ended:
September 30, 2000 ......... $ 1,694,404 44,140 1,873,299 .94
December 31, 2000 .......... 1,895,450 80,946 1,947,085 .97
March 31, 2001 ............. 2,171,317 61,363 2,299,098 1.15
June 30, 2001 .............. 2,301,149 54,300 2,363,265 1.18
------------ ------------ ------------ ------------
$ 8,062,320 240,749 8,482,747 4.24
============ ============ ============ ============
Quarter ended:
September 30, 1999 ......... $ 1,004,437 33,834 1,077,262 .54
December 31, 1999 .......... 1,044,398 55,942 1,096,213 .55
March 31, 2000 ............. 1,502,621 55,176 1,540,241 .77
June 30, 2000 .............. 974,905 35,880 1,029,878 .51
------------ ------------ ------------ ------------
$ 4,526,361 180,832 4,743,594 2.37
============ ============ ============ ============
</Table>
20
21
MARINE PETROLEUM TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED JUNE 30, 2001
(5) SUPPLEMENTAL INFORMATION RELATING TO OIL AND GAS RESERVES (UNAUDITED)
Oil and natural gas reserve information relating to Marine's and
Tidelands' royalty interests is not presented because such information is not
available to Marine or Tidelands. Marine's share of oil and natural gas produced
for its royalty interests and the Marine's equity in oil and natural gas
produced for Tidelands' royalty interests were as follows:
<Table>
<Caption>
2001 2000 1999
------------ ------------ ------------
Marine:
Oil (barrels) ...... 112,554 92,837 57,575
============ ============ ============
Gas (mcf) .......... 971,880 807,837 869,636
============ ============ ============
Tidelands:
Oil (barrels) ...... 4,132 3,527 4,163
============ ============ ============
Gas (mcf) .......... 80,132 76,081 129,413
============ ============ ============
</Table>
21
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MARINE PETROLEUM TRUST
(Registrant)
By: BANK OF AMERICA, N.A.
in its capacity as trustee of Marine
Petroleum Trust and not in its
individual capacity or otherwise
By: /s/ CINDY STOVER MILLER
-----------------------
Cindy Stover Miller
Vice President
Date: September 27, 2001
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.
BANK OF AMERICA, N.A.
in its capacity as trustee of Marine
Petroleum Trust and not in its
individual capacity or otherwise
By: /s/ CINDY STOVER MILLER
-----------------------
Cindy Stover Miller
Vice President
Date: September 27, 2001
/s/ R. RAY BELL
----------------------------------------
R. Ray Bell
(Principal Accounting Officer)
Date: September 27, 2001
22
23
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.1* -- Indenture, as amended on December 8, 2000, of Marine
Petroleum Trust.
4.2 -- Form of Certificate evidencing Unit(s) of Beneficial
Interest, filed as Exhibit 4 to the Annual Report on
Form 10-K of Marine Petroleum Trust for the fiscal year
ended June 30, 1994, filed with the Securities and
Exchange Commission and incorporated by reference
herein.
21.1* -- Subsidiaries of Marine.
</Table>
----------
* Filed herewith.