1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998 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 Number: 1-12058 BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST (Exact name of registrant as specified in its charter) Delaware 76-6088828 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) NationsBank of Texas, N.A. NationsBank Plaza 901 Main Street, Suite 1700 Dallas, Texas 75202 (Address of principal executive offices) (Zip code) (214) 508-2400 (Registrant's telephone number, including area code) 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 Number of units of beneficial interest outstanding at May 1, 1998: 8,800,000 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. The condensed financial statements included herein have been prepared by NationsBank of Texas, N.A., as Trustee (the "Trustee") of Burlington Resources Coal Seam Gas Royalty Trust (the "Trust"), pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations, although the Trustee believes that the disclosures are adequate to make the information presented not misleading. The condensed financial statements of the Trust presented herein are unaudited, except for balances as of December 31, 1997, and therefore are subject to year-end adjustments. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto in the Trust's Annual Report on Form 10-K for the year ended December 31, 1997. The December 31, 1997 balance sheet is derived from the audited balance sheet of that date. In the opinion of the Trustee, all adjustments consisting of normal recurring adjustments necessary to present fairly the assets, liabilities and trust corpus of the Trust as of March 31, 1998, the distributable income and the changes in trust corpus for the three month periods ended March 31, 1998 and 1997, have been included. The distributable income for such interim periods is not necessarily indicative of the distributable income for the full year. The condensed financial statements as of March 31, 1998 and for the three month periods ended March 31, 1998 and 1997, included herein, have been reviewed by Deloitte & Touche LLP, independent certified public accountants, as stated in their report appearing herein. 2 3 Independent Accountants' Report NationsBank of Texas, N.A., as Trustee of Burlington Resources Coal Seam Gas Royalty Trust We have reviewed the accompanying condensed statement of assets, liabilities and trust corpus of the Burlington Resources Coal Seam Gas Royalty Trust as of March 31, 1998, and the related condensed statements of distributable income and changes in trust corpus for the three month periods ended March 31, 1998 and 1997. 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 of 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 2 to the condensed financial statements, these condensed financial statements have been prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than generally accepted accounting principles. Based on our review, we are not aware of any material modifications that should be made to such condensed financial statements for them to be in conformity with the basis of accounting described in Note 2. We have previously audited, in accordance with generally accepted auditing standards, the statement of assets, liabilities and trust corpus of Burlington Resources Coal Seam Gas Royalty Trust as of December 31, 1997, and the related statements of distributable income and changes in trust corpus for the year then ended (not presented herein); and in our report dated March 27, 1998, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed statement of assets, liabilities and trust corpus as of December 31, 1997, is fairly stated, in all material respects, in relation to the statement of assets, liabilities and trust corpus from which it has been derived. /s/ Deloitte & Touche LLP Dallas, Texas May 11, 1998 3 4 BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS March 31, 1998 December 31, (unaudited) 1997 ----------- ----------- ASSETS Cash and cash equivalents $ 45,213 $ 50,819 Royalty interests in gas properties (less accumulated amortization of $91,329,036 at March 31, 1998 and $86,861,742 at December 31, 1997) 89,070,964 93,538,258 ----------- ----------- TOTAL ASSETS $89,116,177 $93,589,077 =========== =========== LIABILITIES AND TRUST CORPUS Trust expenses payable $ 116,405 $ 104,149 Trust corpus - 8,800,000 units of beneficial interest authorized, issued and outstanding 88,999,772 93,484,928 ----------- ----------- TOTAL LIABILITIES AND TRUST CORPUS $89,116,177 $93,589,077 =========== =========== The accompanying notes are an integral part of these condensed financial statements. 4 5 BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) FOR FOR THE THREE THE THREE MONTHS ENDED MONTHS ENDED MARCH 31, 1998 MARCH 31, 1997 -------------- -------------- Royalty income $ 1,424,354 $ 1,471,920 Interest income 4,448 3,678 ----------- ----------- 1,428,802 1,475,598 General and administrative expenses (186,193) (196,286) ----------- ----------- Distributable income $ 1,242,609 $ 1,279,312 =========== =========== Distributable income per unit (8,800,000 units) $ .14 $ .15 =========== =========== The accompanying notes are an integral part of these condensed financial statements. 5 6 BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED) FOR FOR THE THREE THE THREE MONTHS ENDED MONTHS ENDED MARCH 31, 1998 MARCH 31, 1997 ------------- ------------- Trust corpus, beginning of period $ 93,484,928 $ 107,328,165 Amortization of royalty interest (4,467,294) (4,115,912) Distributable income 1,242,609 1,279,312 Distributions to unitholders (1,260,471) (1,300,654) ------------- ------------- Trust corpus, end of period $ 88,999,772 $ 103,190,911 ============= ============= Distributions per unit (8,800,000 units) $ .14 $ .15 ============= ============= The accompanying notes are an integral part of these condensed financial statements. 6 7 BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. TRUST ORGANIZATION AND PROVISIONS Burlington Resources Coal Seam Gas Royalty Trust (the "Trust") was formed as a Delaware business trust pursuant to the terms of the Trust Agreement of Burlington Resources Coal Seam Gas Royalty Trust (the "Trust Agreement") entered into effective as of May 1, 1993 by and among Burlington Resources Oil & Gas Company, a Delaware corporation ("BROG"), as trustor, Burlington Resources Inc., a Delaware corporation ("Burlington Resources"), and NationsBank of Texas, N.A., a national banking association (the "Trustee"), and Mellon Bank (DE) National Association, a national banking association (the "Delaware Trustee"), as trustees. The trustees are independent financial institutions. Effective January 1, 1996, Meridian Oil Production Inc. ("MOPI") was merged with and into Meridian Oil Inc. ("MOI"), a wholly-owned subsidiary of Burlington Resources. Effective July 11, 1996, MOI changed its name to Burlington Resources Oil & Gas Company and Meridian Oil Trading Inc. ("MOTI") and Meridian Oil Gathering Inc. ("MOGI"), both affiliates of MOI, changed their names to Burlington Resources Trading Inc. ("BRTI") and Burlington Resources Gathering Inc. ("BRGI"), respectively. Accordingly, with regard to the period prior to the date of such name changes, references in this Form 10-Q to BROG refer to MOPI, references to BRTI refer to MOTI and references to BRGI refer to MOGI. The Trust is a grantor trust formed to acquire and hold certain net profits interests (the "Royalty Interests") in BROG's interest in the Fruitland coal formation underlying the Northeast Blanco Unit in the San Juan Basin of New Mexico (the "Underlying Properties"). The Trust was initially created by the filing of a Certificate of Trust with the Secretary of State of Delaware on May 5, 1993. In accordance with the Trust Agreement, BROG contributed $1,000 as the initial trust corpus of the Trust. On June 17, 1993, the Royalty Interests were conveyed to the Trust by BROG pursuant to the Net Profits Interest Conveyance (the "Conveyance") dated effective as of May 1, 1993, in consideration for all 8,800,000 authorized units of beneficial interest ("Units") in the Trust. BROG transferred its Units by dividend to its parent, Burlington Resources, Inc., which sold such Units to the public at $20.50 per Unit through various underwriters in June 1993 (the "Public Offering") . All of the production attributable to the Underlying Properties is from the Fruitland coal formation and currently constitutes "coal seam" gas that entitles the owners of such production, provided certain requirements are met, to tax credits pursuant to Section 29 of the Internal Revenue Code of 1986, as amended. Royalty income to the Trust is attributable to the sale of depleting assets. All of the Underlying Properties burdened by the NPI (as hereinafter defined) consist of producing properties. Accordingly, the proved reserves attributable to BROG's interest in the Underlying Properties are expected to decline substantially during the term of the Trust and a portion of each cash distribution made by the Trust will, therefore, be analogous to a return of capital. Accordingly, cash yields attributable to the Units are expected to decline over the term of the Trust. 7 8 The Trustee has all powers to collect and distribute proceeds received by the Trust and to pay Trust liabilities and expenses. The Delaware Trustee has only such powers as are set forth in the Trust Agreement or are required by law and is not empowered to otherwise manage or take part in the business of the Trust. The Royalty Interests are passive in nature and neither the Delaware Trustee nor the Trustee has any control over or any responsibility relating to the operation of the Underlying Properties or BROG's interest therein. The Trust will terminate no later than December 31, 2012, subject to earlier termination under certain circumstances described in the Trust Agreement (the "Termination Date"). Cancellation of the Trust will occur on or following the Termination Date when all Trust assets have been sold and the net proceeds thereof are distributed to the holders of the Units ("Unitholders"). The only assets of the Trust, other than cash and cash equivalents being held for the payment of expenses and liabilities and for distribution to Unitholders, are the Royalty Interests. The Royalty Interests consist primarily of a net profits interest (the "NPI") in BROG's interest in the Underlying Properties. The NPI generally entitles the Trust to receive 95 percent of the NPI Net Proceeds, as defined below. The Royalty Interests also include a 20 percent interest in the Infill Net Proceeds, as defined below, from the sale of production if well spacing rules are effectively modified and additional wells are drilled on producing drilling blocks in the Northeast Blanco Unit ("Infill Wells") during the term of the Trust. With respect to the NPI, the term "NPI Net Proceeds" generally means the aggregate proceeds attributable to BROG's net revenue interest in the Underlying Properties (excluding the proceeds, if any, from Infill Wells) calculated at the price paid by BRTI at any one of four central delivery points in the Northeast Blanco Unit gathering system or either of two wellhead delivery points (collectively, the "Central Gathering Point") for the entitled volume of gas produced and sold from BROG's interest in the Underlying Properties less BROG's working interest share of (i) property, production and related taxes (including severance taxes); (ii) lease operating expenses; (iii) capital costs (if paid after January 1, 1994); (iv) royalties, if any, required to be paid that are based on the value of Section 29 tax credits attributable to such working interest share; and (v) interest on the unrecovered portion, if any, of the foregoing costs at a rate equal to the base rate (compounded quarterly) as announced from time to time by Citibank, N.A. ("Citibank's Base Rate"). The term "Infill Net Proceeds" generally means the aggregate proceeds attributable to BROG's net revenue interest calculated at the price paid by BRTI at the Central Gathering Point for the entitled volume of gas produced and sold from BROG's interest in any Infill Wells less BROG's working interest share of (a) property, production and related taxes (including severance taxes) on such Infill Wells; (b) lease operating expenses with respect to such Infill Wells; (c) capital costs with respect to such Infill Wells; and (d) interest on the unrecovered portion, if any, of the foregoing costs at Citibank's Base Rate. The complete definitions of NPI Net Proceeds and Infill Net Proceeds are set forth in the Conveyance. The definitions, formulas and accounting procedures and other terms governing the computation of the Royalty Interests are set forth in the Conveyance. Because of the passive nature of the Trust and the restrictions and limitations on the powers and activities of the Trustee contained in the Trust Agreement, the Trustee does not consider any of the officers and employees of the Trustee to be "officers" or "executive officers" of the Trust as such terms are defined under the applicable rules and regulations adopted under the Securities Exchange Act of 1934. 8 9 2. BASIS OF ACCOUNTING The financial statements of the Trust are prepared on a modified cash basis and are not intended to present financial position and results of operations in conformity with generally accepted accounting principles ("GAAP"). Preparation of the Trust's financial statements on such basis includes the following: o Royalty income and interest income are recorded in the period in which amounts are received by the Trust rather than in the months of production. o General and administrative expenses recorded are based on liabilities paid and cash reserves established out of cash received. o Amortization of the Royalty Interests is calculated on a unit-of-production basis and charged directly to trust corpus when revenues are received. o Distributions to Unitholders are recorded when declared by the Trustee (see Note 4). The financial statements of the Trust differ from financial statements prepared in accordance with GAAP because royalty income is not accrued in the period of production, general and administrative expenses recorded are based on liabilities paid and cash reserves established rather than on an accrual basis, and amortization of the Royalty Interests is not charged against operating results. The net amount of royalty interests in gas properties is limited to the sum of the future net cash flows attributable to the Trust's gas reserves using current unescalated product prices plus the estimated future Section 29 credits for federal income tax purposes. If the net cost of royalty interests in gas properties exceeds this amount, an impairment provision will be recorded and charged to the trust corpus. 3. FEDERAL INCOME TAXES The Trust is a grantor trust for Federal income tax purposes. As a grantor trust, the Trust will not be required to pay Federal or state income taxes. Accordingly, no provision for income taxes has been made in these condensed financial statements. Because the Trust will be treated as a grantor trust, and because a Unitholder will be treated as directly owning an interest in the Royalty Interests, each Unitholder will be taxed directly on his per Unit share of income attributable to the Royalty Interests consistent with the Unitholder's method of accounting and without regard to the taxable year or accounting method employed by the Trust. Production from coal seam gas wells drilled after December 31, 1979 and prior to January 1, 1993, qualifies for the Federal income tax credit for producing nonconventional fuels under Section 29 of the Internal Revenue Code. This tax credit is calculated annually based on each year's qualified production through the year 2002. Such credit, based on the Unitholder's pro rata share of 9 10 qualifying production, may not reduce his regular tax liability (after the foreign tax credit and certain other non-refundable credits) below his alternative minimum tax. Any part of the Section 29 credit not allowed for the tax year solely because of this limitation is subject to certain carryover provisions. Each Unitholder should consult his tax advisor regarding Trust tax compliance matters. 4. DISTRIBUTIONS TO UNITHOLDERS The Trustee determines for each quarter the amount of cash available for distribution to Unitholders. Such amount (the "Quarterly Distribution Amount") is an amount equal to the excess, if any, of the cash received by the Trust, on or before the last business day before the 50th day following the end of each calendar quarter from the Royalty Interests attributable to production during such quarter, plus, with certain exceptions, any other cash receipts of the Trust during such quarter, over the liabilities of the Trust paid during such quarter, subject to adjustments for changes made by the Trustee during such quarter in any cash reserves established for the payment of contingent or future obligations of the Trust. The Quarterly Distribution Amount for each quarter is payable to Unitholders of record on the 63rd day following the end of such calendar quarter unless such day is not a business day in which case the record date is the next business day thereafter. The Trustee distributes the Quarterly Distribution Amount on or prior to the 75th day after the end of each calendar quarter to each person who was a Unitholder of record on the associated record date, together with interest estimated to be earned on such amount from the date of receipt thereof by the Trustee to the payment date. The Royalty Interests may be sold under certain circumstances and will be sold following termination of the Trust. A special distribution will be made of undistributed net sales proceeds and other amounts received by the Trust aggregating in excess of $10,000,000 (a "Special Distribution Amount"). The record date for a Special Distribution Amount will be the 15th day following receipt of amounts aggregating a Special Distribution Amount by the Trust (unless such day is not a business day in which case the record date will be the next business day thereafter) unless such day is within 10 days prior to the record date for a Quarterly Distribution Amount in which case the record date will be the date as is established for the next Quarterly Distribution Amount. Distribution to Unitholders of a Special Distribution Amount will be made no later than 15 days after the Special Distribution Amount record date. 10 11 Item 2. Trustee's Discussion and Analysis of Financial Condition and Results of Operations The Trust makes quarterly cash distributions to holders of units of beneficial interest ("Units") in the Trust ("Unitholders"). The only assets of the Trust, other than cash and cash equivalents being held for the payment of expenses and liabilities and for distribution to Unitholders, are certain net profits interests (the "Royalty Interests") in certain proved coal seam gas properties located in the Fruitland coal formation underlying the Northeast Blanco Unit in the San Juan Basin of New Mexico (the "Underlying Properties"). The Royalty Interests owned by the Trust burden the net revenue interest in the Underlying Properties that is owned by Burlington Resources Oil & Gas Company ("BROG") and not the Trust. Effective January 1, 1996, Meridian Oil Production Inc. ("MOPI") was merged with and into Meridian Oil Inc. ("MOI"), a wholly-owned subsidiary of Burlington Resources. Effective July 11, 1996, MOI changed its name to Burlington Resources Oil & Gas Company and Meridian Oil Trading Inc. ("MOTI") and Meridian Oil Gathering Inc. ("MOGI"), both affiliates of MOI, changed their names to Burlington Resources Trading Inc. ("BRTI") and Burlington Resources Gathering Inc. ("BRGI"), respectively. Accordingly, with regard to the period prior to the date of such name changes, references in this Form 10-Q to BROG refer to MOPI, references to BRTI refer to MOTI and references to BRGI refer to MOGI. Distributable income of the Trust consists of the excess of royalty income plus interest income over the general and administrative expenses of the Trust. Upon receipt by the Trust, royalty income is invested in short-term investments in accordance with the Trust Agreement (as defined in Note 1 to the condensed financial statements of the Trust appearing elsewhere in this Form 10-Q ("Note 1")) until its subsequent distribution to Unitholders. The amount of distributable income of the Trust for any quarter may differ from the amount of cash available for distribution to Unitholders in such quarter due to differences in the treatment of the expenses of the Trust in the determination of those amounts. The condensed financial statements of the Trust are prepared on a modified cash basis pursuant to which the expenses of the Trust are recognized when paid or reserves are established for them. Consequently, the reported distributable income of the Trust for any quarter is determined by deducting from the income received by the Trust the amount of expenses paid by the Trust during such quarter. The amount of cash available for distribution to Unitholders, however, is determined in accordance with the provisions of the Trust Agreement and reflects the income actually received by the Trust less the amount of expenses actually paid by the Trust and adjustment for changes in reserves for unpaid liabilities. See Note 4 to the condensed financial statements of the Trust appearing elsewhere in this Form 10-Q for additional information regarding the determination of the amount of cash available for distribution to Unitholders. Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997 Royalty income received by the Trust in a given calendar quarter generally consists of 95% of the NPI Net Proceeds (as defined in Note 1) during the preceding calendar quarter. Royalty income for the first quarter of 1998 amounted to $1,424,354 as compared to $1,471,920 for the same quarter in 1997. Gas production related to the royalty income received by the Trust in the first quarter of 1998 was 2.9 Bcf compared to 2.7 Bcf for the same quarter in 1997. The decrease in 11 12 revenue to the Trust was the result of slightly lower prices than in the first quarter of 1997. The average net price for gas after consideration of costs in the first quarter of 1998 was $.95/Mcf compared to $.99/Mcf in the first quarter of 1997. Costs deducted to determine the net proceeds received include production taxes, which are calculated on gross proceeds, operating costs and certain capital costs. Production tax fluctuations are in correlation to changes in royalty proceeds and operating costs and have remained relatively stable. During the quarter ended March 31, 1998, approximately $561,000 was charged against the gross proceeds of the Trust relating to the expansion of the current gas gathering system. Capital costs of this nature are allowed under the Conveyance Agreement. Interest income for the quarter ended March 31, 1998 was $4,448 as compared to $3,678 for the same quarter in 1997. General and administrative expenses are primarily related to administrative services provided to the Trust. The general and administrative expenses during the quarter ended March 31, 1998 amounted to $186,193 compared to $196,286 for the same quarter in 1997. Distributable income for the quarter ended March 31, 1998 was $1,242,609 or $.14 per Unit compared to $1,279,312 or $.15 per Unit for the first quarter of 1997. The Trust made a distribution on March 16, 1998 of $.143235 per Unit to Unitholders of record on March 4, 1998. Royalty income to the Trust is attributable to the sale of depleting assets. All of the Underlying Properties burdened by the NPI consist of producing properties. Accordingly, the proved reserves attributable to BROG's interest in the Underlying Properties are expected to decline substantially during the term of the Trust and a portion of each cash distribution made by the Trust will, therefore, be analogous to a return of capital. Accordingly, cash yields attributable to the Units are expected to decline over the term of the Trust. Royalty income received by the Trust in a given calendar quarter will generally reflect the proceeds from the sale of gas produced from the Underlying Properties during the preceding quarter. Accordingly, the royalty income included in distributable income for the quarter ended March 31, 1998 was based on production volumes and natural gas prices for the period October 1 through December 31, 1997 in accordance with the terms of the conveyance of the Royalty Interests to the Trust, as shown in the table below. The production volumes included in the table below are actual net production volumes from BROG's interest in the Underlying Properties, and not for production attributable to the Trust's Royalty Interests. 12 13 For the For the Three Months Three Months Ended Ended December 31, 1997 December 31, 1996 ----------------- ----------------- Production (Bcf)(1).................................. 3,051 2.890 Production (Trillion Btu)(2)......................... 2,742 2.571 Average Inside FERC Price ($/MMBtu)(3)....................................... $ 2.69 $ 2.51 BROG Average Entitled Price Received ($/MMBtu)(4).............................. $ 1.07 $ 1.11 (1) Billion Cubic Feet of natural gas. (2) Trillion British Thermal Units. (3) The posted index price (Inside FERC) of spot gas delivered to pipelines. (4) Average Inside FERC Price less allowable deductions. Production attributable to BROG's interest in the Underlying Properties is generally sold pursuant to a gas purchase contract between BROG and BRTI. The gas purchase contract provides certain protections for BRTI in the form of price credits and for Unitholders when the applicable Blanco Hub Spot Price falls below $1.65 per MMBtu and provides certain benefits for BRTI when the Blanco Hub Spot Price exceeds $2.10 per MMBtu. The gas purchase contract also provides that the price paid for gas by BRTI is reduced by the amount of gathering and/or transportation charges, taxes, treating and processing costs and all other costs payable in connection with such services from the central gathering point to main line delivery paid by BRTI. The Blanco Hub Spot Price was below $1.65 per MMBtu for all months during 1996 except August, November and December 1996. The Blanco Hub Spot Price was above $1.65 per MMBtu during 1997 except for March and April of 1997, and was also above such price during the first quarter of 1998. The price remained above $1.65 per MMBtu for April 1998. However, pursuant to the terms of the gas purchase contract, in those months in which such price was below $1.65 per MMBtu, BRTI continued to purchase gas attributable to BROG's interest in the Underlying Properties at the $1.60 per MMBtu minimum purchase price, less deductible costs paid by BRTI, established by the gas purchase contract; and BRTI received a price credit from BROG for each MMBtu of natural gas so purchased by BRTI equal to the difference between the $1.60 per MMBtu purchase price and the applicable index price (which price is equal to 97 percent of the applicable Blanco Hub Spot Price). With the Blanco Hub Spot Price above $1.65 per MMBtu during October, November and December 1997, royalty income otherwise receivable by the Trust during first quarter of 1998 was reduced due to partial recoupment of the aggregate price credits. Approximately $1.3 million of price credits were recouped by BRTI due to the higher Blanco Hub Spot Prices in October, November and December of 1997. BRTI estimates that as of March 31, 1998, BRTI had aggregate price credits of approximately $5 million of which the Trust's 95 percent interest was approximately $4.7 million. 13 14 The entitlement of BRTI to recoup the price credits means that if and when the applicable Blanco Hub Spot Price is above $1.65 per MMBtu, future royalty income paid to the Trust will be reduced until such time as all accrued and unrecouped price credits have been recovered by BRTI. As was the case in the first quarter of 1998, reduced royalty income correspondingly reduces cash distributions to Unitholders. The information in this Form 10-Q concerning production and prices relating to BROG's interest in the Underlying Properties is based on information prepared and furnished by BROG to the Trustee. The Trustee has no control over and no responsibility relating to the operation of the Underlying Properties. Year 2000 - --------- Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. The Year 2000 issue affects virtually all companies and organizations. If a company or organization does not successfully address its Year 2000 issues, it may face material adverse consequences. The Trust is reliant on the performance of BROG and third party vendors for the receipt of Royalty income, payment of expenses and disbursement of distributable income. The Trustee can provide no assurance as to whether BROG and third party vendors will successfully address the Year 2000 issue. Any failure by BROG or any of the third party vendors to successfully address the Year 2000 issue could have a material adverse impact on the Trust and its Unitholders. Forward-Looking Statements - -------------------------- This report on 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 fact included in this Form 10-Q, including, without limitation, statements contained in this "Trustee's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Trust's financial position and industry conditions, are forward-looking statements. Although the Trustee believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Inapplicable PART II - OTHER INFORMATION Item 5. Other Matters On January 20, 1998, those certain parties listed in the Security Ownership of Certain Beneficial Owners table (the "Ownership Table") set forth in Item 12 of the Trust's Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K")(such parties, collectively, "San Juan") filed a Schedule 14D-1 with the Securities and Exchange Commission (the "Commission") in connection with a tender offer to purchase exactly (and not less than) 5,446,860 Units. The tender offer expired pursuant to its terms on February 17, 1998. According to Schedule 13D filings made by San Juan with the Commission, following the expiration of its tender offer, San Juan has acquired through a series of open market transactions additional Units resulting in total holdings as of May 7, 1998, of 4,780,140 Units, representing approximately 54.32% of all outstanding Units. According to the Offer to Purchase filed by San Juan as an exhibit to its Schedule 14D-1, the purpose of San Juan's tender offer was to acquire 67% of the outstanding Units so that it could affect a vote to terminate the Trust, causing a liquidation of the Trust's assets and a resulting distribution to Unitholders. Unitholders are advised to consult the 1997 Form 10-K, particularly "Item 1--Description of the Trust--Termination and Liquidation" for additional information in this regard. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit No. Description 27 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter for which this report is filed. 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST By: NATIONSBANK OF TEXAS, N.A., Trustee By: /s/ Ron Hooper ------------------------------------ Ron Hooper Vice President Date: May 12, 1998 (The Trust has no directors or executive officers.) 15 16 INDEX TO EXHIBITS Exhibit No. Description ----------- ----------- 27 Financial Data Schedule