e10vq
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
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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 1-10243
BP PRUDHOE BAY ROYALTY TRUST
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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13-6943724 |
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer |
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Identification No.) |
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The Bank of New York Mellon, 101 Barclay Street, New York, NY
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10286 |
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(Address of Principal Executive Offices)
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(Zip Code) |
Registrants Telephone Number, Including Area Code: (212) 815-6908
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (17 CFR § 232.405) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large Accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act)
Yes o No þ
As of November 9, 2009, 21,400,000 Units of Beneficial Interest were outstanding.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
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Item 1. |
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Financial Statements |
BP Prudhoe Bay Royalty Trust
Statement of Assets, Liabilities and Trust Corpus
(Prepared on a modified basis of cash receipts and disbursements)
(In thousands, except unit data)
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September 30, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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Assets |
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Royalty interest, net (Notes 1, 2 and 3) |
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$ |
2,511 |
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$ |
4,017 |
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Cash and cash equivalents (Note 2) |
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1,001 |
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1,018 |
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Total assets |
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$ |
3,512 |
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$ |
5,035 |
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Liabilities and Trust Corpus |
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Accrued expenses |
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$ |
229 |
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$ |
278 |
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Trust corpus (40,000,000 units of beneficial
interest authorized, 21,400,000 units issued
and outstanding) |
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3,283 |
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4,757 |
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Total liabilities and trust corpus |
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$ |
3,512 |
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$ |
5,035 |
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See accompanying notes to financial statements (unaudited).
BP Prudhoe Bay Royalty Trust
Statements of Cash Earnings and Distributions
(Prepared on a modified basis of cash receipts and disbursements)
(Unaudited)
(In thousands, except unit data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Royalty revenues |
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$ |
36,051 |
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$ |
66,030 |
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$ |
92,780 |
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$ |
189,237 |
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Interest income |
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1 |
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3 |
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3 |
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29 |
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Less: Trust administrative expenses |
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(746 |
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(689 |
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(1,239 |
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(1,611 |
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Cash earnings |
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$ |
35,306 |
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$ |
65,344 |
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$ |
91,544 |
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$ |
187,655 |
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Cash distributions |
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$ |
35,305 |
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$ |
65,344 |
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$ |
91,561 |
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$ |
187,663 |
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Cash distributions per unit |
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$ |
1.6498 |
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$ |
3.0535 |
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$ |
4.2786 |
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$ |
8.7693 |
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Units outstanding |
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21,400,000 |
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21,400,000 |
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21,400,000 |
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21,400,000 |
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See accompanying notes to financial statements (unaudited).
2
BP Prudhoe Bay Royalty Trust
Statements of Changes in Trust Corpus
(Prepared on a modified basis of cash receipts and disbursements)
(Unaudited)
(In thousands)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Trust corpus at beginning of period |
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$ |
3,259 |
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$ |
5,313 |
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$ |
4,757 |
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$ |
6,592 |
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Cash earnings |
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35,306 |
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65,344 |
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91,544 |
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187,655 |
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(Increase) decrease in accrued expenses |
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525 |
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486 |
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49 |
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219 |
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Cash distributions |
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(35,305 |
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(65,344 |
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(91,561 |
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(187,663 |
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Amortization of royalty interest |
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(502 |
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(503 |
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(1,506 |
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(1,507 |
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Trust corpus at end of period |
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$ |
3,283 |
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$ |
5,296 |
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$ |
3,283 |
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$ |
5,296 |
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See accompanying notes to financial statements (unaudited).
3
BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
September 30, 2009
(1) Formation of the Trust and Organization
BP Prudhoe Bay Royalty Trust (the Trust), a grantor trust, was created as a Delaware business
trust pursuant to a Trust Agreement dated February 28, 1989 (the Trust Agreement) among The
Standard Oil Company (Standard Oil), BP Exploration (Alaska) Inc. (BP Alaska), The Bank of
New York Mellon (the Trustee) and BNY Mellon Trust of Delaware (successor to The Bank of New
York (Delaware)), as co-trustee. Standard Oil and BP Alaska are indirect wholly-owned
subsidiaries of BP p.l.c. (BP).
On February 28, 1989, Standard Oil conveyed an overriding royalty interest (the Royalty
Interest) to the Trust. The Trust was formed for the sole purpose of owning and administering
the Royalty Interest. The Royalty Interest represents the right to receive a per barrel royalty
(the Per Barrel Royalty) of 16.4246% on the lesser of (a) the first 90,000 barrels of the
average actual daily net production of oil and condensate per quarter or (b) the average actual
daily net production of oil and condensate per quarter from BP Alaskas working interest as of
February 28, 1989 in the Prudhoe Bay Field situated on the North Slope of Alaska (the BP
Working Interests). Trust Unit holders are subject to the risk that production will be
interrupted or discontinued or fall, on average, below 90,000 barrels per day in any quarter. BP
has guaranteed the performance of BP Alaska of its payment obligations with respect to the
Royalty Interest.
The trustees of the Trust are The Bank of New York Mellon, a New York banking corporation, and
BNY Mellon Trust of Delaware, a Delaware banking corporation. BNY Mellon Trust of Delaware
serves as co-trustee in order to satisfy certain requirements of the Delaware Statutory Trust
Act. The Bank of New York Mellon alone is able to exercise the rights and powers granted to the
Trustee in the Trust Agreement.
The Per Barrel Royalty in effect for any day is equal to the price of West Texas Intermediate
crude oil (the WTI Price) for that day less scheduled Chargeable Costs (adjusted for
inflation) and Production Taxes (based on statutory rates then in effect) .
The Trust is passive, with the Trustee having only such powers as are necessary for the
collection and distribution of revenues, the payment of Trust liabilities, and the protection of
the Royalty Interest. The Trustee, subject to certain conditions, is obligated to establish
cash reserves and borrow funds to pay liabilities of the Trust when they become due. The
Trustee may sell Trust properties only (a) as authorized by a vote of the Trust Unit holders,
(b) when necessary to provide for the payment of specific liabilities of the Trust then due
(subject to certain conditions) or (c) upon termination of the Trust. Each Trust Unit issued
and outstanding represents an equal undivided share of beneficial interest in the Trust.
Royalty payments are received by the Trust and distributed to Trust Unit holders, net of Trust
expenses, in the month succeeding the end of each calendar quarter. The Trust will terminate
upon the first to occur of the following events:
4
BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
September 30, 2009
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a. |
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On or prior to December 31, 2010: upon a vote of holders of not less than 70% of the
outstanding Trust Units. |
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b. |
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After December 31, 2010: (i) upon a vote of holders of not less than 60% of the
outstanding Trust Units, or (ii) at such time the net revenues from the Royalty Interest
for two successive years commencing after 2010 are less than $1,000,000 per year (unless
the net revenues during such period are materially and adversely affected by certain force
majeure events). |
In order to ensure that the Trust has the ability to pay future expenses, the Trust established
a cash reserve account, which the Trustee believes is sufficient to pay approximately one years
current and expected liabilities and expenses of the Trust.
(2) Basis of Accounting
The financial statements of the Trust are prepared on a modified cash basis and reflect the
Trusts assets, liabilities, corpus, earnings, and distributions, as follows:
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Revenues are recorded when received (generally within 15 days of the end of the
preceding quarter) and distributions to Trust Unit holders are recorded when paid. |
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b. |
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Trust expenses (which include accounting, engineering, legal, and other professional
fees, trustees fees, and out-of-pocket expenses) are recorded on an accrual basis. |
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c. |
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Cash reserves may be established by the Trustee for certain contingencies that would
not be recorded under generally accepted accounting principles. |
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d. |
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Amortization of the Royalty Interest is calculated based on the units of production
method. Such amortization is charged directly to the Trust corpus, and does not affect cash
earnings. The daily rate for amortization per net equivalent barrel of oil for the three
months ended September 30, 2009 and 2008 was $0.42 and $0.40, respectively, and for the
nine months ended September 30, 2009 and 2008 was $0.39 and $0.38, respectively. The Trust
evaluates impairment of the Royalty Interest by comparing the undiscounted cash flows
expected to be realized from the Royalty Interest to the carrying value, pursuant to the
Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) 360,
Property, Plant, and Equipment. If the expected future undiscounted cash flows are less
than the carrying value, the Trust recognizes an impairment loss for the difference between
the carrying value and the estimated fair value of the Royalty Interest. |
While these statements differ from financial statements prepared in accordance with accounting
principles generally accepted in the United States of America, the modified cash basis of
reporting revenues and distributions is considered to be the most meaningful because
5
BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
September 30, 2009
quarterly distributions to the Trust Unit holders are based on net cash receipts. These modified cash
basis financial statements are unaudited but, in the opinion of the Trustee, include all
adjustments necessary to present fairly the assets, liabilities and corpus of the Trust as of
September 30, 2009 and 2008, and the modified cash earning and distributions and changes in
Trust corpus for the three-month and nine-month periods ended September 30,
2009 and 2008. The adjustments are of a normal recurring nature and are, in the opinion of the
Trustee, necessary to fairly present the results of operations.
As of September 30, 2009 and December 31, 2008, cash equivalents which represent the cash
reserve consist of U.S. Treasury bills with an initial term of less than three months.
Estimates and assumptions are required to be made regarding assets, liabilities and changes in
Trust corpus resulting from operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in determining these
estimates could cause actual results to differ, and the differences could be material.
These unaudited financial statements should be read in conjunction with the financial statements
and related notes in the Trusts Annual Report on Form 10-K for the fiscal year ended December
31, 2008. The cash earnings and distributions for the interim period presented are not
necessarily indicative of the results to be expected for the full year.
(3) Royalty Interest
The Royalty Interest is comprised of the following at September 30, 2009 and December 31, 2008
(in thousands):
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September 30, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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Royalty Interest (at inception) |
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$ |
535,000 |
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$ |
535,000 |
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Less: Accumulated amortization |
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(358,971 |
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(357,465 |
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Impairment write-down |
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(173,518 |
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(173,518 |
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Balance, end of period |
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$ |
2,511 |
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$ |
4,017 |
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(4) Income Taxes
The Trust files its federal tax return as a grantor trust subject to the provisions of subpart E
of Part I of Subchapter J of the Internal Revenue Code of 1986, as amended, rather than as an
association taxable as a corporation. The Trust Unit holders are treated as the owners of Trust
income and corpus, and the entire taxable income of the Trust will be reported by the Trust Unit
holders on their respective tax returns.
6
BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
September 30, 2009
If the Trust were determined to be an association taxable as a corporation, it would be treated
as an entity taxable as a corporation on the taxable income from the Royalty Interest, the Trust
Unit holders would be treated as shareholders, and distributions to Trust Unit holders would not
be deductible in computing the Trusts tax liability as an association.
The Trustee assumes that some Trust Units are held by a middleman, as such term is broadly
defined in the U.S. Treasury Regulations (which includes custodians, nominees, certain joint
owners, and brokers holding an interest for a custodian in street name). Therefore, the Trustee
considers the Trust to be a widely held fixed investment trust (WHFIT) for U.S. Federal income
tax purposes. The Bank of New York Mellon is the representative of the Trust that will provide
tax information in accordance with applicable U.S. Treasury Regulations governing the
information reporting requirements of the Trust as a WHFIT. For information contact The Bank of
New York Mellon, Corporate Trust Trustee Administration, 101 Barclay Street, New York, NY 10286,
telephone number (212) 815-6908.
(5) Legal Expense Contingency
The Trust continues to incur legal fees and expenses as a result of litigation and other issues
arising out of the August 2006 shutdown of the Prudhoe Bay field. Except for potential
continuing legal fees and expenses, the Trustee does not anticipate any other loss contingency
resulting from the shutdown of the Prudhoe Bay field.
(6) Prospective Settlement Payment
The Trust has entered into a settlement agreement with BP Alaska to resolve certain issues
related to the temporary shutdown of the Prudhoe Bay field Following
oil spills on March 2, 2006 and August 6, 2006 and to compromise any
claims that the Trust and past, present, and future holders of Trust Units may have relating to
conduct by BP Alaska that may have resulted in a reduction of the royalty payments received by
the Trust in 2006, 2007 and 2008. Under the settlement agreement, BP Alaska has paid
$29,469,081 into an interest-bearing escrow account with The Bank of New York Mellon, as escrow
agent. The settlement payment, plus the interest that accrues on it while it is held by the
escrow agent, will be released by the escrow agent and paid to the Trust when (i) the Delaware
Chancery Court enters an order approving the settlement agreement and such order becomes final
and (ii) the order of the United States District Court for the Southern District of New York
dismissing certain litigation brought in that court against BP Alaska and other parties becomes
final after appeal or upon the expiration of time for any further appellate proceedings, or is
resolved by settlement.
The order of the District Court dismissing the litigation against BP Alaska and the other
defendants has been affirmed by the United States Court of Appeals for the Second Circuit, and
the time for any further appeal from that judgment has expired. On October 21, 2009, the
Delaware Chancery Court entered an order and final judgment approving
the settlement,
7
BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
September 30, 2009
which will become final if it has not been appealed within 30 days from the date of entry. If there is no
appeal from the Chancery Court order, the Trustee anticipates that the settlement fund and
accrued interest will be released from escrow and paid to the Trust during the fourth quarter of
2009.
(7) Royalty Revenue Adjustments
The royalty payments received by the Trust in January 2009 and 2008 with respect to the quarters
ended December 31, 2008 and 2007 were adjusted by BP Alaska to compensate for underpayment of
the royalties due with respect to the quarters ended September 30, 2008 and 2007, respectively.
Average net production of crude oil and condensate was less than 90,000
barrels per day during those quarters and royalty payments by BP Alaska with respect to those
quarters were based on estimates by BP Alaska of production levels because actual data were not
available by the dates on which payments were required to be made to the Trust. Subsequent
recalculation by BP Alaska of royalty payments due based on actual production data resulted in
the payment adjustments shown in the table below (in thousands):
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Payment Received |
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Jan. 2009 |
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Jan. 2008 |
Royalty payment as calculated |
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$ |
34,481 |
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$ |
65,284 |
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Adjustment for previous quarters
underpayment, plus accrued interest |
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799 |
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64 |
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Net payment received |
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$ |
35,280 |
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$ |
65,348 |
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No adjustments to the royalty payments received by the Trust in April and July 2009 and 2008
were required.
(8) Subsequent Event
On October 15, 2009 the Trust received a cash distribution of approximately $37,233,939 from BP
Alaska with respect to the quarter ended September 30, 2009. On October 20, 2009, after
deducting Trust administrative expenses, the Trustee distributed approximately $37,014,424
(approximately $1.73 per Unit) to Unit holders of record on October 15, 2009
Subsequent events have been evaluated through the date of the quarterly report on Form 10-Q in
which these financial statements are included.
8
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Item 2. |
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Trustees Discussion and Analysis of Financial Condition and Results of
Operations. |
Cautionary Statement
This report contains forward looking statements (that is, statements anticipating future events or
conditions and not statements of historical fact). Words such as anticipate, expect, believe,
intend, plan or project, and should, would, could, potentially, possibly or may,
and other words that convey uncertainty of future events or outcomes are intended to identify
forward-looking statements. Forward-looking statements in this report are subject to a number of
risks and uncertainties beyond the control of the Trustee. These risks and uncertainties include
such matters as future changes in oil prices, oil production levels, economic activity, domestic
and international political events and developments, legislation and regulation, and certain
changes in expenses of the Trust.
The actual results, performance and prospects of the Trust could differ materially from those
expressed or implied by forward-looking statements. Descriptions of some of the risks that could
affect the future performance of the Trust appear in Item 1A, Risk Factors, of the Trusts Annual
Report on Form 10-K for the fiscal year ended December 31, 2008 (the 2008 Annual Report). There
may be additional risks of which the Trustee is unaware or which are currently deemed immaterial.
In the light of these risks, uncertainties and assumptions, you should not rely unduly on any
forward-looking statements. Forward-looking events and outcomes discussed in the 2008 Annual Report
and in this report may not occur or may transpire differently. The Trustee undertakes no obligation
to update forward-looking statements after the date of this report, except as required by law, and
all such forward-looking statements in this report are qualified in their entirety by the preceding
cautionary statements.
Liquidity and Capital Resources
The Trust is a passive entity. The Trustees activities are limited to collecting and distributing
the revenues from the Royalty Interest and paying liabilities and expenses of the Trust.
Generally, the Trust has no source of liquidity and no capital resources other than the revenue
attributable to the Royalty Interest that it receives from time to time. (See the discussion under
THE ROYALTY INTEREST in Part I, Item 1 of the 2008 Annual Report for a description of the
calculation of the Per Barrel Royalty, and the discussion under THE PRUDHOE BAY UNIT AND FIELD -
Reserve Estimates and INDEPENDENT OIL AND GAS CONSULTANTS REPORT in Part I, Item 1 of the 2008
Annual Report for information concerning the estimated future net revenues of the Trust.) However,
the Trustee has a limited power to borrow, establish a cash reserve, or dispose of all or part of
the Trust Estate, under limited circumstances pursuant to the terms of the Trust Agreement. See
the discussion under THE TRUST in Part I, Item 1 of the 2008 Annual Report.
Since 1999, the Trustee has maintained a $1,000,000 cash reserve to provide liquidity to the Trust
during any future periods in which the Trust does not receive a distribution. The Trustee will draw
funds from the cash reserve account during any quarter in which the quarterly distribution received
by the Trust does not exceed the liabilities and expenses of the Trust, and
9
will replenish the reserve from future quarterly distributions, if any. The Trustee anticipates that it will keep
this cash reserve program in place until termination of the Trust.
Amounts set aside for the cash reserve are invested by the Trustee in U.S. government or agency
securities secured by the full faith and credit of the United States. Interest income received by
the Trust from the investment of the reserve fund is added to the distributions received from BP
Alaska and paid to the holders of Units with each quarterly distribution.
As discussed under CERTAIN TAX CONSIDERATIONS in Part I, Item 1 of the 2008 Annual Report,
amounts received by the Trust as quarterly distributions are income to the holders of the Units,
(as are any earnings on investment of the cash reserve) and must be reported by the holders of the
Units, even if such amounts are used by the Trustee to repay borrowings or replenish the cash
reserve and are not received by the holders of the Units.
Results of Operations
Relatively modest changes in oil prices significantly affect the Trusts revenues and results of
operations. Crude oil prices are subject to significant changes in response to fluctuations in the
domestic and world supply and demand and other market conditions as well as the world political
situation as it affects the members of OPEC and other producing countries. The effect of changing
economic and political conditions on the demand for and supply of energy throughout the world and future prices
of oil cannot be accurately projected.
Under the terms of the Conveyance of the Royalty Interest to the Trust, the Per Barrel Royalty for
any day is the WTI Price for the day less the sum of (i) Chargeable Costs multiplied by the Cost
Adjustment Factor and (ii) Production Taxes. The narrative under the captions THE TRUST Trust
Property and THE ROYALTY INTEREST in the 2008 Annual Report explains the meanings of the terms
Conveyance, Royalty Interest, Per Barrel Royalty, WTI Price, Chargeable Costs and Cost
Adjustment Factor and should be read in conjunction with this report.
Royalty revenues are generally received on the fifteenth day of the month following the end of the
calendar quarter in which the related Royalty Production occurred (the Quarterly Record Date).
The Trustee, to the extent possible, pays all accrued expenses of the Trust on each Quarterly
Record Date from the royalty payment received. Revenues and Trust expenses presented in the
statement of cash earnings and distributions are recorded on a modified cash basis and, as a
result, royalty revenues and distributions shown in such statements for the three and nine-month
periods ended September 30, 2009 and 2008, respectively, are attributable to BP Alaskas operations
during the three and nine-month periods ended June 30, 2009 and 2008, respectively.
The following table summarizes the factors which determined the Per Barrel Royalties used to
calculate the payments received by the Trust in January, April and July 2009 and 2008 (see Note 1
of Notes to Financial Statements (Unaudited) in Part I, Item 1). The information in the table has
been furnished by BP Alaska.
10
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Data for Quarter |
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Is Based on |
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Data for |
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Cost |
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Adjusted |
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Average |
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Average |
Royalty |
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Quarter |
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Average |
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Chargeable |
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Adjustment |
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Chargeable |
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Production |
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Per Barrel |
Payment in |
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Ended |
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WTI Price |
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Costs |
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Factor |
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Costs |
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Taxes |
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Royalty |
Jul. 2009 |
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06/30/2009 |
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$ |
59.74 |
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$ |
13.25 |
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1.647 |
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$ |
21.82 |
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$ |
11.03 |
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$ |
26.89 |
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Apr. 2009 |
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03/31/2009 |
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$ |
43.20 |
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$ |
13.25 |
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1.634 |
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$ |
21.65 |
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$ |
5.43 |
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$ |
16.13 |
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Jan. 2009 |
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12/31/2008 |
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$ |
58.03 |
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$ |
13.00 |
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1.636 |
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$ |
21.26 |
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$ |
11.42 |
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$ |
25.35 |
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Jul. 2008 |
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06/30/2008 |
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$ |
124.34 |
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$ |
13.00 |
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1.668 |
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$ |
21.68 |
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$ |
52.37 |
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$ |
50.29 |
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Apr. 2008 |
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03/31/2008 |
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$ |
97.78 |
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$ |
13.00 |
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1.630 |
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$ |
21.19 |
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$ |
33.58 |
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$ |
43.01 |
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Jan. 2008 |
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12/31/2007 |
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$ |
90.93 |
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$ |
12.75 |
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1.618 |
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$ |
20.63 |
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$ |
22.29 |
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$ |
48.01 |
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Royalty Production for each day in a calendar quarter is 16.4246% of the first 90,000 barrels of
the actual average daily net production of oil and condensate for the quarter from the BP Working
Interests. So long as BP Alaskas average daily net production from the BP Working Interests
exceeds 90,000 barrels, the principal factors affecting the Trusts revenues and distributions to
Unit holders are changes in WTI Prices, scheduled annual increases in Chargeable Costs, changes in
the Consumer Price Index and changes in Production Taxes. Average daily net production of oil and
condensate from the BP Working Interests has been below 90,000 barrels per day during certain
quarterly periods since 2006, due to a BP Alaska program of field wide infrastructure renewal,
pipeline replacement and well mechanical improvements.
BP Alaska estimates Royalty Production from the BP Working Interests for purposes of calculating
quarterly royalty payments to the Trust because complete actual field production data for the
preceding calendar quarter generally is not available by the Quarterly Record Date. To the extent
that average net production from the BP Working Interests is below 90,000 barrels per day in any
quarter, recalculation by BP Alaska of actual Royalty Production data may result in revisions of
prior Royalty Production estimates. Revisions by BP Alaska of its Royalty Production calculations
cause BP Alaska to adjust its quarterly royalty payments to the Trust to compensate for
overpayments or underpayments of royalties with respect to prior quarters. Such adjustments, if
material, may adversely affect certain Unit holders who buy or sell Units between the Quarterly
Record Dates for the Quarterly Distributions affected.
The Quarterly Distributions received by the Trust from BP Alaska in January 2009 and 2008, were
adjusted by BP Alaska to compensate for underpayment of royalties due to the Trust with respect to
the quarters ended December 31, 2008 and 2007, respectively. See Note 7 of Notes to Financial
Statements (Unaudited) in Item 1. Because the statements of cash earnings and distributions of the
Trust are prepared on a modified cash basis, royalty revenues for the three-month periods ended
March 31, 2009 and 2008 reflect the amounts of the adjustments with respect to the earlier fiscal
periods.
The Trustee anticipates that the Trust will receive a lump sum payment during the fourth quarter of
2009, consisting of $29,469,081 plus accrued interest from an escrow account established in
connection with a settlement agreement between BP Alaska and the Trustee, if an order and final
judgment entered on October 21, 2009 by the Delaware Chancery Court approving the settlement
11
agreement has not been appealed within 30 days from the entry of the order. For additional
information, see Note 6 of Notes to Financial Statements (Unaudited) in Item 1, the Trusts Current
Report on Form 8-K dated May 8, 2009 and the Settlement Agreement dated May 8, 2009, which is filed
as Exhibit 10.1 to this report. If the escrowed settlement funds are received by the Trust
on or before the date on which the Trustee receives the quarterly
royalty distribution scheduled to be made by BP Alaska in
January 2010, the Trustee intends to add such funds to the
distribution received from BP Alaska and distribute the total amount to holders of Units on the
Quarterly Record Date for such distribution.
Three Months Ended September 30, 2009 Compared to
Three Months Ended September 30, 2008
As explained above, Trust royalty revenues received during the third quarter of the fiscal year are
based on Royalty Production during the second quarter of the fiscal year. Royalty revenues received
by the Trust in the quarter ended September 30, 2009 decreased approximately 45% from the
corresponding quarter of 2008, reflecting a 52% period-to-period decrease in the Average WTI Price
from $124.34 per barrel during the quarter ended June 30, 2008 to $59.74 per barrel during the
quarter ended June 30, 2009. The average Per Barrel Royalty, however, decreased by only 47%,
principally due to a 79% period-to-period decrease in average Production Taxes which fell from
$52.37 per barrel in the quarter ended June 30, 2008 to $11.03 per barrel in the quarter ended June
30, 2009 as a consequence of lower tax rates on production resulting
from the progressivity feature of
the Alaska oil and gas production tax statutes.
Nine Months Ended September 30, 2009 Compared to
Nine Months Ended September 30, 2008
Trust royalty revenues decreased 51% in the nine months ended September 30, 2009 from the
corresponding period of 2008, reflecting the cumulative effect of a 49% decrease in Average WTI
Price during the nine-month period ended June 30, 2009 from the nine-month period ended June 30,
2008. The average Per Barrel Royalty payable with respect to the nine months ended June 30, 2009
reflected a corresponding decrease of 52% from the nine-month period ended June 30, 2008. Average
Production Taxes chargeable with respect to the nine-month period ended June 30, 2009 decreased 74%
from average Production Taxes chargeable with respect to the nine months ended June 30, 2008,
as a result of the lower WTI Prices during the latter period and lower tax rates applicable to
production during the period under the progressivity provisions of the Alaska oil and gas
production tax statutes. Trust administrative expenses fell 23% during the nine months ended
September 30, 2009 from the corresponding period in 2008, primarily due to decreases in on-going
legal fees and expenses related to issues arising from the August 2006 shutdown of the Prudhoe Bay
field.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Trust is a passive entity and except for the Trusts ability to borrow money as necessary to
pay liabilities of the Trust that cannot be paid out of cash on hand, the Trust is prohibited from
engaging in borrowing transactions. The Trust periodically holds short-term investments acquired
with funds held by the Trust pending distribution to Unit holders and funds held in reserve for the
payment of Trust expenses and liabilities. Because of the short-term nature of these investments
and limitations on the types of investments which may be held by the Trust, the Trust is not
subject to any material interest rate risk. The Trust does not engage in
12
transactions in foreign currencies which could expose the Trust or Unit holders to any foreign currency related market risk
or invest in derivative financial instruments. It has no foreign operations and holds no long-term
debt instruments.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Trustee has disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e)
under the Exchange Act) that are designed to ensure that information required to be disclosed by
the Trust in the reports that it files or submits under the Securities Exchange Act of 1934, as
amended (the Exchange Act) is recorded, processed, summarized and reported, within the time
periods specified in the SECs rules and forms. These controls and procedures include but are not
limited to controls and procedures designed to ensure that information required to be disclosed by
the Trust in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the responsible trust officers of the Trustee to allow timely decisions regarding
required disclosure.
Under the terms of the Trust Agreement and the Conveyance, BP Alaska has significant disclosure and
reporting obligations to the Trust. BP Alaska is required to provide the Trust such information
concerning the Royalty Interest as the Trustee may need and to which BP Alaska has access to permit
the Trust to comply with any reporting or disclosure obligations of the Trust pursuant to
applicable law and the requirements of any stock exchange on which the Units are listed. These
reporting obligations include furnishing the Trust a report by February 28 of each year containing
all information of a nature, of a standard and in a form consistent with the requirements of the
SEC respecting the inclusion of reserve and reserve valuation information in filings under the
Exchange Act and with applicable accounting rules. The report is required to set forth, among other
things, BP Alaskas estimates of future net cash flows from proved reserves attributable to the
Royalty Interest, the discounted present value of such proved reserves, the assumptions utilized in
arriving at the estimates contained in the report, and the estimate of the quantities of proved
reserves (including reductions of proved reserves as a result of modification of BP Alaskas
estimates of proved reserves from prior years) added during the preceding year to the total proved
reserves allocated to the BP Working Interests as of December 31, 1987.
In addition, the Conveyance gives the Trust and its independent accountants certain rights to
inspect the books and records of BP Alaska and discuss the affairs, finances and accounts of BP
Alaska relating to the BP Working Interests with representatives of BP Alaska; it also requires BP
Alaska to provide the Trust with such other information as the Trustee may reasonably request from
time to time and to which BP Alaska has access.
The Trustees disclosure controls and procedures include ensuring that the Trust receives the
information and reports that BP Alaska is required to furnish to the Trust on a timely basis, that
the appropriate responsible personnel of the Trustee examine such information and reports, and that
information requested from and provided by BP Alaska is included in the reports that the Trust
files or submits under the Exchange Act.
As of the end of the period covered by this report, the trust officers of the Trustee responsible
for the administration of the Trust conducted an evaluation of the Trusts disclosure controls and
13
procedures. Their evaluation considered, among other things, that the Trust Agreement and the
Conveyance impose enforceable legal obligations on BP Alaska, and that BP Alaska has provided the
information required by those agreements and other information requested by the Trustee from time
to time on a timely basis. The officers concluded that the Trusts disclosure controls and
procedures are effective.
Internal Control Over Financial Reporting
There has not been any change in the Trusts internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the
Exchange Act that occurred during the Trusts last fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Trusts internal control over financial reporting.
Item 4T. Controls and Procedures.
Not applicable.
14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
(a) Reference is made to Note 8 of Notes to Financial Statements (Unaudited) in Part I, Item 1
(Form 8-K, Item 8.01).
(b) Not applicable.
Item 6. Exhibits.
4.1 |
|
BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The Standard Oil
Company, BP Exploration (Alaska) Inc., The Bank of New York, Trustee, and F. James
Hutchinson, Co-Trustee. |
4.2 |
|
Overriding Royalty Conveyance dated February 27, 1989 between BP Exploration (Alaska)
Inc. and The Standard Oil Company. |
4.3 |
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Trust Conveyance dated February 28, 1989 between The Standard Oil Company and BP
Prudhoe Bay Royalty Trust. |
4.4 |
|
Support Agreement dated as of February 28, 1989 among The British Petroleum Company
p.l.c., BP Exploration (Alaska) Inc., The Standard Oil Company and BP Prudhoe Bay
Royalty Trust. |
4.5 |
|
Letter agreement executed October 13, 2006 between BP Exploration (Alaska) Inc. and The Bank
of New York, as Trustee. |
15
|
4.6 |
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Letter agreement executed January 11, 2008 between BP Exploration (Alaska) Inc. and The Bank
of New York, as Trustee. |
|
10.1 |
|
Settlement Agreement, dated May 8, 2009, among BP Exploration (Alaska) Inc., The Bank of New
York Mellon, as Trustee, and BNY Mellon Trust Company of Delaware, as Co-Trustee. |
|
31 |
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Rule 13a-14(a)/15d-14(a) Certification. |
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32 |
|
Section 1350 Certification. |
16
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.
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BP PRUDHOE BAY ROYALTY TRUST |
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By:
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THE BANK OF NEW YORK MELLON,
as Trustee |
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By:
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/s/ Rafael E. Miranda |
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Rafael E. Miranda |
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Vice President |
Date: November 9, 2009
The registrant is a trust and has no officers or persons performing similar functions. No
additional signatures are available and none have been provided.
17
INDEX TO EXHIBITS
|
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|
Exhibit |
|
Exhibit |
No. |
|
Description |
|
|
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4.1
|
|
BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The Standard Oil
Company, BP Exploration (Alaska) Inc., The Bank of New York, Trustee, and F. James Hutchinson,
Co-Trustee. Incorporated by reference to the correspondingly numbered exhibit to the
Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (File No.
1-10243). |
|
|
|
4.2
|
|
Overriding Royalty Conveyance dated February 27, 1989 between BP Exploration (Alaska) Inc.
and The Standard Oil Company. Incorporated by reference to the correspondingly numbered
exhibit to the Registrants Annual Report on Form 10-K for the fiscal year ended December 31,
2006 (File No. 1-10243). |
|
|
|
4.3
|
|
Trust Conveyance dated February 28, 1989 between The Standard Oil Company and BP Prudhoe Bay
Royalty Trust. Incorporated by reference to the correspondingly numbered exhibit to the
Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (File No.
1-10243). |
|
|
|
4.4
|
|
Support Agreement dated as of February 28, 1989 among The British Petroleum Company p.l.c.,
BP Exploration (Alaska) Inc., The Standard Oil Company and BP Prudhoe Bay Royalty Trust.
Incorporated by reference to the correspondingly numbered exhibit to the Registrants Annual
Report on Form 10-K for the fiscal year ended December 31, 2006 (File No. 1-10243). |
|
|
|
4.5
|
|
Letter agreement executed October 13, 2006 between BP Exploration (Alaska) Inc. and The Bank
of New York, as Trustee. Incorporated by reference to the correspondingly numbered exhibit to
the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (File
No. 1-10243). |
|
|
|
4.6
|
|
Letter agreement executed January 11, 2008 between BP Exploration (Alaska) Inc. and The Bank
of New York, as Trustee. Incorporated by reference to the correspondingly numbered exhibit to
the Registrants Current Report on Form 8-K dated January 11, 2008 (File No. 1-10243). |
|
|
|
10.1
|
|
Settlement Agreement, dated May 8, 2009, among BP Exploration (Alaska) Inc., The Bank of New
York Mellon, as Trustee, and BNY Mellon Trust Company of Delaware, as Co-Trustee. Incorporated
by reference to the correspondingly numbered exhibit to the Registrants Current Report on
Form 8-K dated May 8, 2009 (File No. 1-10243). |
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31*
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Rule 13a-14(a) certification. |
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32*
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Section 1350 certification. |