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| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Delaware | 13-6943724 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer
Identification No.) |
|
| The Bank of New York Mellon, 919 Congress Ave., Austin, TX | 78701 | |
| (Address of Principal Executive Offices) | (Zip Code) |
| Large Accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
| June 30, | December 31, | |||||||
| 2010 | 2009 | |||||||
| (Unaudited) | ||||||||
|
Assets
|
||||||||
|
|
||||||||
|
Royalty interest, net (Notes 1, 2 and 3)
|
$ | 1,004 | $ | 2,009 | ||||
|
|
||||||||
|
Cash and cash equivalents (Note 2)
|
1,000 | 30,475 | ||||||
|
|
||||||||
|
|
||||||||
|
Total assets
|
$ | 2,004 | $ | 32,484 | ||||
|
|
||||||||
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Liabilities and Trust Corpus
|
||||||||
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|
||||||||
|
Accrued expenses
|
$ | 630 | $ | 211 | ||||
|
|
||||||||
|
Trust corpus (40,000,000 units of beneficial
interest authorized, 21,400,000 units issued
and outstanding)
|
1,374 | 32,273 | ||||||
|
|
||||||||
|
|
||||||||
|
Total liabilities and trust corpus
|
$ | 2,004 | $ | 32,484 | ||||
|
|
||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Royalty revenues
|
$ | 47,136 | $ | 21,449 | $ | 95,157 | $ | 56,729 | ||||||||
|
Litigation expense reimbursement (Note 5)
|
— | — | 1,705 | — | ||||||||||||
|
Interest income
|
— | — | 1 | 2 | ||||||||||||
|
|
||||||||||||||||
|
Less: Trust administrative expenses
|
(330 | ) | (224 | ) | (532 | ) | (493 | ) | ||||||||
|
|
||||||||||||||||
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|
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|
Cash earnings
|
$ | 46,806 | $ | 21,225 | $ | 96,331 | $ | 56,238 | ||||||||
|
|
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|
||||||||||||||||
|
Cash distributions (Note 5)
|
$ | 48,511 | $ | 21,225 | $ | 125,806 | $ | 56,256 | ||||||||
|
|
||||||||||||||||
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|
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Cash distributions per unit
|
$ | 2.2669 | $ | 0.9918 | $ | 5.8788 | $ | 2.6288 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Units outstanding
|
21,400,000 | 21,400,000 | 21,400,000 | 21,400,000 | ||||||||||||
|
|
||||||||||||||||
2
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Trust corpus at beginning of period
|
$ | 3,872 | $ | 4,284 | $ | 32,273 | $ | 4,757 | ||||||||
|
Cash earnings
|
46,806 | 21,225 | 96,331 | 56,238 | ||||||||||||
|
Increase in accrued expenses
|
(291 | ) | (523 | ) | (419 | ) | (476 | ) | ||||||||
|
Cash distributions
|
(48,511 | ) | (21,225 | ) | (125,806 | ) | (56,256 | ) | ||||||||
|
Amortization of royalty interest
|
(502 | ) | (502 | ) | (1,005 | ) | (1,004 | ) | ||||||||
|
|
||||||||||||||||
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|
||||||||||||||||
|
Trust corpus at end of period
|
$ | 1,374 | $ | 3,259 | $ | 1,374 | $ | 3,259 | ||||||||
|
|
||||||||||||||||
3
| 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 Alaska’s working interests as of February 28, 1989 in the Prudhoe Bay Field situated on the North Slope of Alaska (the “1989 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
| a. | On or prior to December 31, 2010: upon a vote of holders of not less than 70% of the outstanding Trust Units. | ||
| b. | 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 year’s current and expected liabilities and expenses of the Trust. |
| The financial statements of the Trust are prepared on a modified cash basis and reflect the Trust’s assets, liabilities, corpus, earnings, and distributions, as follows: |
| a. | Revenues are recorded when received (generally within 15 days of the end of the preceding quarter) and distributions to Trust Unit holders are recorded when paid. | ||
| b. | Trust expenses (which include accounting, engineering, legal, and other professional fees, trustees’ fees, and out-of-pocket expenses) are recorded on an accrual basis. | ||
| c. | Cash reserves may be established by the Trustee for certain contingencies that would not be recorded under generally accepted accounting principles. | ||
| d. | 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 June 30, 2010 and 2009 was $0.39 and $0.37, respectively, and for the six months ended June 30, 2010 and 2009 was $0.38 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 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 quarterly distributions to the Trust Unit holders are based on net cash receipts. These |
5
| 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 June 30, 2010 and 2009, and the modified cash earning and distributions and changes in Trust corpus for the three-month and six-month periods ended June 30, 2010 and 2009. 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 June 30, 2010 and December 31, 2009, 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 Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009. The cash earnings and distributions for the interim periods presented are not necessarily indicative of the results to be expected for the full year. |
| The Royalty Interest is comprised of the following at June 30, 2010 and December 31, 2009 (in thousands): |
| June 30, | December 31, | |||||||
| 2010 | 2009 | |||||||
| (Unaudited) | ||||||||
|
Royalty Interest (at inception)
|
$ | 535,000 | $ | 535,000 | ||||
|
Less:Accumulated amortization
|
(360,478 | ) | (359,473 | ) | ||||
|
Impairment write-down
|
(173,518 | ) | (173,518 | ) | ||||
|
|
||||||||
|
Balance, end of period
|
$ | 1,004 | $ | 2,009 | ||||
|
|
||||||||
| 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
| If the Trust were determined to be an association taxable as a corporation, it would be treated as an entity taxable as a corporation on the taxable income from the Royalty Interest, the Trust Unit holders would be treated as shareholders, and distributions to Trust Unit holders would not be deductible in computing the Trust’s tax liability as an association. |
| 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, Global Corporate Trust — Corporate Finance, 919 Congress Avenue, Suite 500, Austin, TX 78701, telephone number (800) 852-1422. |
| In May 2009 the Trustee entered into a settlement agreement with BP Alaska to resolve certain issues related to the temporary shutdown of the Prudhoe Bay field in August 2006 following oil spills and to compromise any claims that the Trust and past, present and future holders of Trust Units might have had 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 paid approximately $29,469,000 into an interest-bearing escrow account pending final dismissal of certain litigation and court approval of the settlement agreement. In December 2009, the settlement amount and accrued interest, totaling approximately $29,474,000, was released from escrow and paid to the Trust. This amount, together with BP Alaska’s royalty payment with respect to the quarter ended December 31, 2009 was distributed to Unit holders in January 2010. |
| The Trust incurred legal fees and expenses as a result of litigation and other issues arising out of the shutdown of the Prudhoe Bay field. Under the settlement agreement, BP Alaska agreed to pay the Trustee its reasonable attorneys’ fees and expenses, including internal expenses and expert fees, incurred in its investigation of the claims that are the subject of the settlement agreement, in responding to subpoenas, in defending a lawsuit, and in seeking court approval of the settlement agreement. In February 2010, BP Alaska paid the Trustee approximately $1,705,000 as reimbursement of those expenses. 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. |
7
| The royalty payments received by the Trust in January 2010 and 2009 with respect to the quarters ended December 31, 2009 and 2008 were adjusted by BP Alaska to compensate for underpayment of the royalties due with respect to the quarters ended September 30, 2009 and 2008, respectively. Average net production of crude oil and condensate from the proved reserves allocated to the Trust 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): |
| Payment Received | ||||||||
| Jan. 2010 | Jan. 2009 | |||||||
|
Royalty payment as calculated
|
$ | 47,862 | $ | 34,481 | ||||
|
Adjustment for previous quarter’s
underpayment, plus accrued interest
|
159 | 799 | ||||||
|
Total payment received
|
$ | 48,021 | $ | 35,280 | ||||
| On July 15, 2010 the Trust received a cash distribution of approximately $45,462,000 from BP Alaska with respect to the quarter ended June 30, 2010. On July 20, 2010, after adding interest received with respect to the cash reserve fund and the expense reimbursement payment received from BP Alaska (see Note 5 above) and deducting Trust administrative expenses, the Trustee distributed approximately $44,841,000 (approximately $2.10 per Unit) to Unit holders of record on July 15, 2010. | ||
| Subsequent events have been evaluated through the date of the quarterly report on Form 10-Q in which these financial statements are included. |
8
9
10
| Data for Quarter | ||||||||||||||||
| Average Net | ||||||||||||||||
| Royalty Payment | Is Based on Data | Cost Adjustment | Adjusted Chargeable | Average | Average Per Barrel | Production | ||||||||||
| in Month | for Quarter Ended | Average WTI Price | Chargeable Costs | Factor | Costs | Production Taxes | Royalty | (mb/d) | ||||||||
|
Apr. 2010
|
03/31/2010 | $78.59 | $14.50 | 1.669 | $24.20 | $18.96 | $35.43 | 93.7 | ||||||||
|
Jan. 2010
|
12/31/2009 | $75.90 | $13.25 | 1.666 | $22.07 | $18.64 | $35.19 | 99.3 | ||||||||
|
|
||||||||||||||||
|
Apr. 2009
|
03/31/2009 | $43.20 | $13.25 | 1.634 | $21.65 | $5.43 | $16.13 | 99.4 | ||||||||
|
Jan. 2009
|
12/31/2008 | $58.03 | $13.00 | 1.636 | $21.26 | $11.42 | $25.35 | 100.7 | ||||||||
11
12
13
14
| • | A possible sale by BP of part or all of its interest in the Prudhoe Bay field could have an unpredictable effect on the Trust |
15
|
4.1
|
BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The Standard Oil Company, BP Exploration (Alaska) Inc., The Bank of New York, Trustee, and F. James Hutchinson, Co-Trustee. | |
|
|
||
|
4.2
|
Overriding Royalty Conveyance dated February 27, 1989 between BP Exploration (Alaska) Inc. and The Standard Oil Company. | |
|
|
||
|
4.3
|
Trust Conveyance dated February 28, 1989 between The Standard Oil Company and BP Prudhoe Bay Royalty Trust. | |
|
|
||
|
4.4
|
Support Agreement dated as of February 28, 1989 among The British Petroleum Company p.l.c., BP Exploration (Alaska) Inc., The Standard Oil Company and BP Prudhoe Bay Royalty Trust. | |
|
|
||
|
4.5
|
Letter agreement executed October 13, 2006 between BP Exploration (Alaska) Inc. and The Bank of New York, as Trustee. | |
|
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||
|
4.6
|
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. | |
|
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||
|
31
|
Rule 13a-14(a)/15d-14(a) Certification. | |
|
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||
|
32
|
Section 1350 Certification. | |
|
|
||
|
101
|
Explanatory note: An Interactive Data File is not submitted with this filing pursuant to Item 601(101) of Regulation S-K, because the Trust does not prepare its financial statements in accordance with generally accepted accounting principles as used in the United States. See Note 2 of Notes to Financial Statements (Unaudited) in Part I, Item 1. |
16
|
BP PRUDHOE BAY ROYALTY TRUST
By:THE BANK OF NEW YORK MELLON, as Trustee |
||||
| By: | /s/ Mike Ulrich | |||
| Mike Ulrich | ||||
| Vice President | ||||
17
| Exhibit | Exhibit | |
| No. | Description | |
|
4.1
|
BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The Standard Oil Company, BP Exploration (Alaska) Inc., The Bank of New York, Trustee, and F. James Hutchinson, Co-Trustee. Incorporated by reference to the correspondingly numbered exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 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 Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s Current Report on Form 8-K dated May 8, 2009 (File No. 1-10243). | |
|
|
||
|
31*
|
Rule 13a-14(a) certification. | |
|
|
||
|
32*
|
Section 1350 certification. |
| * | Filed herewith. |
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
|---|
| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
|---|
No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
|---|